"Bigger is better!" is the oft-heard refrain of companies announcing merger plans. In pursuit of economies of scale, the merging companies race to integrate their assets and prove the wisdom of the union to the stock market. But while many companies hasten to integrate tangible, fixed assets, they often overlook the critical task of integrating their intellectual assets. As a result, they forfeit much of the value of merging.
Consider the tale of two large global companies -- we'll call them Acme Pharmaceuticals and Jones Laboratories -- that announced plans to merge in 1994. Acme played the role of valiant acquirer, rescuing Jones from a hostile buyout by another company. Intent on making the merger pay off, Acme executives concentrated on reducing costs. They eliminated fixed assets. They cut personnel. After all, who needs two sales forces when one can sell both companies' products? But in consolidating the sales force, Acme failed to consider the relative value of each sales representative and based layoff decisions entirely on seniority. When the merger was finalised in January 1995, the company simply handed out retrenchments and payouts to all Jones sales reps hired after January 1, 1994.
Within weeks of the layoffs, the folly of this decision became starkly apparent. In firing its newest employees, Acme had dismissed many of its best people. Frequently, customers complained that some of the remaining salespeople possessed far less product and customer knowledge than those who had been let go. Shuffling and reshuffling the remaining staff only made matters worse and jeopardised customer relationships. As the problems grew larger and became a significant threat to quarterly profits, Acme relented and offered most of the Jones sales reps their jobs back in March.
But it was already too late. In just two months, many of the best sales people had been hired by competing pharmaceutical firms -- and were using their expertise and accumulated customer knowledge to drive down Acme market share. As Acme's experience so vividly illustrates, it's terribly easy for senior managers orchestrating a merger to get stuck in an Industrial Age mentality that focuses on reducing operating costs through the shuttering of factories and wholesale layoffs. But companies that want to develop long-term, sustainable competitive advantage had better safeguard their intellectual assets.
As the knowledge economy evolves, the stock market is responding by valuing companies on their ability to deliver innovative and creative products and services. Although many merging companies, like Acme, dive right into managing fixed assets, it's more critical at the outset of a merger to concentrate on retaining and maximising intellectual assets.
Merging companies that create a system to maximise the value of intellectual assets and corporate expertise are much more likely to flourish. When culture clash hinders the integration of the knowledge and experience of both organisations, mergers are much more likely to fall far short of the expectations originally predicted by senior management. Here are concrete steps senior managers can take to avoid culture clash and help ensure the effective integration of intellectual assets in merging organisations.
1. Communicate the merger's goals to all employees.
Many would-be mergers don't deliver all they promise because senior managers fail to develop and fully implement a comprehensive plan to clearly communicate the merger's goals and objectives to the rank and file. It's vitally important to do so -- and to convince all employees that the single most important factor in building and sustaining long-term competitive advantage is the open, collaborative exchange of key business knowledge. All employees must understand how knowledge sharing will benefit them as individuals and how it will serve as the basis of future success for the corporation.
2. Act quickly.
By developing knowledge management (KM) systems at the beginning of the merger process, companies can begin reaping the benefits right away. Involving employees in the development of those processes will encourage employee buy-in and help ensure that those processes become part of the permanent culture of the new corporation.
3. Make retention of intellectual assets a top priority.
Many companies fail to realise that the employees considered the most valuable for their productivity, innovation and knowledge are often the first to look for other employment once a merger is announced. Head-hunters scour the fertile landscape and are quick to pounce on a company's best employees if they perceive that morale is lagging or the future is uncertain. Often the most creative and innovative employees are the ones who attempt to survey what the merged organisation will look like, and if they are not confident of their place in the new organisation they will seek other opportunities that will keep their careers on track.
4. Resist the "us versus them" mentality.
Often senior executives neglect the importance of dismantling boundaries between the two merging organisations. As companies combine their operations, an "us versus them" mentality frequently leads to the loss of each organisation's best employees. Oftentimes, these employees who strive for advancement are the first to seek the apparent stability that a competing organisation can offer. And when knowledge and experience walk out the door, the ultimate value that can be accrued from the merger rapidly diminishes. Once those assets are gone (and they often go to a competitor), they are impossible to recapture. No clear-thinking manager would allow a valuable fixed asset to so easily fall into the hands of the competition. Intellectual assets should be guarded as carefully.
5. Encourage collaboration to create a climate of trust.
When transfer of experience and expertise doesn't happen -- whether between two merging companies or between two divisions of a single geographically dispersed company -- lack of personal interaction is usually to blame. Employees are much more likely to share knowledge if they have developed trust and confidence in another employee's ability. The most effective method of rapidly developing the needed trust is to encourage employees to collaborate on issues that affect their daily job performance. This collaboration is most effective if the employees meet face to face; however, frequent e-mail and telephone interactions can also help build trust.
6. Identify process experts.
Even after managers have successfully cultivated a climate of trust, knowledge sharing may not occur if employees don't know who has the expertise that could help them do their jobs better. To facilitate information sharing, companies must first identify employees from both organisations who have expertise in areas that could benefit the combined business. By then compiling that information into a database of internal experts, the expertise of both organisations can be made accessible companywide (see "Tracking the Experts").
7. Create an index of best practices.
By comparing the work processes of each organisation, the merging company can capitalise on the best methods and strategies that each organisation has to offer. To begin this process, senior management or a merger integration committee should identify each organisation's core competencies or the marketplace practices that provide competitive advantage. This is often done by determining who does a given process best and then outlining what makes that method the best. The details of the most effective execution of this practice can then be shared with the entire organisation in the form of a case study. Ideally, these case studies or best practices are indexed by type (for example, sales strategy or execution of marketing plans) or by department (such as HR or R&D). Indexing best practices has two advantages. First, it helps management turn best practices into companywide standard operating procedures. And second, the ability to demonstrate how employees from different organisations have successfully managed the process of delivering products and services to their respective customers helps build the trust needed for knowledge sharing.
8. Reward employees who have developed strong relationships with customers and industry groups.
These designated experts can be entered into a database that allows them to be contacted by other employees who need assistance with these customers or groups. Companies can recognise experts either by providing monetary incentives or by commending them in front of their peers. One of the most successful recognition programs I've witnessed is employed by a large industrial firm. At its annual sales and marketing management meeting, the CEO presents nonmonetary awards to all levels of employees who have developed and/or implemented recognised best practices.
9. Educate customers.
Ensure that the customers of both organisations fully understand the reasons for merging. By addressing the issues of why the merger is necessary or beneficial, customers are often more likely to feel that they will continue to be important within the new organisation.
10. Involve both business and IT leaders in KM planning.
Obviously, the IT departments of merging organisations must play a key role in developing systems that will enable employees to share knowledge. Senior IT executives should be involved in planning knowledge sharing initiatives from the outset.
11. Start with a big-impact KM project.
Management must decide in which area of the business -- for example, sales, R&D, manufacturing, quality control -- knowledge management can have the greatest impact. The more impressive the initial impact, the more likely the remaining business areas will embrace knowledge management and develop the necessary infrastructure to ensure its success.
As the knowledge economy continues to develop, the importance of capitalising on intellectual assets will only increase. Fixed assets were built to become extinct; every time they're used, a small part of their value vanishes. Intellectual assets last as long as they're handed down; every time they're used, the experience becomes more valuable. Few business challenges demonstrate the importance of this lesson more clearly than mergers and acquisitions. Although intellectual assets are particularly vulnerable during such times of transition, no company can afford to ignore the task of safeguarding the irreplaceable knowledge and experience of its employees.
Mark Mazzie is chief knowledge officer at Barnett International, a global management consulting firm, and past chairman of the Conference Board's Learning and Knowledge Management Council. He can be reached at email@example.comTracking the Experts An internal expert database can help merging companies tap into a wealth of knowledge How do you know who knows what you need to know? A conundrum if ever there was one. In the case of a merger, it's doubly so since the cast of characters representing potential knowledge sources is often twice as large. Having a database of internal experts ready to go on the day a merger is consummated can minimise organisational barriers that often impede information flow.
The first step in creating an expert database is to outline its goals and objectives. When two global computer service corporations merged, Barnett International helped the sales and business development staffs develop the following goals for an expert database:
Create a database that will allow the sales and business development groups to quickly identify experts who can be called on to improve service to present clients and provide expertise to prospective clients. Initially, personnel with expertise in the following areas will be identified:
¥ Customer processes
¥ Service and product implementation strategies¥ Key customer relationships Effectively publicise the objectives for creation of the database so that employees fully understand the benefits the database provides to them as individuals and to the organisation as a whole.
Create a structure to ensure that the database remains current and continues to provide value on completion of the integration efforts.
To ensure that such a database is used, senior managers must introduce it with a strong statement of support, and it must be clear that all levels of management supported its creation and recognise its value. It's also important to devote resources needed to keep the database current as well as to reward both the experts and those who use the database to seek out expertise. Experience suggests that incentives for experts and users of the database are equally important.
-- M Mazzie
Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.