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4. IS Integration and M&A

4.2 Combining literature on M&A and IS integration

4.2 Combining literature on M&A and IS

lead to conglomerates which do not require any integration. Neither does pecuniary economies in themselves, but M&As related to pecuniary economies, logically also involve potential technical economies. As pecuniary economies are related to size, and negotiation power towards customers and suppliers, they involve organizational growth which is related to economies of scale (a technical economy).

No research, as far as the author has been able to identify, has specifically treated the relation of synergy and IS.

The essential of combing RBV and the M&A act is the combination of resources to achieve sustained competitive advantage. It has been concluded (Clemons & Row, 1991) that IT can only lead to sustained competitive advantage in combination with other resources.

The technology itself can more or less easily be copied by another organization, sustained competitive advantage lies in the use of the technology and the capability to cope with the technology from a managerial point of view (Mata et al., 1995).

Another potential reason for undertaking an acquisition is the objective of acquiring certain competences or resources of another organization. It may be knowledge of a market, a stock of customers, production facilities or – IS. Relevant contributions on this topic are not directly related to the M&A literature, but to a more general debate on the strategic use of IS. In a Harvard Business Review article, Carr (2003) argues that IT has no strategic role in modern companies, comparing it to the use of electricity. However, in a recent debate on the nature of IS and IS research, the view was put forward that “an information system is specific to the organizational (or inter-organizational) context in which it is implemented” (Iivari, 2007 p.

571). Adopting this view, one might question the possibility of acquiring the IS as resource, however relevant related personnel skills regarding the IS may be considered to be.

The strategic process perspective has some ideas on how the IS integration is achieved. As argued above, the existing phase models hold true for the integration process being formal, rational and straightforward. This set of thinking is also transmitted to IS integration process research in the context of M&A. For example, McKiernan and Merali (1995) apparently make this assumption.

Additionally, authors such as Giacomazzi et al (1997) and Stylianou et al (1996) make the same assumption. By contrast, general research on strategic IS planning explicitly emphasizes the possibility of strategic

decision processes being continuous with emerging solutions (Segars &

Grover, 1999). Segars and Grover (1999) argue that appropriate levels of consistency are dependent on the rate of changes in the internal organizational environment and external competitive (c.f. Mintzberg, 1994). In discussing consistency, we would also stress Andreu and Ciborra’s study from 1996 where they concluded that strategic IS needed to go through three cumulative phases where at least the third phase should not be able to be planned before the two preceding phases have been accomplished. Later Kalling (2003) confirmed the finding in the specific case of IS implementations. Consequently, the view is taken here of appropriate levels of consistency not only being dependent on the rate of changes in the internal organizational environment and external competitive, but also dependent on the nature of the strategic decision at hand.

4.2.2 Organizational integration and IS

Most of the research on organizational fit is relevant for IS integration.

Humans are key components of IS, at least as it is defined in this study, and what is true for any personnel working at one of the involved organizations, should also be true for personnel related to the IS.

Relating to the strategic purpose described earlier, if the M&A is of horizontal type and one organization is more powerful than another, it is likely that the dominating organization’s IS will become the standard.

Hence, competences and skills among the acquired company’s personnel will be less valued and the situation of noneconomic value destruction is a fact. Research has shown that one important reason for the acquired company’s personnel tending to leave the new organization in connection with or shortly after the acquisition is the difficulties of advancing the career in the new organization (Risberg, 1999). The IS may be addressed as one part of the general organizational integration. Thus, IS fit becomes a relevant topic to consider before any M&A (McKiernan & Merali, 1995).

Stylianou et al. (1996) adopt the logic of IS characters being a part of organizational fit and address IS as a potential reason for failure, an approach that ends in a model of factors that influence IS integration success factors. Influencing IS integration success was by the authors divided into four groups: organizational attributes, IS attributes, organizational management attributes, and IS management attributes

(Figure 4.2). The categories were said to be the result of a literature review; unfortunately, no further references were given. Together, the attributes were argued to be determinants for successful integration in M&As. IS integration success was presented as a multi-dimensional construct that could be expressed through four measurements:

• The ability to exploit opportunities arising from the merger

• The ability to avoid problems stemming from the merger

• The end user satisfaction with the integration process and integrated systems

• IS assessment of the success of the integration process and integrated systems

Stylianou et al.’s questionnaire-based survey of American CIOs’

experiences targeted 23 attributes, divided between the four categories described above. 44 CIOs answered the survey, representing an 18 percent response rate. Conclusions were that prior merger experience, IS participation in merger planning, the quality of merger planning, the criteria used for setting IS integration priorities, and a high level of data sharing across applications appeared to have a positive influence (significance level 0,01) on the success of the IS integration. Changes that directly affected personnel had a significant negative impact, as did programming language incompatibilities. Most of the conclusions are

Figure 4.2 Influences on IS integration success (Stylianou et al, 1996, p. 205)

not new, confirmed to be valid not only for the M&A in general, but also for IS integration in particular. Regarding prior experience, several more comprehensive and more elaborated studies have been made (see section 3.2.3), some with the conclusion that prior experience is relevant, and some concluding the opposite. In general, the small sample in combination with a low response rate leads to belief that the conclusions offered by Stylianou et al. should be seen as inspiration for future research, rather than final, unchallengeable conclusions on which to build future research.

Robbins and Stylianou (1999) highlighted that the fourth measurement of IS integration success, IS assessment of the integration process and integrated system, could be biased and therefore should not be included as a measurement. Additionally, arguing that the existing model omitted significant measurements, they added two new:

• Improved IS capabilities that help support the underlying motives for the merger

• Efficiency and effectiveness of resource utilization during the integration process

The final model is presented in Figure 4.3. Influencing attributes are regrouped into two categories: organizational and IS factors. As the IS can be said to be a part of the organization, the model clearly can be sorted under the umbrella of models that focus organizational attributes as decisive for integration success.

4.2.3 IS considerations in the M&A process

The process perspective on M&A does not automatically exclude a strategic fit or organizational fit perspective (Risberg, 1999). Rather, to get from A to B, it is essential to understand what A and B is, that is, where the process starts and where it is supposed to end. Earlier phases of the integration process are closely related to determining organizational and strategic fit. These problems are also IS related. In the improvement of preconditions is included the task of creating an IS solution that is possible to integrate with other IS. As discussed in connection with the organizational fit perspective, questions also arise regarding the match of the two organizations’ IS. Will it be possible to integrate, and which problems are likely to occur? After the deal is

closed, the M&A process encounters problems with the activities of actually implementing the desired IS integration solution. All phases include problems related to the management of the IS integration process that may be addressed in different ways.

Just as IS fit could be regarded as one part of organizational fit, IS integration could be seen as one part of the organizational integration processes. IS integration takes place on all three integration levels, as discussed by Shrivastava (1986). Procedural integration is necessary to enable IT systems to communicate with each other – a customer must be defined and stored in the same way to enable interchange of data.

Physical integration of IS is the hardware integration, and cultural and managerial integration are just as critical for the IS as for any other part of the organization. The major conclusion drawn from post-M&A integration research is that a recognition of the process perspective on IS integration, meaning recognition of the IS integration process itself and the way it is managed as contributing to the final outcome, is essential to understanding IS integration in M&As.

Often IS integration decisions are based on a perceived necessity and not driven by a wish to create competitive advantage. Clemons &

Row (1991) discuss how some kind of IT investments are necessary instead of generating competitive advantage. To some extent, IS integration in M&As are of this nature, they are normally undertaken to support other business processes that need to be integrated to

Figure 4.3 Influences and measures of information systems integration success (Robbins and Stylianou, 1999).

leverage synergies. McKiernan and Merali (1995) studied the integration of IS after mergers from a strategic perspective. As said before, they concluded that IS could either be used proactively or reactively. Although IS normally was used reactively, meaning that IS integration was not an issue when considering mergers, IS staff was faced rather with the settled deal, and the authors argued in favor of proactively IS use. Drawing parallels to the M&A phase-models discussed above, McKiernan and Merali (1995) argue that currently IS integration is a post-M&A issue, dealt with reactively. However, it should be an early issue on the agenda, used proactively to maximize chances for positive outcome. The same was suggested by Weber and Pliskin (1996). In their study they investigated the relation between investments in IS integration and a company’s effectiveness. Their findings pointed out a positive relationship when accounting for IT intensity and cultural differences in the integration process. In the cases where these two issues were not considered, no relation between IS investments and effectiveness was found.

McKiernan and Merali’s (1995) conclusion that IS integration should be used proactively could be criticized, based on Clemons &

Row (1991), Mata et al (1995) and Powell & Dent-Micallef (1997) who all argue that IS have limited possibilities to create competitive advantage, but instead should align to and support other organizational resources and thus logically follow subsequently to the shaping of the new integrated organization. However, according to McKiernan and Merali (1995), involving IS integration with due diligence could lead to IS integration enabled synergies being identified that would not have been discovered if due diligence had not been paid to IS integration.