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Corporate mergers and the problems of IS integration
ELSEVIER
Information & Management 31 (1996) 203-213
Research
Corporate mergers and the problems of IS integration Antonis C. Stylianou*, Carol J. Jeffries 1, Stephanie S. Robbins Academy for Applied Research in Information Systems, Department of Information and Operations Management, The Belk College of Business Administration, University of North Carolina at Charlotte, 9201 University City Boulevard, Charlotte, NC 28223-0001, USA
Abstract
The process of integrating information systems (IS) during corporate mergers can be critical to their success. Factors that can support or impede the successful integration of IS include organizational and IS attributes, organizational merger management and IS integration activities. This study develops a conceptual framework for measuring IS integration success and identifies the factors influencing it. A field survey investigates the relationship between these factors and success. According to the results of our field survey of CIOs, 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 appear to have a positive influence on the success of the IS integration. When changes that directly affect personnel have a significant impact, that impact seems to be mostly negative. Programming language incompatibilities also have a negative impact on IS integration success.
Keywords: Acquisitions; Mergers; Systems integration © 1996 Elsevier Science B.V.
1. Introduction
While corporate merger and acquisition activity has followed a cyclical pattern over the last 100 years, the 1980s were unparalleled in terms of the record number of transactions that occurred during that decade [ 13, 16, 17]. Although the frenzy of the 1980s has subsided, mergers and acquisitions will continue to impact corporate life [5] and much can be learned from the problems encountered during that period. Organizations recognize that mergers and acquisitions *Corresponding author. Tel: (704) 547-2064. ~Currently affiliated with the School of Business and Public Administration at Our Lady of the Lake University, 411 S.W. 24th Street, San Antonio, TX 78207-4689. 0378-7206/96/$15.00 © 1996 Elsevier Science B.V. All rights reserved PII S-0378-7206(96)01082-8
can be used to achieve readily and quickly some or all of the following goals: rapid growth in size and strength; increased market share; acquisition of new products, patents, technologies, talent; and/or geographical territories. Mergers and acquisitions can also help achieve economies and efficiencies on a large scale. Restructuring can produce dynamic opportunities for corporations, but this activity can also generate problems. From top to bottom, corporations depend on their information systems (IS) departments to provide timely and accurate information, yet IS and the IS area tend to be ignored in the merger/acquisition planning process [10, 14]. Ideally, an IS fit should be assessed prior to the acquisition, and IS professionals should be fully involved in the entire process so that integration
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A.C. Stylianou et al./Information & Management 31 (1996) 203-213
problems can be identified early, increasing the chances for a more successful implementation thereby [6]. Unfortunately, the IS area is often treated as a 'second class citizen' in merger and acquisition activities [7]. In a study conducted by the American Management Association (AMA) [1], two-thirds of the companies involved in a merger/acquisition indicated that there was inadequate information to make information generated decisions concerning IS issues. Half of the respondents reported that this information was not available because no one thought to inquire. IS professionals are often not involved in (or even told of) pending structural changes until an official announcement is made [4, 11]. With little warning, IS personnel are expected to reconcile system incompatibilities quickly so that the flow of information, which represents the life blood of most institutions, is minimally disrupted. The need to integrate new systems quickly can be an extremely difficult task for a number of reasons. First, corporate planning does not always include IS personnel in the planning process. In addition, IS integration-related planning typically does not occur until the merger is over, thus delaying the process. Second, the new corporate structure must cope with the cultural differences [18], work force issues relating to differing salary structures, varying technical skills, work load, morale, problems of retention and attrition, and changes in IS policies and procedures [9]. Third, the lack of planning results in shifting priorities relative to the development of application projects. Fourth, technology issues relating to compatibility and redundancy of hardware and software, connectivity, and standards must be resolved. However, the integration of non-compatible systems is time consuming and cannot occur overnight if done properly. Corporate expectations relative to IS integration during the merger and acquisition process are often unrealistic. All of these factors can impede the successful integration of IS during merger activity, create information shortages and processing problems, and disrupt the normal flow of business. To date, little comprehensive empirical research has been undertaken in the area of system integration resulting from merger/acquisition activity. This study has been designed to overcome some of the weaknesses found in the literature by developing a conceptual research model that examines the relationships
between the measures of IS integration success and components that affect it. Based on this model, an exploratory field survey was conducted. Since the bulk of our research model focuses on the IS perspective, Chief Information Officers (CIOs) - representing a wide variety of corporations, who have experienced IS integration as a result of a merger process - were asked to participate.
2. Conceptual research design Most of the relevant material published is casespecific, anecdotal in nature, and has appeared in the practitioner's rather than academic journals, e.g. [2, 3, 8, 12, 15]. This type of reference is considered weak from a scientific point of view. Although these studies are useful in identifying specific problems, they were not conducted in a manner that would have allowed the results to be generalized for a larger population. One exception is the previously cited study of the American Management Association (AMA): it incorporated 109 responses concerning merger and acquisition issues from companies representing a variety of industries, but did not focus primarily on the IS issues. Based on the relevant findings in the current literature, a research model was developed as a framework for empirically evaluating the successful integration of IS in merged organizations. Its success is a multidimensional attribute that may be expressed through various measures, such as: (1) IS-assessment of the success of the integration process and integrated systems; (2) the ability to exploit opportunities arising from the merger; (3) the ability to avoid problems stemming from the merger; and, (4) the end-user satisfaction with the integration process and integrated systems (see Figure 1). Intervening conditions and characteristics that have a major influence on one or more of these success factors (see Figure 2) include: attributes with fixed factors, including company size, based on assets and revenues as well as number of employees; industry type; organizational structure; distribution of decision making; and the original relationship between the acquiring and acquired organizations before the merger. • IS attributes that are not necessarily controllable within the scope of the integration process. They • Organizational
A.C. Stylianou et al./lnformation & Management 31 (1996) 203-213
I
Organizational
I
Attributes _ ~
~ Organizational] Merger i Menagement__j
IS Integration Success:
I
IS Attributes
/
Co~y Size IndusW Type S6qJcture Decision Mmklng Acqulmr/Tu~1~et R~wUonshlp
IS Attributes Number of IS Employees Skill Levels Structure
gration process; integration planning activities including audits prior to integration and the development of integration priorities; and IS personnel issues. The conceptual research model was used as the basis for our research design. Each factor and component was examined to develop a composite profile of successful IS integration as a result of corporate merger activity.
Integration Management
Fig. 1. Measures of IS integration success
Organizational Attributes
205
Organizational Merger Management
Merl/*r
Experience
IS P~tJclpa~on Phmning Quality
IS Integration Management
t~,~ Of Int*gne~n StatUS o f
In~neeo.
Audits PriO,'t~S Petsonnal ~ s u e s
Fig. 2. Influences on IS integration success
include: number of IS employees, personnel skill levels, and structure (i.e. the distribution of activities, distribution of hardware, data sharing, degree of compatibility between acquiring and acquired organizations' IS functions, etc.). Knowledge about the impact of these variables on the IS integration success would be useful for integration-related planning activities. , Organizational merger management issues, such as prior merger experience, the degree of IS participation in merger planning, and the quality of merger planning. • IS integration management including the desired degree of integration; current status of the inte-
3. Methodology 3.1. Survey design With little existing data supporting a specific model for IS integration success, it was necessary to develop a survey instrument to gather data that could be used to refine the conceptual research model. The instrument evolved in four stages. First, a preliminary questionnaire was developed. Second, the questionnaire was used as the basis for interviews conducted with IS managers in local corporations; these were used to refine the instrument and improve its readability. Third, the revised survey was evaluated by researchers for the appropriate form and organization. Fourth, to ensure that the questionnaire was appropriate for a national survey, an initial mailing was sent to IS managers in selected organizations across the United States. Each of these respondents was contacted before mailing, asked to state any problem(s), and agreed to participate in the study. Comments from the respondents led to some additional minor adjustments in the format. 3.2. Data collection The survey sample was drawn from companies that had undergone corporate mergers during 1989-1991, as reported in Mergers and Acquisitions. However, the companies included did not necessarily experience IS integration as a result of the merger activity. The questionnaire was mailed to the CIOs of 1000 organizations. Reminder postcards were mailed after a two-weeks period. Interestingly, several CIOs indicated that a corporate merger had not occurred. The 44 valid responses received represented an 18
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Table 1 Organizational attributes A. Company size 1. Dollar value Dollar value for fiscal year prior to merger/acquisition
Mean
Assets Revenues
Acquirer
Target
3.82 billion 489 million
750 million 133 million
Acquirer
Target
3 905
810
2. Number of employees
Average number of employees at time of merger B. Industry by type Valid percentage Primary end product/service
Acquirer
Target
Combined
Accounting and financial services Agriculture Banking and credit services Communications and mass media Data processing Engineering Health care Insurance Legal services Manufacturing and processing Retail and wholesale trade Other
2.8 2.8 22.2 5.6 2.8 2.8 5.6 5.6 2.8 30.6 11. I 5.6
-2.8 25.0 8.3 2.8 2.8 5.6 2.8 2.8 30.6 11.1 5.6
-3.0 24.2 6.1 3.0 3.0 6.1 3.0 3.0 30.3 12.1 6.1
Acquirer
Target
Combined
43.6 35.9 5.1 12.8 2.6
51.3 23.1 17.9 5.1 2.6
47.1 35.3 5.9 8.8 2.9
C. Structure Organizationl structure
Functional Product Geographical Conglomerate/holding company Matrix
Valid percentage
D. Distribution of decision making Geographic distribution of decisions supported by the integrated systems Valid percentage International Multi-state Single state
30.8 48.7 20.5
E. Original relationship Prior relationship between acquirer and target
Valid percentage
Competitors No business relationship Other
57.5 25.0 10.0
Supplier-customer Customer-supplier
5.0 2.5
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percent response rate from the estimated eligible organizations (sample size was adjusted for surveys returned as undeliverable, and responses indicating questionnaire was not applicable or company policy prohibited response). Many mergers were characterized by quick transactions designed to achieve fast profits, and thus, while corporate mergers might have occurred, the IS components were not involved.
4. Data analysis 4.1. Organizational attributes
The survey results related to the organizational attributes are shown in Table 1. Organization size can be measured either by dollar value or the number of employees. Furthermore, dollar value can be expressed in terms of assets or revenues. As expected, the targets' mean assets and revenues were less than the acquirers'. This relationship was also true in terms of the number of employees each had at the time of the merger. A cross-section of industries was included in this study, and the second section of Table 1 reports the primary end product or service of the organizations included in the study. The largest percentage of organizations was the manufacturing and processing of companies, followed by the banking and credit services industry. It should come as no surprise that the original relationship between the acquirers and targets was primarily of competitors. Some of the reasons that the companies choose to pursue merger activities are: to grow in size and strength, increase market share, and expand geographical territories. 4.2. IS attributes
Table 2 shows the results of the primarily uncontrollable IS attributes within the integration process: the number of IS employees, IS personnel skill levels, distribution of activities, distribution of hardware, level of data sharing, and degree of compatibility between the acquirer's and target's IS functions.
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The number of IS employees reflected the relationship of total number of IS-related employees between the acquirer and target. When asked to assess the quality of the in-house technical skills resulting from the merged organizations, most indicated advanced skill levels. An important aspect of integrating systems relates to the degree of compatibility between the various system components. Most reported experiences of major incompatibilities with file/database architectures, applications, and hardware. Systems software and programming languages also presented a problem in many mergers. It would appear that there were serious compatibility problems between the acquirer and target organizations' IS in our sample, which suggests that the integration process might have been difficult.
•4.3. Organizational merger management
Organizational merger management activities included merger experience, IS participation, and planning quality. Table 3 shows the results related to these activities. Most of the respondents indicated that they had experienced previous IS integrations. The degree of IS participation at the decision-making level in those cases was rather low.
4.4. IS integration management
IS integration management considers the integration process and IS personnel-related changes resulting from the merger (see Table 4). When asked about the desired degree of integration, 75 percent of the respondents indicated toward a full integration. However, the IS integration had been completed by 64.9 percent. Most organizations indicated that priorities had been established for integrating systems. Criteria for priorities included critical business needs, cost/ resource requirements, organizational merger plan, system size/complexity, IS strategic plan, and political considerations. This question elicited a response for each criterion, resulting in multiple answers. Critical business needs were mentioned most often as an important criterion.
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Table 2 Information systems attributes A. Number of IS employees Average number of IS employees at the time of merger
Acquirer
Target
87
18
B. Personnel skill levels Quality of in-house technical skills in IT
Valid percentage
State-of-the-art Advanced Average
2.5 60.0 37.5
C. Distribution of activities Geographical distribution of integration-related IS activities
Valid percentage Applications development
International Multi-state Single state
Systems operation
Management planning and control
15.8
18.4
26.3
42.1 42.1
44.7 36.8
31.6 42.1
Acquirer
Target
Combined
55.0 45.0
70.0 20.0 10.0
48.6 48.6 2.7
Acquirer
Target
Combined
17.5 45.0 20.0 17.5
15.0 22.5 30.0 30.0 2.5
18.4 34.2 28.9 15.8 2.6
D. Distribution of hardware Distribution of hardware Centralized Distributed Decentralized
Valid percentage
E. Data sharing Level of data sharing accross applications
Very high High Moderate Low Very low
Valid percentage
F. Degree of compatibility Areas of major incompatibilitiesbetween acquirer's and target's IS
Valid percentage(multiple responses)
File/database architectures Applications Hardware Systems software Programming languages Telecommunications
60.0 57.5 52.5 45.0 45.0 32.5
As expected, mergers and acquisitions affect the IS personnel in a variety o f ways. T h e m o s t c o m m o n impact was an increase in the workload.
4.5. Measures o f success Successful IS integration was m e a s u r e d using the f o l l o w i n g variables: IS assessment o f the success o f
A.C. Stylianou et al./ Information & Management 31 (1996)203-213
Table 3 Organizational merger management A. Merger experience No. of previous IS integrations as a result of a merger/acquisition More than one One None B. IS participation Degree of IS participation in merger planning Full participation Advisory participation No participation Don't know C. Planning quality Quality of merger planning Excellent Good Average Poor
Valid percentage 66.7 12.8 20.5 Valid percentage 25.0 45.0 25.0 5.0 Valid percentage 17.5 37.5 32.5 12.5
the integration process and integrated systems, the ability to exploit opportunities arising from the merger, the ability to avoid problems stemming from the merger, and IS assessment of the end-user satisfaction with the integration process and the integrated system. The respondents were asked to assess the performance of the IS function with regard to exploiting merger opportunities and avoiding merger problems. Table 5 shows that the majority of the respondents assessed the performance as good. The respondents were asked to assess the end-user satisfaction with the integration process and integrated systems. (The authors recognize that this information would be more useful if collected directly from the end-users. However, end-users were not included in this initial study, so the CIOs were asked of their perceptions for the end-user satisfaction). Most indicated that the end users were satisfied. 4.6. Correlation analysis
A Pearson product/moment correlation analysis of the relationships between factors affecting IS integra-
209
tion success and measures of IS integration success was undertaken. The results of the analysis can be found from Table 6. Important factors for achieving success appear to be the merger experience, IS participation in merger planning, quality of merger planning, criteria used for setting IS integration priorities, and a high level of data sharing across applications. Deterrents to success include factors relating to the personnel changes resulting from the merger and programming language incompatibilities.
5. Discussion and conclusions
Organization merger management factors seem to play an important role in the IS integration success. The quality of merger planning appears to be an important contributor to the success of the integration process, contributing to the ability to exploit merger opportunities while avoiding problems in merging the IS processes. IS participation in high quality merger planning is an important contribution to the success of the integration process as well as the ability to exploit opportunities and avoid problems during the merger. Improvements in planning could often be achieved by including IS personnel in pre-merger planning activities and performing an IS audit prior to the merger. Data sharing across applications and programming language incompatibilities also play a role. There is greater success in the integration process where there is a high level of data sharing across the applications. Not surprisingly, programming language incompatibilities have a negative impact on the success of the integration process. A large number of changes in IS policies and procedures have a negative impact on personnel. Decrease in IS salaries and/or benefits probably leads to a decline in the IS morale, and this reduces the chances of a successful integration. Decline in morale and decrease in the IS workforce also reduce the ability of the IS function to avoid merger problems. In conclusion, the integration of IS in merging organizations can be an opportunity to look into the future and help the combined organization gain a competitive edge. However, merging organizations should be sensitive to the problems outlined in the study if successful integration is to be achieved.
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Table 4 Information systems integration management A, Desired degree of integration Desired degree of IS integration
Valid percentage
Partial integration Full integration No plans for integration
20,0 75,0 5.0
B. Current status of integration process Current status of IS integration
Valid percentage
Not started yet Partially completed Completed
5.4 29.7 64,9
C. Target IS audit Target's IS operation audited prior to IS integration?
Valid percentage
Yes No Don't know
30.0 50.0 20.0
D. Establishment of integration priorities Priorities established for integrating systems?
Valid percentage
Yes No Don't know
75.0 20.0 5.0
E. Importance of criteria used to establish priorities Importance of criteria by Valid percentage which IS integration priorities were established Critical Cost/ business resource needs requirements
Organizational merger plan
System size/ complexity
IS strategic plan
Political considerations
1.Critically important 2. Very important 3. Moderately important 4. Slightly important 5.Not important
16.1 41.9 19.4 9.7 12.9
12.9 29.0 32.3 16.1 9.7
6.7 26.7 33.3 20.0 13.3
3.3 16.7 26.7 10.0 43.3
Mean Standard deviation
61.3 32.3 3.2 3.2
1.516 0.851
13.3 33.3 36.7 16.7
2.567 0.935
2.613 1,256
2.806 1,167
F. IS personnel issues Personnel-related changes resulting from the merger
Valid percentage (multiple responses)
Increases in IS workload Changes in IS policies and procedures IS management turnover Decreases in IS workforce size Decline in employee morale Improvement in employee morale
77.5 42.5 27.5 25.0 22.5 15.0
3.067 1.143
3.733 1.285
A.C. Stylianou et al./lnformation & Management 31 (1996) 203-213 Table 4 (Continued) Personnel-related changes resulting from the merger
Valid percentage (multiple responses)
Increases in IS workforce size Increases in IS salaries/benefits (>10%) Decreases in IS salaries/benefits (>10%) Decreases in IS workload
12.5 7.5 5.0 2.5
Table 5 Measures of IS integration success A. Assessment of success of integration process and success of integrated systems Valid percentage IS assessment of the success of the
Integration process
Integrated systems
1. 2. 3. 4.
45.0 22.5 30.0 2.5
45.0 35.0 20.0 --
Successful Somewhat successful Mixed results Somewhat unsuccessful
Mean 1.9 Standard deviation 0.928 B. Ability to exploit merger opportunities and avoid merger problems
1.75 0.776
Valid percentage Performance of IS function with regards to
Exploiting merger opportunities
Avoiding merger problems
1. 2. 3. 4.
17.9 35.9 33.3 12.8
12.5 60.0 17.5 10.0
Excellent Good Average Poor
Mean Standard deviation C. IS assessment of user/management satisfaction
2.410 0.938
2.250 0.809
Valid percentage User/management satisfaction with
Integration process
Integrated systems
1. 2. 3. 4.
Very satisfied Satisfied Indifferent Dissatisfied
22.5 57.5 7.5 12.5
12.5 57.5 17.5 12.5
Mean Standard deviation
2.1 0.9
2.3 0.853
211
A.C. Stylianou et al./lnformation & Management 31 (1996) 203-213
212 Table 6 Correlation analysis Factors affecting integration success
Measures of IS integration success
Ability of IS function to
IS assessment of success of
End-user satisfaction with
Exploit Avoid merger merger opportunities problems
Integration process
Integration process
Organizational attributes Acquirer's revenues IS attributes Distribution of hardware(combined org.)
Integrated systems
Integration systems
0.516 ** -0.367 *
Level of data sharing Target Combined Programming language incompatibilities Organizational merger management Merger experience IS participation in merger planning Quality of merger planning IS integration management
0.461 ** -0.368 *
0.536 **
0.362 * 0.339 * 0.513 **
0.341 * -0.318 * 0.336 * 0.539 ** 0.345 *
0.366 * 0.406 * -0.361 *
0.322 *
0.451 ** 0.314 * 0.392 *
Criteria for setting IS integration priorities System size/complexity Critical business needs Political considerations
0.391 * 0.487 ** -0.374 *
0.447 "
Personnel changes from merger Increases in IS workforce size Changes in IS policies and procedures Decreases in salaries/benefits Decreases in IS workforce size Decline in IS employee morale
-.371 * -0.359 * -0.374 * -0.325 * -0.431 **
0.332 *
** Significance level 0.01; * significance level 0.05,
References [1] Bohl, D.L., (Ed.), Tying the Corporate Knot: An American
Management Association Research Report on the Effects of Mergers and Acquisitions, American Management Association, New York, 1989. [2] Ball, M., "For better, for worse: Merger partners discuss blending systems style", Computerworld, 22(19), 1988, 1316. [3] Bozman, J.S., "Time to communicate", Computerworld, 23(18), 1989, 82-83. [4] Bozman, J.S., "Merging without purging", Computerworld, 23(18), 1989, 81-83. [5] Briscoe, A.E, The HRIS in mergers and acquisitions, Handbook of Human Resource Information Systems, A.L., Lederer, (Ed.), Warren Gorham Lamont Publisher, Boston, 1993. [6] Buck-Lew, M., Wardle, C.E. and Pliskin, N., "Accounting for information technology in corporate acquisitions", Information and Management, 22, 1992, 363-369.
[7] Calabrese, R., "How to stop computer snafus from wrecking a merger", Mergers and Acquisitions, 26(2), 1991, 25-30. [8] Carter, K., "Info-systems integration: A key issue in merger talks", Modem Healthcare, 17, 1987, 74-76. [91 Fiderio, J., "What IS puts together, business deals can sunder", Computerworld, 23(17), 1989, 69-76. [10] Johnson, M., "Compatible information systems: A key to merger success", Healthcare Financial Management, 43(6), 1989, 56-61. [11] McReil, B., "Taming IS consolidation costs: Effective c o m m u n i c a t i o n can keep integration tab in line", Computerworld, 23(17), 1989, 79. [12] Martin, J., "Coke bottlers merge MIS: Job calls for training conversion, integration", Computerworld, 20(49), 1986, 89. [13] McCann, J.E. and Gilkey, R., Creating and Managing Successful Mergers and Acquisitions, Prentice Hall, Englewood Cliffs, NJ, 1988. [14] McCartney, L. and Kelly, J., "Getting away with merger: What looks to investment bankers like a heavenly marriage
A.C. Stylianou et al./lnforrnation & Management 31 (1996) 203-213
[15] [16]
[171 [18]
can be hell in the computer room", Datamation, 30(20), 1984, 24. Power, B., "Change creates dynamic information systems opportunities", Data Management, 23, 1985, 20-23. Ravenscraft, D.J. and Scherer, EM., Mergers, Sell-Offs, and Economic Efficiency, The Brookings Institution, Washington, DC, 1987. Sikora, M., "The M and A bonanza of the '80's and its legacy", Mergers and Acquisitions, 1990, 90-95. Weber, Y. and Pliskin, N., "The effects of information systems integration and organizational culture on a firm's effectiveness", Information and Management, 30, 1996, 81-90.
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Dr. Carol J. Jeffries is associate professor of Computer Information Systems in the School of Business and Public Administration at Our Lady of the Lake University in San Antonio, TX. Her research interests are in the areas of data administration, systems development, management of information systems, and IS curriculum issues. She has published in the International Journal of Operations and Production Management and various conference proceedings. Dr. Jeffries is active in the Information Systems and business communities and holds memberships in the Association for Computing Machinery, Association for Information Systems, Data Processing Management Association, Decision Sciences Institute, and Information Resource Management Association.
Dr. Antonis C. Stylianou is associate professor of Management Information Systems at the University of North Carolina at Charlotte. He holds an MBA and a Ph.D. from Kent State University. Dr. Stylianou has published in the Communications of the ACM,
Management Science, Decision Sciences, Information and Management, and other journals. His current research interests include the application of total quality management techniques in the IS function, the potential of IT for providing a competitive advantage in an international market, and electronic commerce.
Stephanie S. Robbins, Ph.D. is an Associate Professor of Management Information Systems and Operations Management at The University of North Carolina at Charlotte. Dr. Robbins holds a B.A. degree from Emerson College and received a Ph.D. from The University of Alabama and a second Ph.D. from Louisiana State University. Her research interests are in the area of management information systems, marketing management, and strategy development for non-profit organizations.
Information & Management 31 (1996) 203-213
Research
Corporate mergers and the problems of IS integration Antonis C. Stylianou*, Carol J. Jeffries 1, Stephanie S. Robbins Academy for Applied Research in Information Systems, Department of Information and Operations Management, The Belk College of Business Administration, University of North Carolina at Charlotte, 9201 University City Boulevard, Charlotte, NC 28223-0001, USA
Abstract
The process of integrating information systems (IS) during corporate mergers can be critical to their success. Factors that can support or impede the successful integration of IS include organizational and IS attributes, organizational merger management and IS integration activities. This study develops a conceptual framework for measuring IS integration success and identifies the factors influencing it. A field survey investigates the relationship between these factors and success. According to the results of our field survey of CIOs, 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 appear to have a positive influence on the success of the IS integration. When changes that directly affect personnel have a significant impact, that impact seems to be mostly negative. Programming language incompatibilities also have a negative impact on IS integration success.
Keywords: Acquisitions; Mergers; Systems integration © 1996 Elsevier Science B.V.
1. Introduction
While corporate merger and acquisition activity has followed a cyclical pattern over the last 100 years, the 1980s were unparalleled in terms of the record number of transactions that occurred during that decade [ 13, 16, 17]. Although the frenzy of the 1980s has subsided, mergers and acquisitions will continue to impact corporate life [5] and much can be learned from the problems encountered during that period. Organizations recognize that mergers and acquisitions *Corresponding author. Tel: (704) 547-2064. ~Currently affiliated with the School of Business and Public Administration at Our Lady of the Lake University, 411 S.W. 24th Street, San Antonio, TX 78207-4689. 0378-7206/96/$15.00 © 1996 Elsevier Science B.V. All rights reserved PII S-0378-7206(96)01082-8
can be used to achieve readily and quickly some or all of the following goals: rapid growth in size and strength; increased market share; acquisition of new products, patents, technologies, talent; and/or geographical territories. Mergers and acquisitions can also help achieve economies and efficiencies on a large scale. Restructuring can produce dynamic opportunities for corporations, but this activity can also generate problems. From top to bottom, corporations depend on their information systems (IS) departments to provide timely and accurate information, yet IS and the IS area tend to be ignored in the merger/acquisition planning process [10, 14]. Ideally, an IS fit should be assessed prior to the acquisition, and IS professionals should be fully involved in the entire process so that integration
204
A.C. Stylianou et al./Information & Management 31 (1996) 203-213
problems can be identified early, increasing the chances for a more successful implementation thereby [6]. Unfortunately, the IS area is often treated as a 'second class citizen' in merger and acquisition activities [7]. In a study conducted by the American Management Association (AMA) [1], two-thirds of the companies involved in a merger/acquisition indicated that there was inadequate information to make information generated decisions concerning IS issues. Half of the respondents reported that this information was not available because no one thought to inquire. IS professionals are often not involved in (or even told of) pending structural changes until an official announcement is made [4, 11]. With little warning, IS personnel are expected to reconcile system incompatibilities quickly so that the flow of information, which represents the life blood of most institutions, is minimally disrupted. The need to integrate new systems quickly can be an extremely difficult task for a number of reasons. First, corporate planning does not always include IS personnel in the planning process. In addition, IS integration-related planning typically does not occur until the merger is over, thus delaying the process. Second, the new corporate structure must cope with the cultural differences [18], work force issues relating to differing salary structures, varying technical skills, work load, morale, problems of retention and attrition, and changes in IS policies and procedures [9]. Third, the lack of planning results in shifting priorities relative to the development of application projects. Fourth, technology issues relating to compatibility and redundancy of hardware and software, connectivity, and standards must be resolved. However, the integration of non-compatible systems is time consuming and cannot occur overnight if done properly. Corporate expectations relative to IS integration during the merger and acquisition process are often unrealistic. All of these factors can impede the successful integration of IS during merger activity, create information shortages and processing problems, and disrupt the normal flow of business. To date, little comprehensive empirical research has been undertaken in the area of system integration resulting from merger/acquisition activity. This study has been designed to overcome some of the weaknesses found in the literature by developing a conceptual research model that examines the relationships
between the measures of IS integration success and components that affect it. Based on this model, an exploratory field survey was conducted. Since the bulk of our research model focuses on the IS perspective, Chief Information Officers (CIOs) - representing a wide variety of corporations, who have experienced IS integration as a result of a merger process - were asked to participate.
2. Conceptual research design Most of the relevant material published is casespecific, anecdotal in nature, and has appeared in the practitioner's rather than academic journals, e.g. [2, 3, 8, 12, 15]. This type of reference is considered weak from a scientific point of view. Although these studies are useful in identifying specific problems, they were not conducted in a manner that would have allowed the results to be generalized for a larger population. One exception is the previously cited study of the American Management Association (AMA): it incorporated 109 responses concerning merger and acquisition issues from companies representing a variety of industries, but did not focus primarily on the IS issues. Based on the relevant findings in the current literature, a research model was developed as a framework for empirically evaluating the successful integration of IS in merged organizations. Its success is a multidimensional attribute that may be expressed through various measures, such as: (1) IS-assessment of the success of the integration process and integrated systems; (2) the ability to exploit opportunities arising from the merger; (3) the ability to avoid problems stemming from the merger; and, (4) the end-user satisfaction with the integration process and integrated systems (see Figure 1). Intervening conditions and characteristics that have a major influence on one or more of these success factors (see Figure 2) include: attributes with fixed factors, including company size, based on assets and revenues as well as number of employees; industry type; organizational structure; distribution of decision making; and the original relationship between the acquiring and acquired organizations before the merger. • IS attributes that are not necessarily controllable within the scope of the integration process. They • Organizational
A.C. Stylianou et al./lnformation & Management 31 (1996) 203-213
I
Organizational
I
Attributes _ ~
~ Organizational] Merger i Menagement__j
IS Integration Success:
I
IS Attributes
/
Co~y Size IndusW Type S6qJcture Decision Mmklng Acqulmr/Tu~1~et R~wUonshlp
IS Attributes Number of IS Employees Skill Levels Structure
gration process; integration planning activities including audits prior to integration and the development of integration priorities; and IS personnel issues. The conceptual research model was used as the basis for our research design. Each factor and component was examined to develop a composite profile of successful IS integration as a result of corporate merger activity.
Integration Management
Fig. 1. Measures of IS integration success
Organizational Attributes
205
Organizational Merger Management
Merl/*r
Experience
IS P~tJclpa~on Phmning Quality
IS Integration Management
t~,~ Of Int*gne~n StatUS o f
In~neeo.
Audits PriO,'t~S Petsonnal ~ s u e s
Fig. 2. Influences on IS integration success
include: number of IS employees, personnel skill levels, and structure (i.e. the distribution of activities, distribution of hardware, data sharing, degree of compatibility between acquiring and acquired organizations' IS functions, etc.). Knowledge about the impact of these variables on the IS integration success would be useful for integration-related planning activities. , Organizational merger management issues, such as prior merger experience, the degree of IS participation in merger planning, and the quality of merger planning. • IS integration management including the desired degree of integration; current status of the inte-
3. Methodology 3.1. Survey design With little existing data supporting a specific model for IS integration success, it was necessary to develop a survey instrument to gather data that could be used to refine the conceptual research model. The instrument evolved in four stages. First, a preliminary questionnaire was developed. Second, the questionnaire was used as the basis for interviews conducted with IS managers in local corporations; these were used to refine the instrument and improve its readability. Third, the revised survey was evaluated by researchers for the appropriate form and organization. Fourth, to ensure that the questionnaire was appropriate for a national survey, an initial mailing was sent to IS managers in selected organizations across the United States. Each of these respondents was contacted before mailing, asked to state any problem(s), and agreed to participate in the study. Comments from the respondents led to some additional minor adjustments in the format. 3.2. Data collection The survey sample was drawn from companies that had undergone corporate mergers during 1989-1991, as reported in Mergers and Acquisitions. However, the companies included did not necessarily experience IS integration as a result of the merger activity. The questionnaire was mailed to the CIOs of 1000 organizations. Reminder postcards were mailed after a two-weeks period. Interestingly, several CIOs indicated that a corporate merger had not occurred. The 44 valid responses received represented an 18
206
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Table 1 Organizational attributes A. Company size 1. Dollar value Dollar value for fiscal year prior to merger/acquisition
Mean
Assets Revenues
Acquirer
Target
3.82 billion 489 million
750 million 133 million
Acquirer
Target
3 905
810
2. Number of employees
Average number of employees at time of merger B. Industry by type Valid percentage Primary end product/service
Acquirer
Target
Combined
Accounting and financial services Agriculture Banking and credit services Communications and mass media Data processing Engineering Health care Insurance Legal services Manufacturing and processing Retail and wholesale trade Other
2.8 2.8 22.2 5.6 2.8 2.8 5.6 5.6 2.8 30.6 11. I 5.6
-2.8 25.0 8.3 2.8 2.8 5.6 2.8 2.8 30.6 11.1 5.6
-3.0 24.2 6.1 3.0 3.0 6.1 3.0 3.0 30.3 12.1 6.1
Acquirer
Target
Combined
43.6 35.9 5.1 12.8 2.6
51.3 23.1 17.9 5.1 2.6
47.1 35.3 5.9 8.8 2.9
C. Structure Organizationl structure
Functional Product Geographical Conglomerate/holding company Matrix
Valid percentage
D. Distribution of decision making Geographic distribution of decisions supported by the integrated systems Valid percentage International Multi-state Single state
30.8 48.7 20.5
E. Original relationship Prior relationship between acquirer and target
Valid percentage
Competitors No business relationship Other
57.5 25.0 10.0
Supplier-customer Customer-supplier
5.0 2.5
A.C. Stylianou et al./lnformation & Management 31 (1996)203-213
percent response rate from the estimated eligible organizations (sample size was adjusted for surveys returned as undeliverable, and responses indicating questionnaire was not applicable or company policy prohibited response). Many mergers were characterized by quick transactions designed to achieve fast profits, and thus, while corporate mergers might have occurred, the IS components were not involved.
4. Data analysis 4.1. Organizational attributes
The survey results related to the organizational attributes are shown in Table 1. Organization size can be measured either by dollar value or the number of employees. Furthermore, dollar value can be expressed in terms of assets or revenues. As expected, the targets' mean assets and revenues were less than the acquirers'. This relationship was also true in terms of the number of employees each had at the time of the merger. A cross-section of industries was included in this study, and the second section of Table 1 reports the primary end product or service of the organizations included in the study. The largest percentage of organizations was the manufacturing and processing of companies, followed by the banking and credit services industry. It should come as no surprise that the original relationship between the acquirers and targets was primarily of competitors. Some of the reasons that the companies choose to pursue merger activities are: to grow in size and strength, increase market share, and expand geographical territories. 4.2. IS attributes
Table 2 shows the results of the primarily uncontrollable IS attributes within the integration process: the number of IS employees, IS personnel skill levels, distribution of activities, distribution of hardware, level of data sharing, and degree of compatibility between the acquirer's and target's IS functions.
207
The number of IS employees reflected the relationship of total number of IS-related employees between the acquirer and target. When asked to assess the quality of the in-house technical skills resulting from the merged organizations, most indicated advanced skill levels. An important aspect of integrating systems relates to the degree of compatibility between the various system components. Most reported experiences of major incompatibilities with file/database architectures, applications, and hardware. Systems software and programming languages also presented a problem in many mergers. It would appear that there were serious compatibility problems between the acquirer and target organizations' IS in our sample, which suggests that the integration process might have been difficult.
•4.3. Organizational merger management
Organizational merger management activities included merger experience, IS participation, and planning quality. Table 3 shows the results related to these activities. Most of the respondents indicated that they had experienced previous IS integrations. The degree of IS participation at the decision-making level in those cases was rather low.
4.4. IS integration management
IS integration management considers the integration process and IS personnel-related changes resulting from the merger (see Table 4). When asked about the desired degree of integration, 75 percent of the respondents indicated toward a full integration. However, the IS integration had been completed by 64.9 percent. Most organizations indicated that priorities had been established for integrating systems. Criteria for priorities included critical business needs, cost/ resource requirements, organizational merger plan, system size/complexity, IS strategic plan, and political considerations. This question elicited a response for each criterion, resulting in multiple answers. Critical business needs were mentioned most often as an important criterion.
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A.C. Stylianou et aL/lnformation & Management 31 (1996) 203-213
Table 2 Information systems attributes A. Number of IS employees Average number of IS employees at the time of merger
Acquirer
Target
87
18
B. Personnel skill levels Quality of in-house technical skills in IT
Valid percentage
State-of-the-art Advanced Average
2.5 60.0 37.5
C. Distribution of activities Geographical distribution of integration-related IS activities
Valid percentage Applications development
International Multi-state Single state
Systems operation
Management planning and control
15.8
18.4
26.3
42.1 42.1
44.7 36.8
31.6 42.1
Acquirer
Target
Combined
55.0 45.0
70.0 20.0 10.0
48.6 48.6 2.7
Acquirer
Target
Combined
17.5 45.0 20.0 17.5
15.0 22.5 30.0 30.0 2.5
18.4 34.2 28.9 15.8 2.6
D. Distribution of hardware Distribution of hardware Centralized Distributed Decentralized
Valid percentage
E. Data sharing Level of data sharing accross applications
Very high High Moderate Low Very low
Valid percentage
F. Degree of compatibility Areas of major incompatibilitiesbetween acquirer's and target's IS
Valid percentage(multiple responses)
File/database architectures Applications Hardware Systems software Programming languages Telecommunications
60.0 57.5 52.5 45.0 45.0 32.5
As expected, mergers and acquisitions affect the IS personnel in a variety o f ways. T h e m o s t c o m m o n impact was an increase in the workload.
4.5. Measures o f success Successful IS integration was m e a s u r e d using the f o l l o w i n g variables: IS assessment o f the success o f
A.C. Stylianou et al./ Information & Management 31 (1996)203-213
Table 3 Organizational merger management A. Merger experience No. of previous IS integrations as a result of a merger/acquisition More than one One None B. IS participation Degree of IS participation in merger planning Full participation Advisory participation No participation Don't know C. Planning quality Quality of merger planning Excellent Good Average Poor
Valid percentage 66.7 12.8 20.5 Valid percentage 25.0 45.0 25.0 5.0 Valid percentage 17.5 37.5 32.5 12.5
the integration process and integrated systems, the ability to exploit opportunities arising from the merger, the ability to avoid problems stemming from the merger, and IS assessment of the end-user satisfaction with the integration process and the integrated system. The respondents were asked to assess the performance of the IS function with regard to exploiting merger opportunities and avoiding merger problems. Table 5 shows that the majority of the respondents assessed the performance as good. The respondents were asked to assess the end-user satisfaction with the integration process and integrated systems. (The authors recognize that this information would be more useful if collected directly from the end-users. However, end-users were not included in this initial study, so the CIOs were asked of their perceptions for the end-user satisfaction). Most indicated that the end users were satisfied. 4.6. Correlation analysis
A Pearson product/moment correlation analysis of the relationships between factors affecting IS integra-
209
tion success and measures of IS integration success was undertaken. The results of the analysis can be found from Table 6. Important factors for achieving success appear to be the merger experience, IS participation in merger planning, quality of merger planning, criteria used for setting IS integration priorities, and a high level of data sharing across applications. Deterrents to success include factors relating to the personnel changes resulting from the merger and programming language incompatibilities.
5. Discussion and conclusions
Organization merger management factors seem to play an important role in the IS integration success. The quality of merger planning appears to be an important contributor to the success of the integration process, contributing to the ability to exploit merger opportunities while avoiding problems in merging the IS processes. IS participation in high quality merger planning is an important contribution to the success of the integration process as well as the ability to exploit opportunities and avoid problems during the merger. Improvements in planning could often be achieved by including IS personnel in pre-merger planning activities and performing an IS audit prior to the merger. Data sharing across applications and programming language incompatibilities also play a role. There is greater success in the integration process where there is a high level of data sharing across the applications. Not surprisingly, programming language incompatibilities have a negative impact on the success of the integration process. A large number of changes in IS policies and procedures have a negative impact on personnel. Decrease in IS salaries and/or benefits probably leads to a decline in the IS morale, and this reduces the chances of a successful integration. Decline in morale and decrease in the IS workforce also reduce the ability of the IS function to avoid merger problems. In conclusion, the integration of IS in merging organizations can be an opportunity to look into the future and help the combined organization gain a competitive edge. However, merging organizations should be sensitive to the problems outlined in the study if successful integration is to be achieved.
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A.C. Stylianou et al./Information & Management 31 (1996) 203-213
Table 4 Information systems integration management A, Desired degree of integration Desired degree of IS integration
Valid percentage
Partial integration Full integration No plans for integration
20,0 75,0 5.0
B. Current status of integration process Current status of IS integration
Valid percentage
Not started yet Partially completed Completed
5.4 29.7 64,9
C. Target IS audit Target's IS operation audited prior to IS integration?
Valid percentage
Yes No Don't know
30.0 50.0 20.0
D. Establishment of integration priorities Priorities established for integrating systems?
Valid percentage
Yes No Don't know
75.0 20.0 5.0
E. Importance of criteria used to establish priorities Importance of criteria by Valid percentage which IS integration priorities were established Critical Cost/ business resource needs requirements
Organizational merger plan
System size/ complexity
IS strategic plan
Political considerations
1.Critically important 2. Very important 3. Moderately important 4. Slightly important 5.Not important
16.1 41.9 19.4 9.7 12.9
12.9 29.0 32.3 16.1 9.7
6.7 26.7 33.3 20.0 13.3
3.3 16.7 26.7 10.0 43.3
Mean Standard deviation
61.3 32.3 3.2 3.2
1.516 0.851
13.3 33.3 36.7 16.7
2.567 0.935
2.613 1,256
2.806 1,167
F. IS personnel issues Personnel-related changes resulting from the merger
Valid percentage (multiple responses)
Increases in IS workload Changes in IS policies and procedures IS management turnover Decreases in IS workforce size Decline in employee morale Improvement in employee morale
77.5 42.5 27.5 25.0 22.5 15.0
3.067 1.143
3.733 1.285
A.C. Stylianou et al./lnformation & Management 31 (1996) 203-213 Table 4 (Continued) Personnel-related changes resulting from the merger
Valid percentage (multiple responses)
Increases in IS workforce size Increases in IS salaries/benefits (>10%) Decreases in IS salaries/benefits (>10%) Decreases in IS workload
12.5 7.5 5.0 2.5
Table 5 Measures of IS integration success A. Assessment of success of integration process and success of integrated systems Valid percentage IS assessment of the success of the
Integration process
Integrated systems
1. 2. 3. 4.
45.0 22.5 30.0 2.5
45.0 35.0 20.0 --
Successful Somewhat successful Mixed results Somewhat unsuccessful
Mean 1.9 Standard deviation 0.928 B. Ability to exploit merger opportunities and avoid merger problems
1.75 0.776
Valid percentage Performance of IS function with regards to
Exploiting merger opportunities
Avoiding merger problems
1. 2. 3. 4.
17.9 35.9 33.3 12.8
12.5 60.0 17.5 10.0
Excellent Good Average Poor
Mean Standard deviation C. IS assessment of user/management satisfaction
2.410 0.938
2.250 0.809
Valid percentage User/management satisfaction with
Integration process
Integrated systems
1. 2. 3. 4.
Very satisfied Satisfied Indifferent Dissatisfied
22.5 57.5 7.5 12.5
12.5 57.5 17.5 12.5
Mean Standard deviation
2.1 0.9
2.3 0.853
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A.C. Stylianou et al./lnformation & Management 31 (1996) 203-213
212 Table 6 Correlation analysis Factors affecting integration success
Measures of IS integration success
Ability of IS function to
IS assessment of success of
End-user satisfaction with
Exploit Avoid merger merger opportunities problems
Integration process
Integration process
Organizational attributes Acquirer's revenues IS attributes Distribution of hardware(combined org.)
Integrated systems
Integration systems
0.516 ** -0.367 *
Level of data sharing Target Combined Programming language incompatibilities Organizational merger management Merger experience IS participation in merger planning Quality of merger planning IS integration management
0.461 ** -0.368 *
0.536 **
0.362 * 0.339 * 0.513 **
0.341 * -0.318 * 0.336 * 0.539 ** 0.345 *
0.366 * 0.406 * -0.361 *
0.322 *
0.451 ** 0.314 * 0.392 *
Criteria for setting IS integration priorities System size/complexity Critical business needs Political considerations
0.391 * 0.487 ** -0.374 *
0.447 "
Personnel changes from merger Increases in IS workforce size Changes in IS policies and procedures Decreases in salaries/benefits Decreases in IS workforce size Decline in IS employee morale
-.371 * -0.359 * -0.374 * -0.325 * -0.431 **
0.332 *
** Significance level 0.01; * significance level 0.05,
References [1] Bohl, D.L., (Ed.), Tying the Corporate Knot: An American
Management Association Research Report on the Effects of Mergers and Acquisitions, American Management Association, New York, 1989. [2] Ball, M., "For better, for worse: Merger partners discuss blending systems style", Computerworld, 22(19), 1988, 1316. [3] Bozman, J.S., "Time to communicate", Computerworld, 23(18), 1989, 82-83. [4] Bozman, J.S., "Merging without purging", Computerworld, 23(18), 1989, 81-83. [5] Briscoe, A.E, The HRIS in mergers and acquisitions, Handbook of Human Resource Information Systems, A.L., Lederer, (Ed.), Warren Gorham Lamont Publisher, Boston, 1993. [6] Buck-Lew, M., Wardle, C.E. and Pliskin, N., "Accounting for information technology in corporate acquisitions", Information and Management, 22, 1992, 363-369.
[7] Calabrese, R., "How to stop computer snafus from wrecking a merger", Mergers and Acquisitions, 26(2), 1991, 25-30. [8] Carter, K., "Info-systems integration: A key issue in merger talks", Modem Healthcare, 17, 1987, 74-76. [91 Fiderio, J., "What IS puts together, business deals can sunder", Computerworld, 23(17), 1989, 69-76. [10] Johnson, M., "Compatible information systems: A key to merger success", Healthcare Financial Management, 43(6), 1989, 56-61. [11] McReil, B., "Taming IS consolidation costs: Effective c o m m u n i c a t i o n can keep integration tab in line", Computerworld, 23(17), 1989, 79. [12] Martin, J., "Coke bottlers merge MIS: Job calls for training conversion, integration", Computerworld, 20(49), 1986, 89. [13] McCann, J.E. and Gilkey, R., Creating and Managing Successful Mergers and Acquisitions, Prentice Hall, Englewood Cliffs, NJ, 1988. [14] McCartney, L. and Kelly, J., "Getting away with merger: What looks to investment bankers like a heavenly marriage
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[15] [16]
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can be hell in the computer room", Datamation, 30(20), 1984, 24. Power, B., "Change creates dynamic information systems opportunities", Data Management, 23, 1985, 20-23. Ravenscraft, D.J. and Scherer, EM., Mergers, Sell-Offs, and Economic Efficiency, The Brookings Institution, Washington, DC, 1987. Sikora, M., "The M and A bonanza of the '80's and its legacy", Mergers and Acquisitions, 1990, 90-95. Weber, Y. and Pliskin, N., "The effects of information systems integration and organizational culture on a firm's effectiveness", Information and Management, 30, 1996, 81-90.
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Dr. Carol J. Jeffries is associate professor of Computer Information Systems in the School of Business and Public Administration at Our Lady of the Lake University in San Antonio, TX. Her research interests are in the areas of data administration, systems development, management of information systems, and IS curriculum issues. She has published in the International Journal of Operations and Production Management and various conference proceedings. Dr. Jeffries is active in the Information Systems and business communities and holds memberships in the Association for Computing Machinery, Association for Information Systems, Data Processing Management Association, Decision Sciences Institute, and Information Resource Management Association.
Dr. Antonis C. Stylianou is associate professor of Management Information Systems at the University of North Carolina at Charlotte. He holds an MBA and a Ph.D. from Kent State University. Dr. Stylianou has published in the Communications of the ACM,
Management Science, Decision Sciences, Information and Management, and other journals. His current research interests include the application of total quality management techniques in the IS function, the potential of IT for providing a competitive advantage in an international market, and electronic commerce.
Stephanie S. Robbins, Ph.D. is an Associate Professor of Management Information Systems and Operations Management at The University of North Carolina at Charlotte. Dr. Robbins holds a B.A. degree from Emerson College and received a Ph.D. from The University of Alabama and a second Ph.D. from Louisiana State University. Her research interests are in the area of management information systems, marketing management, and strategy development for non-profit organizations.