Information Management: The Organizational Dimension

By Michael J. Earl | Go to book overview

14 Mergers: The Role of Information Technology

JANE G. LINDER


Introduction

Mergers and acquisitions have had questionable success in recent years. Anecdotal sources report that 70 per cent of acquisitions do not meet the acquiring company's expectations and 50 per cent are outright failures ( Carlyle 1986). More systematic research indicates that 50 to 60 per cent of acquisitions are later divested ( Porter 1987) and that market share, profits, and return on equity in acquired units often decline ( Bhide 1987).

These transactions are unsuccessful for a variety of reasons. Among these is difficulty in integration--a failure to bring two firms together in a way that creates value ( Jensen and Ruback 1983; Lubatkin 1987; Salter and Weinhold 1979). Not all mergers and acquisitions intend to create value through operating synergies; some seek portfolio gains such as reduced financial risk, and others intend to restructure an acquired firm and resell it at a profit ( Chatterjee 1983). However, if Bhide's statistics from 1981 and 1985 can be generalized, between 25 and 40 per cent of friendly acquisitions are intended to create operating (or business unit level) synergies ( 1987). The goal is to share or transfer skills or resources among business units. In these cases, effective integration is the gateway to value.

Much of the merger and acquisition literature has treated the process of integrating organizations as a 'black box' (for example, Rumelt 1974; Christensen and Montgomery 1981; Kusewitt 1985; Montgomery and Wilson 1986; Porter 1987). Using Mohr's words, the preferred approach has been 'variance analysis' rather than 'process analysis' ( 1982). This research focuses on what happens in between--how two companies and their information technology (IT) infrastructures are brought together. It attempts to draw links between the characteristics of the firms and business units involved in the transaction, the processes they use to integrate, and the outcomes they experience.

The purpose of the study is to understand the process and impact of IT integration in an acquisition or merger setting. There has been no

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