Codification of Post-acquisition Integration Practices

Coupled with strong longitudinal and cross-sectional variation in post-acquisition

integration decisions was a similarly strong variation in the extent to which acquiring

banks developed specific tools to facilitate the completion o f the various simultaneous

tasks making up the post-acquisition integration process. A strikingly high level o f

sophistication was achieved by some o f the acquiring firms in their handling o f complex

tasks, such as the conversion o f information systems, the standardization o f product lines,

and the training and socialization o f the workforce. Equally striking, however, was the

relatively limited diffusion o f those tools even in cases o f high acquisition experience.

authority while trying to maintain a strong market presence. The most recent acquisitions have been managed in a significantly different way, according to the new guidelines.

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Many relatively experienced acquirers did not develop the most “advanced” manuals and

models, and the ones that did develop them waited many years after the first acquisition

experiences to do so, and invested heavily with time, money, and energy. One highly

experienced participant bank created increasingly complex manuals and computerized

tools, over the course o f the three years o f the study. From the first tools specific to the

management o f the information systems conversion phase, it developed specialized

systems for the management o f the human resources affiliation process (monitoring the

fate o f the acquired workforce on a daily basis). More recently the same acquirer was

involved in an attempt to measure and consistently monitor the customer impact o f the

integration process. Table 6.1 summarizes the diffusion patterns o f the acquisition tools

in the sample studied with the Phase 1 survey.

Table 6.1 Evolution of the Acquisition Tools

ACQUISITION TOOL Diffusion in Sample

Year of 1" Creation in

Any Bank

Avg. Yrs from Creation of Fin. Evaluation Tool

Selection/Negotiation Process

Financial evaluation spreadsheets 89.6% 1975 0.00 Due Diligence check-list 91.7% 1976 0.72 Due Diligence manual 39.6% 1986 0.85

Conversion o f Info. Systems

Info systems conversion manual 54.2% 1982 0.74 Info systems training manual 45.8% 1982 0.37

Human Resources Integration

Affiliation/integration manual 41.7% 1986 1.53 Branch staffing models 50.0% 1985 2.05 Training/ Self-training packages 41.7% 1985 2.29

Sales/Product Integration

Products training manual 54.2% 1980 0.71 Product mapping models 52.1% 1982 1.27

Project management packages 50.0% 1976 2.00

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The columns report the frequency o f observation o f the tools in the sample, the year in

which each tool was created for the first time by a bank in the sample, and the average

number o f years between the creation o f financial evaluation models (typically the most

basic M&A tool) and the creation o f each integration tool. Acquirers in the banking

industry appear to have evolved their post-acquisition integration practices by developing

increasingly complex tools. From simple due diligence check-lists, some acquirers

created due diligence and post-acquisition integration manuals (for the conversion of

information systems, the affiliation o f human resources, and various training purposes).

From basic evaluation spreadsheets, some acquirers developed entire information systems

that enable them to make informed decisions on product standardization and branch

staffing, and to closely m onitor their implementation. Particularly striking is the

difference in the diffusion rate o f due diligence support tools: whereas 91.7% o f acquirers

developed due diligence check lists (codifying the "know-what”), only 39.6% evolved

into a higher level o f codification by developing due diligence manuals (incorporating the

“know-how”).

With respect to the evolutionary dynamics o f the post-acquisition integration

capability, section 4.2.3 advanced a model that calls for development o f practices to

achieve cost efficiency (the “ low-hanging fruits”), and then practices to achieve revenue

enhancement goals. Preliminary support for the hypothesized evolutionary pattern is

shown in Table 6.1, where the sales/product integration tools and the human resources

integration tools, which protect and enhance the generation o f new business, are typically

created after the systems conversion tools, which are chiefly intended to achieve cost

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efficiencies by eliminating the data processing support structure and part o f the back-

office.

The preliminary observations suggest that explanations based on the

characteristics o f the transaction, such as the degree o f relatedness between the two

organizations and the quality o f the resources o f the acquired bank, cannot address the

observed patterns. Managerial approaches to essentially the same type o f task

(integrating an acquired bank) varied widely across periods and seemed to maintain

stable cross-sectional differences among acquirers. The deregulation process, so relevant

in many aspects o f the banking industry, cannot shed light on that phenomenon, as

regulatory authorities limit their role to the authorization o f the acquisitive event and do

not have any say in post-acquisition management decisions. The liberalization o f

interstate banking and the greater relevance o f "out-market” as opposed to “in-market”

acquisitions might have led to lower rather than higher predicted levels o f integration

because o f the lower degree o f resource relatedness.

Another important observation is that the longitudinal process o f codification was

only partially related to the accumulation o f tacit experiential knowledge. As shown in

Figure 6.2, firms with comparable levels o f acquisition experience reached significantly

different degrees o f codification, and some firms with only a few acquisition experiences

produced manuals and other support tools comparable to those o f firms with several

times the number o f experienced events. Though statistically significant (Pearson’s

correlation = .305, p < 5%), the correlation between codification and accumulated

acquisition experience is less strong than expected.

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Fig. 6.2 - Codification & Acquisition Experience

1000

10 15 20 25 30 35

A cquisition E x p erien ce (N. o f c o m p leted tran sactio n s)