Academic journal article Journal of International Technology and Information Management

Impacts of IT Resources on Business Performance within the Context of Mergers and Acquisitions

Academic journal article Journal of International Technology and Information Management

Impacts of IT Resources on Business Performance within the Context of Mergers and Acquisitions

Article excerpt

INTRODUCTION

In growing their business, firms engage in different strategies. While some firms engage in internal growth, others engage in series of mergers and acquisitions (M&A) in order to expand their business. Over the last few decades, firms have increasingly been spending tremendous amounts of money on M&A. On a global scale, total value of announced mergers and takeovers in 2006 passed the record year 2000's $3.3 trillion (The Economist, Nov [23.sup.rd], 2006). While the number of M&A reduced in 2008 due to the economic recession, the number of M&A in the first six months of 2010 has increased compared to the same period in 2009, coupled with the recovery of the global economy (The Economist, July [1.sup.st], 2010). However, there is considerable evidence from business practice and research that between 60 to 80 percent of M&A cases end up in failure (Homburg & Bucerius, 2006; Gillis & Combs, 2009).

Information Technology (IT) has been recognized as one of the critical factors that influence mergers success. IT and IT-dependent synergies account for about 40 percents of value created by mergers (Chabrow, 2006). In another estimate by Forrester consulting, IT potentially contributes to 10% of operating profit by delivering common processes and systems after mergers (Wailgum, 2010). Not only does IT significantly influence post-merger organizational success, different types of IT investments induce distinct performance effects through their differential impacts on firms' structures, processes, capabilities and product-markets (Weill, 1992; Barua, Kriebel, & Mukhopadhyay, 1995; Aral & Weill, 2007). Despite the recognized importance of IT in enabling firms to maximize benefits gained from their acquisitions, my literature review found little research examining the impacts of different types of IT resources on post-merger firm performance.

To address such knowledge gap, I develop a theoretical framework to examine the impacts of different types of IT resources on post mergers firm performance for firms adopting growth strategy via M&A. In summary, my research aims at providing insight to answer the research question: How do different types of IT resources influence firm performance in the context of M&A? More specifically, I develop a theoretical model and suggest propositions regarding the differential impacts of different types of IT resources (automate, informate, transform) on post-merger firm performance in the context of different types of mergers (vertical, related horizontal, unrelated horizontal).

In doing so, the research contributes to the strategic IT management and business value of IT literature in several ways. First, by placing IT within the context of firms' growth strategy via M&A, my research provides further understanding on firm performance impacts of IT within business context, an issue that recent research has called for (Aral & Weill, 2007; Bharadwaj et al., 2007; Kohli & Grover, 2009). Secondly, my insight provides a theoretical framework that help guide future research and management practices in aligning IT strategy and M&A strategy to help firms maximize potential synergies from their mergers and improve firm performance.

The following section will describe different types of M&A that firms engage in as well as different types of IT resources that are related to firms' IT strategy. Afterwards, the research model and propositions regarding the performance impacts of different types of IT resources within the context of different merger types will be proposed. I finish with discussions on my research's contributions and the implications of my ideas for future research and management practice regarding the role and performance impacts of IT within mergers and acquisition context.

MERGERS AND ACQUISITIONS AND IT RESOURCES

It is widely agreed that the "success" of a merger or acquisition may be defined as the creation of synergy: the value of the combined firm is greater than that of the two firms operating separately. …

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