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CHAPTER 1 INTRODUCTION
1.1 Objective of M&As
Since the early 1990s, companies have increasingly used mergers and acquisitions (M&As) to change the scope or competitive environment of their businesses (Gadiesh, Buchanan, Daniell, &
Ormiston, 2002). This has long been a popular form of business investment in the corporate world and the main objective is to channel corporate assets toward their best possible use (Song, Kueh, Rahman, & Chu, 2010). The reasons most often cited by merging companies as the goals for their merger are to improve operational efficiencies, obtain access to new markets and products, and increase market share (Harrell & Higgins, 2002). Other motives for M&As might be potential synergies (Cullinan, Roux, & Weddigen, 2004), learning (Hakanson, 1995), or access to competences (Bresman, Birkinshaw, & Nobel, 1999). Briefly speaking, the strategies associated with M&A projects are mainly planned with the vision of gaining market share (market dominance) and gaining a competitive advantage (reduction of competition) (Habibbeigi, 2009). But in today’s world of rapid technological advances, mergers occur not only for these types of organizational reasons but also for technological reasons (Harrell & Higgins, 2002). For achieving these purposes, M&As may either be related to the core business or in new business areas (Bruner, 2004).
1.2 The Worldwide Growth of M&As
Studies have shown that companies grow more through M&As (external growth) than through expansion of their productive capacity (internal growth) (Giacomazzi, Panella, Pernici, & Sansoni, 1997). In the past 20 to 30 years, a growing number of companies have used M&As as their primary method of growth and competition. M&As have become a main strategy in the business world and many companies have announced M&A deals, even during difficult economic times (Bien, 2009). In 2005, the number of M&As exceeded even the records of the merger wave of the 1980s (Alaranta, 2005). As the world economy showed signs of recovery in 2010, M&A activity rebounded as well.
The global deal count increased by 15.7%, from 25,705 to 29,742 transactions, and the total dollar value of M&As increased from $1.6 trillion in 2009 to $2.16 trillion in 2010, an increase of 35%.
Global M&A activity increased in 2010 and continued to increase in 2011. Most world regions had significant M&A growth as well (McMahon, McDonagh, & Lanser, 2011). According to two (KPMG, 2011a, 2011b) surveys of banking and global manufacturing executives, the outlook for
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2012 is positive. Almost 70% of top banking executives expect to be involved in M&A activities in 2012, with a focus on new geographic markets and technologies. Global manufacturing executives intend to drive growth via innovation and product diversification, using M&As, joint ventures (JVs), or strategic alliances. Deals in the healthcare, technology, energy, and biotech sectors are predicted to be among the top contributors to M&A activity in 2012.
1.3 The Importance of IT in M&As
Today, while organizations depend increasingly on information systems (IS) that coordinate transactions, manage operations, and aid in the pursuit of new market opportunities, the role of technology in mergers has become more critical (Sarrazin & West, 2011). As deals are becoming more complex and technology and the people supporting it are key drivers of M&A processes, the planning of information and communication technologies in the early stages of the integration process is vital to the realization of the benefits of those processes (Larsen, 2005). Therefore, if carefully planned and properly managed, the M&A and resulting integration process can become an opportunity to strengthen the capabilities of the combined organization and place it in a better competitive position (Robbins & Stylianou, 1999). Not least, integrating technology may also help a business to avoid costly errors and reduce the M&A failure rate. More positively, it may help acquirers to better realize value from the technological assets they acquire (James, Georghiou, &
Metcalfe, 1998). Moreover, evidence has suggested that one of the main reasons for poor post-acquisition performance in the merger wave of the late 1980s was the failure of organizations to fully consider the implications of merging the harder IS and information technologies (IT) (McKiernan & Merali, 1995). So even when companies merge for reasons other than acquiring IS technical talent, IS integration is a vital component of business mergers (Harrell & Higgins, 2002).
An important point to remember is that if the IS integration is not effective, the business will not be effective in its operations; and if the IS integration fails, the business will most likely fail as well (Schmid, Sánchez, & Goldberg, 2012).
1.4 Challenges of IT Integration in M&As
Unfortunately, statistics concerning the success rate of M&A projects show a sobering result: in most cases, such projects do not fulfill the expectations of the managers who advocated and initiated the option of acquiring another company (Meckl, 2004). It is estimated by various researchers that 75%
or more of all M&A deals fail to meet the expectations of the acquirer, the acquiree, or investment
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bankers (Sagner, 2012). Problems with post-acquisition performance still remain for many organizations choosing this strategy as their means for growth (McKiernan & Merali, 1995). Even though most M&As are carefully designed, they still face major challenges (Bertoncelj & Kovač, 2007). Some of the failures can be attributed to pre-merger discussions, which tend to focus on the financial components of the deal while ignoring problems associated with integrating the technical architecture and organizational infrastructure of the two separate entities (M. P. Johnson, 1989;
McCartney & Kelly, 1984). Often, the greatest challenge for the buyers is the post-closing integration of the two companies. The integration of human resources, the corporate cultures, the operating and management-information systems, the accounting methods and financial practices, and related matters are often the most difficult part of completing a merger or acquisition (Sherman, 2006). Much research has been conducted that focuses extensively on the questions of strategic, cultural, and organizational fit surrounding the marriage of two organizations. It has been asserted that organizations are generally poor at amalgamating such human concerns (McKiernan & Merali, 1995). However, the anecdotal evidence from executives and management consultants suggests that there are other, more significant causes. Turner (2000) cites a PricewaterhouseCoopers survey that concluded that IS integration is the most difficult aspect of the post-merger phases, and that nearly three out of four of the companies surveyed had reported such problems. Similarly, a survey of 500 North American and European CIOs revealed that less than one-third regarded their last IS integration in relation to a cross-border M&A as a success (CIO-magazine, 2006). The respondents related this to the definition of the new corporate IS, infrastructure requirements, the high cost of integration and development of IT, and a reluctance to define both IS and IT in the ex-ante stage (McKiernan & Merali, 1995). Of the many challenges that companies face during a merger or acquisition, the most critical is the integration of their IS (Harrell & Higgins, 2002). There are three challenges related to IS integration in M&A. The first challenge is to learn and improve the capability of IS integration in M&A from one time to the next. The second challenge is to foresee whether IS integration is likely to be a complex or cumbersome part of the integration prior to the M&A being settled. The third challenge is to choose an appropriate integration architecture, given the objectives of the M&A (Carlsson, Henningsson, Hrastinski, & Keller, 2011). In addition, according to an Accenture survey, the way in which senior IT executives and senior business managers define success in a merger transaction has changed. With so much at stake in any merger, the different attitudes held by these two important management constituencies are noteworthy. When
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it comes to M&A execution, these differences point to what might be called an “alignment gap”
(Curtis & Chanmugam, 2005).
1.5 Lack of Understanding of How to Measure the Success of Post-merger IT Integration
Much literature has been devoted to analyzing the causes and effects that M&As have on the property of companies involved in the operation and on the economic value to various categories of shareholders (Weber & Pliskin, 1996). Moreover, recent studies have found multiple factors that contribute to the selection of a particular merger strategy, the financial impact of the M&A, and the reaction of the employees to these events (Reinicke, 2007). In contrast, less attention has been dedicated to the role of IS in companies engaging in M&As (Weber & Pliskin, 1996). Parvinen (2003) found that the literature covering post-merger IT integration is rare after reviewing 567 M&A-related articles published in 65 core journals in the 1990s. The literature on post-merger IS integration is sparse (McKiernan & Merali, 1995; Mehta & Hirschheim, 2004; Merali & McKiernan, 1993;
Stylianou, Jeffries, & Robbins, 1996; Wijnhoven, Spil, Stegwee, & Fa, 2006), and further, studies on measuring the success of post-merger IT integration is even sparser (Alaranta, 2005). The motivation for the current proposed study is to help fill this gap. While M&A events have been well studied in other areas, this has not been the case with IS integration.
1.6 Research Objective
Identifying ways to increase the success of M&As is a major objective of academia and industry (Jaspers & van den Ende, 2006; Palmatier, Miao, & Fang, 2007). However, IS success is an ambiguous, multi-faceted phenomenon that can be addressed with various measures (Alaranta, 2005).
As van Grembergen and de Haes (2005) have suggested, organizations need to find a good balance of measures between output and performance that is comprised of both technical measures and business measures. Technical measures evaluate technical-related issues such as IT downtime and access failure (an internal perspective) while business measures evaluate business-related issues such as customer satisfaction (an external perspective). Apparently, these measures vary from proactive enhancements to passive customer feedbacks. If organizations want to justify the use of IT, it is important for them to particularly track performance. The findings show that this sub-dimension received less-than-adequate attention by all case organizations. One reason is that there is a lack of consensus within organizations about what to measure in a given performance, which is viewed from different perspectives (Ko & Fink, 2010). Thus, examining the success of M&A by different
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viewpoints of stakeholders is important. We categorize the stakeholders into CEOs, CIOs, business managers, and customers. The above research has thoroughly explained the importance of IT in M&A, which is still scarce in the field of IT performance evaluation. Hence, the research questions are shown as follows.
What are the criteria for stakeholders to evaluate a post-merger IT integration?
The purpose of this study is to develop a measurement with a multi-stakeholder perspective to assess the success of integrating IT in M&As. In Chapter 2, we define the post-merger IT integration and reviewed the literature of each stakeholder’s measurement. In Chapter 3, the preliminary table derived from the former literature, the research approach, and our research data are introduced. In Chapter 4, we show the cases we selected with interview results and the development process of the validated indicators. In Chapter 5, five findings from the previous interviews and validated measurements are presented. Finally, we summarize the whole study and indicate our contribution and future research.
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