Strategic Alignment in Mergers and Acquisitions: Theorizing IS Integration Decision Making

Article excerpt

Abstract:

This paper focuses on IS integration decisions made during mergers and acquisitions from a strategic-alignment lens. The objectives of this study are to: (1) examine business-IS alignment as reflected in IS integration decisions in a merger context and (2) identify factors that shape IS integration decisions in a merger context. We study these issues in three oil and gas mergers from pre-merger announcement to three to four years after merger announcement. Our contributions are three-fold. We show that firms are somewhat misaligned in the early post-merger period, and come into alignment only two to three years after the merger. We find that business-IS alignment was a minor concern for the new organizations in pre-merger 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.

Key Words: IS Integration, mergers, acquisitions, business-IS strategic alignment, synergies, power, expectations, cost-saving mantra, geography, structure, sourcing

1. Introduction

Mergers and Acquisitions (M&As) have become increasingly popular in the last few decades. In 2004, M&A deals in the U.S. totaled $875 billion (Berman, 2005). Yet, it is well known that a large percentage of mergers fail to deliver synergies1 for their shareholders. For example, a Business Week study (2002) announced that 61 percent of the acquisitions completed since 1998 decreased shareholder value for the acquirer. One of the foremost causes of such failures is lack of attention to integration (Schweiger and Goulet, 2000; Eccles et al., 1999, Yoo et al., 2004)2.

One of the main reasons attributed to failures of mergers in the late 1980s was the lack of attention to merging information systems, specifically (Giacomazzi et al., 1997; McKiernan and Merali, 1995; Weber and Pliskin, 1996). At the same time, the success story of Sallie Mae's acquisition of USA Group was attributed to successful post-merger IS integration (Brown et al., 2003). Likewise, successful integration of the Commonwealth Bank of Australia and State Bank of Victoria systems (Johnston and Yetton, 1996) suggests that IS integration can contribute to overall merger success.

Despite a growing interest in how IS integration contributes to merger success, Aponovich (2002) cites an Accenture study that found that 75 percent of senior management underestimated the critical role of IS in achieving merger success, and only 16 percent chose to do sufficient IS due-diligence. This leads us to ask - why do most managers decide to approach IS integration without IS due-diligence? What are the key drivers behind choosing one integration approach over another? Does the chosen approach depend on the merger's objectives? Presumably, it should (Giacomazzi et al., 1997; Main and Short, 1989), but does it? And, what role does IS alignment play in this?

The alignment literature is founded on the axiomatic assumption that business-IS alignment leads to improvements in organizational performance (Sabherwal and Chan, 2001; Chan et al., 1997; Henderson and Venkatraman, 1992). Taking this assumption further-from a single firm to two merging firms-we believe that alignment issues should be a key component of integration decisions. Such a belief is consistent with the M&A literature (Giacomazzi et al., 1997; Main and Short, 1989; Brown and Renwick, 1996; Wijnhoven et al., 2006). Essentially, we expect the newly merged IS function to be aligned with the new business needs, which emerge from the merger's strategic objectives. Thus, strategic business-IS alignment appears to be an appropriate lens through which to study IS integration decisions. For example, Giacomazzi et al. (1997) propose three IS integration strategies based on business objectives and merger goals. …