4. IS Integration and M&A
4.1 Research on IS integration in M&A
objective would be to introduce the theoretical fields that may be used to shed light on the phenomena (Webster & Watson, 2002). IS integration in M&A is not a completely novel subject, nor a mature subject which is possible to be synthesized into a conceptual model.
The objective of the literature review was primarily to identify the thematic fields that have been used to make sense of IS integration, M&A and the combined subject of IS integration in M&A.
Chapter 1 indicated that this thesis has its core focus on an important empirical phenomenon and through a comprehensive theoretical account tries to make sense of the phenomenon. The approach should be contrasted with taking one or several theoretical perspectives as a starting point and by empirical input, verifying or modifying that theory. The approach of using a real world problem as a starting point was argued to be essential to assure the relevance for practice, but complicates the research process by, among others, additional requirements on the literature review. The research cannot only report the work that has been done under a specific label, but has to aspire to cover all research that contributes to the accumulated knowledge of the phenomena (Pawson & Tilley, 1997).
IS integration in M&A and its logically constituent parts, IS integration and M&A, are phenomena that have been described under a plethora of different concepts (see Chapters 2 and 3). The search for previous literature that addresses IS integration in M&A could not, with the above described ambition, give a comprehensive account for what is already known about the phenomenon explicitly on IS integration and/or M&A. The search also included related topics such as integration of IT-systems, ERP-integration, ES, EAI, EDI, ESD (see Chapter 2). The field of M&A is more mature and has found a common label in the combined topic of M&A. However, the search also had to be extended with the individual labels of “merger” and
“acquisitions,” since for some reason unknown to the author, researchers on integration in M&A tend to label their work “post-merger integration” (e.g. Robbins & Stylianou, 1999; Alaranta, 2005a;
Wijnhoven et al., 2006) or “post-acquisition integration” (e.g. Datta, 1991; Fowler & Schmidt, 1989).
The literature search mainly followed Webster and Watson’s recommendations on how to systematically identify relevant works in leading journals through article databases (which included ProQuest, JStor, and Elesevier among others) and to scan tables of contents for
works not matching the keyword search. Further works were identified through an iterative use of citations and the Web of Science3 (the electronic version of the Social Sciences Citation Index). However, only a very limited number of articles on IS integration in M&A have appeared in the leading journals. To complement the identified works, a more creative search was ongoing during the whole research process.
This hunt included searches in Google and Google Scholar, browsing less well-reputed journals and conference proceedings of conferences where relevant publications could have been presented. Additional important sources, to ensure that this thesis is built upon the accumulated knowledge on IS integration in M&A, have been the participation and feedback from IS conferences throughout the research process and the cooperation of fellow researchers interested in IS integration in M&A. Exchanging EndNote-libraires should not be underestimated as a method of finding relevant publications.
In total, 24 publications of different kinds that specifically addressed the topic of IS integration in M&A were found. Some articles have been published a number of times with more or less extensive variations in content. Articles that basically present the same research findings are grouped together and presented as one publication. These publications are listed by date of publication in Appendix A. The writings are divided into two generations: a first generation of pioneering explorative studies of ad-hoc character, and a second generation with more long term focus, based on frameworks and conceptual models. As IS integration in general, and in the context of M&A in particular, has received increased attention during the last few years, a number of publications have been presented since the start of this research project in 2004. These publications were naturally not considered in the first tentative stages of the study, but have been integrated into the theoretical foundation as they were made public.
However, the preliminary theoretical framework used in the first case studies was understandably based on the publications existing at that time. In order to be able to distinguish that preliminary theoretical baseline, the later contributions are presented separately.
4.1.1 First generation of works on IS integration in M&A The earliest article that is referred to by publications on IS in M&A was authored by Buck-Lew, Wardle and Pliskin and published by
Information & Management in 1992. The authors address IS as another organizational attribute that needs to be matched in the comparison of organizational fit.
Since company data and information technology (IT) are as much a management resource as the financial and human resources for the combined firm, the proposal is made that IT fit should be explicitly considered in analysis of corporate acquisitions. (Buck-Lew et al., 1992, p. 363)
However, this article is only occasionally mentioned, normally the earliest referred articles are two works by Merali and McKiernan (1995;
1993) in which they address the integration of information systems after mergers from a strategic perspective. McKiernan and Merali (1995) argue that currently IS integration is a post-M&A issue, dealt with reactively. It should, however, be an early issue on the agenda and be used proactively to maximize chances for positive outcome. The same was later suggested by Weber and Pliskin (1996). In their study they investigated the relation between investments in IS integration and a company’s effectiveness. Also in 1996, Stylianou et al. addressed IS as a potential reason for failure in M&A, an approach that ended in a model of factors that influenced IS integration success and a conceptualization of the ‘success’-notion.
The five above mentioned articles can be said to constitute a first generation of scientific work on IS and M&A. As depicted in Figure 4.1, these articles do not hold any references to each other. By nature, they are explorative and driven by a desire to capture an empirical phenomenon of growing importance. The existence of these articles is logical in the light of the fourth worldwide M&A wave that swept over the world in the late 1980’s and the increasing importance of IT in business.
4.1.2 Second generation of works on IS integration in M&A
For almost a century, the phenomenon of M&A has been coming and going. Four major waves of increased activity have swept over the world, but after the latest peak in the late 1990’s something happened to the pattern. Activity did decline, but not to the same extent as before. Rather, activity settled at a fairly stable level with the act of
M&A as a prominent tool for corporate strategy (Sirower, 2003). It is thus natural that research on IS’ relationship to M&A appears to have become more popular during recent years. As a number of Ph.D.
students worldwide are trying to get a firm grip on the issue, literature reviews and frameworks are logical outputs. Baro (2004) has created a
“State of Art-paper” as foundation for her research on the role of IS/T executives in M&A. French Ph.D. student, Gérald Brunetto, focuses on IS integration after mergers from a functionalist and constructivist perspective (Brunetto, 2002; Brunetto, 2006). A framework for studying IT integration decisions in M&A ended up in a conference
2008
1. (Buck-Lew et al., 1992) 2. (Merali & McKiernan, 1993) 3. (McKiernan & Merali, 1995) 4. (Stylianou et al., 1996) 5. (Weber & Pliskin, 1996) 6. (Giacomazzi et al., 1997) 7. (Robbins & Stylianou, 1999) 8. (Chandra & Kumar, 2001) 9. (Gurjar et al., 2002)
10. (Alaranta & Parvinen, 2004) 11. (Hwang 2004)
12. (Mehta & Hirschheim, 2004)
13. (Alaranta, 2005a) 14. (Alaranta, 2005c) 15. (Henningsson, 2005b) 16. (Henningsson, 2006b) 17. (Brunetto, 2006)
18. (Henningsson & Carlsson, 2006a) 19. (Wijnhoven et al., 2006)
20. (Alaranta & Henningsson, 2007) 21. (Henningsson, 2007)
22. (Henningsson & Carlsson, 2007) 23. (Henningsson et al., 2007) 24. (Mehta & Hirschheim, 2007) 2002
2006
1992 1994 1996 1998 2000 2004
1 3
4 5 6
8
10 11 12 14
13 15
16
7
2
9
17 18 19 21
20 22 23 24
Figure 4.1 Internal citations of publications on IS and M&A
paper (Mehta & Hirschheim, 2004). Other frameworks on which studies could be based upon have been directed towards measurements and factors for IS integration success (Chandra & Kumar, 2001) and the impact of IS implementations on vertical M&A (Gurjar et al., 2002). Finally, Hwang (2004) contributed with a paper on prior research related to integration of enterprise systems in M&A.
In addition to the research frameworks, the second generation of articles also includes empirical work that builds on the first generation’s explorative findings and classification of the phenomenon. As the empirical phenomenon still remains quite unexplored, a common approach is to extend potentially relevant theories from related phenomena, and validate the extension with a study. For example, Alaranta (2005) applies Motwani et al.’s (2002) Framework for ERP Implementation to understand what is influencing the success of an ERP implementation to solve the integration need after an M&A.
Similarly, Giacomazzi et al. (1997) draw on organizational integration theory to create normative prepositions for IS integration. Alaranta and Parvinen (2004) reviewed the contribution of governance theories of the firm to the analysis of post-M&A IS integration.
An example of how the second generation draws on the explorative findings in the first generation is given by Robbins and Stylianou (1999). The above described model by Stylianou et al. (1996) was revised in 1999 by two if its creators, using the same empirical material.
It is also noteworthy that the earlier mentioned conference paper by Kumar et al. (2002) is based on the IS integration success models by Stylianou et al. (1996) and Robbins and Stylianou (1999). Kumar et al.
claim to add a process view to the model, however, the process view is only adopted in the construction to measure IS integration success. The rest of the model is not enhanced with a process perspective, but comprises the same structure.
4.1.3 Later contributions (2005-2007)
As much as half of the identified contributions originate from the last few years with more intense focus on IS integration and the particular case of IS integration in M&A. By the pragmatic reason that the publications between 2005 and 2007 (numbers 13-24 in the presentation above) did not exist when the first version of the theoretical framework was created at the end of 2004, they were not
considered at that point. Instead, they have been integrated as they emerged, suggesting additional direction on where to dig for new empirical data and providing means for analyzing and drawing tentative conclusions. The objective of this chapter is to provide an account for research within the intersection of IS and M&A. These later contributions are included in this account for the reason that they represent an extensive part of the research conducted within the field.
The contributions since 2005 are characterized by much the same properties as described above as being typical for the second generation of IS integration in M&A publications. The empirical studies have become more comprehensive. Maria Alaranta did two in-depth case studies for her dissertation work which in 2005 resulted in three articles (2005c; 2005a; 2005b). Alaranta tells the story of two manufacturing companies that merged their production facilities and strove to integrate them through IS integration. Alaranta (2005c) applies Motwani et al.’s (2002) Framework for ERP Implementation to understand what is influencing the success of an ERP implementation to solve the integration need after an M&A. She concludes:
Besides change management, issues relevant to successful post-merger ES integration include: M&A factors, factors related to company expertise & resources and factors related to software &
vendor. Furthermore, an important notion is that different units may require different managerial approaches or different amounts of resources because of the possible differences in there IS capacities and readiness to change. (Alaranta, 2005c, p. 1)
In another article (Alaranta, 2005a), based on the same empirical material, she addresses the question of IS integration success. The contribution here is a four dimensional conceptualization of IS integration success: User satisfaction of the integrated software’s system and information quality as well as its use, Efficient and effective IS integration management, Efficient IS staff integration, and IS ability to support for the underlying motives of the merger.
Alaranta has also co-authored a comparative article based on one acquisition within the telecom industry and one in the manufacturing industry. The case from the manufacturing industry is the first case presented in the next chapter, thus will be returned to later in this thesis. As mentioned in chapter 1, parts of this thesis have been
published in various versions. For a more elaborated presentation of these publications, please return to section 1.7
Two interesting contributions with recent dates of publications focus alignment of IT strategy and overall M&A strategy (Wijnhoven et al., 2006; Mehta & Hirschheim, 2007). Wijnhoven et al. base their IT alignment model on the alignment framework of Henderson and Venkatraman (1992). They identify three ambition levels of M&As and IT integration from the literature. Additionally, they describe four integration methods that fit with these ambitions. The relations between these objectives and methods are moderated by contextual factors. Mehta & Hirschheim assume a slightly different approach, arguing that the proposed model for IT alignment have shortcomings in that it does not cover the completed integration process and does not include sourcing as a strategic decision. Instead, the framework for IT alignment proposed by Hirschheim and Sabherwal (2001), showed the firms to be somewhat misaligned in the early post-M&A period, and to come into alignment only two to three years after the deal was finalized.
An additional finding was that business-IS alignment was a minor concern for the new organizations in pre-M&A and early post-merger phases. Other factors, such as acquirer-target power struggles, prior merger experience, and overarching synergy goals, drove much of the initial integration decision making. Only late in the post-merger do the merged organizations revisit their systems to bring them into alignment with the business needs.
The assumption is that alignment leads to better organizational performance and that it is desirable that decisions regarding IS integration match the overall acquisition strategy. Such a point of view has limitations in that corporate strategies do not tend to be formalized plans that are elaborated upon at top level management and then implemented company-wide in a straightforward process. Rather, strategy often grows from bottom up, in an incremental manner, thus making it difficult to define a strategy other than in retrospection (Mintzberg, 1994; Quinn, 1978). Achieving the desired level of integration may take several years during which the overall strategy may be subject to changes and sometimes cannot be regarded as a stable point of reference to which IS integration decisions can be aligned (Alaranta & Henningsson, 2007).