Knowledge Management in Post-Merger Integration
1Chen Jian2 Jia Jun3 School of Management
Xi’an Jiaotong University, P. R. China, 710049
Abstract Nowadays, knowledge has become an important resource of companies in information society.
M&A often aim to get the target firm’s key knowledge that the acquiring firm lacks. Post-merger integration was widely thought to be one of the key factors of success for a merger. But many post-merger integration study and practice had neglected the knowledge management after merger. This paper provides a Matrix of post-merger knowledge integration strategies and a framework based on knowledge management and post-merger integration literature. The framework provides a procedure for knowledge management in post-merger integration.
Key words Knowledge management, Post-merger integration, Framework, Knowledge integration
strategy
1 Introduction
“Knowledge has become the key economic resource, and perhaps the only source of competitive advantage”, (Drucker, 1988)[1] and also one of the important goals of M&As. The strategic goals or motives of the Mergers and Acquisitions (M&As) are different, including diversification, expansions into new markets or innovative technical solutions, etc. One of the important motives of M&A is to acquire the new knowledge. And behind other motives, the implied motive is the new knowledge to acquiring company. In many literatures, knowledge management is important in post-merger integration, partly determined the success or failure of merger and acquisitions.
In this paper, the author provides a Matrix of post-merger knowledge integration strategies and a framework based on knowledge management theory for integration team. The framework provides a procedure for knowledge management in post-merger integration.
2 Knowledge and Knowledge Management
Nonaka and Takeuchi (1995)[3] classify human knowledge into two basic varieties: Explicit knowledge, also known as formal or codified knowledge, and tacit knowledge, also known as informal or uncodified knowledge. Explicit knowledge, for example, occurs in the form of books, documents, databases and manuals. It can be articulated in formal language and thus be transmitted across individuals formally and easily. Tacit knowledge, in contrast, is personal knowledge which exists symbolically in the human mind and is hard to articulate with formal language. It is embedded in individual experience and involves intangible factors such as personal belief, perspective and the value system. Therefore, tacit knowledge is difficult to be made explicit, even though the emergence of communication and information technologies has led many companies to imagine a new world of leveraging knowledge. Nevertheless, both types of knowledge, tacit and explicit, are important and knowledge-creating
1
Supported by ‘Excellent Innovative Research Group Funds Project from National Natural Science Foundation of China (grant No. 7012001)’.
2
Ph.D. candidate of business administration, research direction focus on M&A, and organizational behavior.
activities take place within and between humans. Some distinctions between tacit and explicit knowledge are shown in table 1. Characteristics generally related to the more tacit features of knowledge are listed on the left, while corresponding qualities associated to explicit knowledge are named on the right.
Table 1: Two Types of Knowledge Tacit Knowledge (Subjective) Explicit Knowledge (Objective) Knowledge of Experience (observation, inference) Simultaneous Knowledge (at the present moment) Analog Knowledge (practice)
Knowledge of Rationality (mind)
Sequential Knowledge (past events or objects) Digital Knowledge (theory)
Rogers (1980)[4], Winter (1987)[5], and Kogut and Zander (1992)[6] provide several dimensions of organizational knowledge which influence the way practices evolve and transfer within and across firms. These dimensions include the degree to which knowledge is articulable, teachable, and codifiable, or the extent to which the individuals and the groups which possess the knowledge are actually aware of it, can describe it and, therefore, communicate it using oral or written media (Polanyi, 1962 and 1966). These dimensions are clearly interrelated. The knowledge at the basis of any given organizational process then accumulates more or less easily in explicit forms, such as manuals, blueprints, and information systems, as opposed to implicit forms (essentially, human memory).
The model depicted in Figure 1 is often used to illustrate the different dimensions of KM (Albrecht, 1993)[7]. Organization, People and Technology are at the center of all KM activities, supplemented by the Corporate Culture. If a KM strategy concentrates only on one dimension or pillar (e.g., just implementing an Intranet) this KM strategy is likely to fail.
Knowledge management
Organization People Technology Culture Cult
Culture
ure
Figure 1: Three Pillars of Knowledge Management
3 Post-Merger knowledge Integration strategies
3.1 Knowledge in Post-Merger Integration
Demirov ( 2002)[2] suggested that these knowledge are about:
z ٛCustomers with their needs, their behavior and their buying motives z ٛTechnical procedures with their problem-solving capability
z ٛProducts and their market potentials
z ٛSuppliers with their capabilities and price structures z Employees with their experience and expertise
In these knowledge has both the tacit knowledge and explicit knowledge. In post-merger integration, integration manager team should manage this knowledge in order to achieve more competence of new organization. According to different types of knowledge, there should be different types of integration strategies between two firms.
3.2
Post-Merger knowledge Integration strategies
The author develops a matrix with four different post-merger knowledge integration strategies in figure 2. They vary in the degree of knowledge compatibility and degree of relative advancement of two firms’ knowledge in a merger or acquisition. Absorption means that acquiring firm absorbs the acquired firm’s knowledge, and combines the two knowledge systems into a universal knowledge system for the new firm or on the contrary. In absorption strategy, one knowledge system is a dominant system in the new knowledge system. Substitution means that acquiring firm use its knowledge substitute the acquired firm’s knowledge or on the contrary, for example acquiring firm’s advanced marketing expertise substitute acquired firm’s marketing methods. Symbiosis means that acquiring firm and acquired firm still respectively maintain its own knowledge system after merger. Amalgamation means that each of the two firms’ knowledge system has its own advantage, and acquiring firm combines the two systems into one after merger. In amalgamation strategy, each of the knowledge system has the same status in the new knowledge system.
degree of knowledge compatibility low high high Substitution Absorption
degree of relative advancement of two
firms’ knowledge low Symbiosis Amalgamation
Figure 2: Matrix of post-merger knowledge integration strategies
Above all, the integration management team should analyze, classify and compare two firm’s knowledge systems. According to different type of knowledge and their relationship between acquiring and acquired firm, integration management team choose suitable strategy for every type of knowledge.
4 Framework of Post-Merger Knowledge Management
According to the above analysis, the author provides a framework of post-merger knowledge management in figure 3. In this framework, first, integration management team should analyze, classify and compare the acquiring and acquired firms’ knowledge systems. Second, according to different relationships of different types of knowledge, managers choose suitable integration strategies for each type of knowledge.
Acquiring firm’s knowledge Acquired firm’s knowledge
Integration strategy
(Absorption, Substitution, Symbiosis, Amalgamation)
Accumulating and Codifying knowledge
Knowledge management Culture z Top management Support z Common vision and strategies z Knowledge Learning and sharing culture Human z Identify and locate knowledge-carrier z Create knowledge map z Incentive system Technology z Knowledge Map z Yellow pages z Data Mining z Intranet/web z Videoconference Knowledge analyzing, classifying and comparing
Organization
z Learning organization
Figure 3: Framework of Post-Merger Knowledge Management
Third, managers should accumulate and codify the tacit knowledge and explicit knowledge. Then, managers should establish a knowledge management supporting system, include four dimensions: culture, human, technology, and organization. In each dimension, there have some tools to use during the post-merger integration. For example, in technology dimension, knowledge management tools include knowledge map, yellow pages, data mining, intranet/web, videoconference, etc. All these tools support the knowledge management system to ensure combined firms using both firms’ knowledge sufficiently.
5 Conclusion
According to knowledge management and post-merger integration literature, this paper provides a Matrix of post-merger knowledge integration strategies and a framework based on knowledge management and post-merger integration literature. The framework provides a procedure for knowledge management in post-merger integration. The framework need to be further developed and improved in the real practices of merger integration activities.
References
[1]Drucker, P. F.: The Coming of the New Organization, Harvard Business Review, January-February 1988, pp. 45-53
[2] Berry Demirov, Contingency Approach to Managing Knowledge in the Post-Merger Integration Process, MA, 2002
Press, 1995
[4]Rogers, E. 1980. Diffusion of innovation. New York, Free Press.
[5]Winter, S. 1987. Knowledge and Competence as Strategic Assets. In D.J. Teece (ed.), The competitive Challenge: Strategies for Industrial Innovation and Renewal: 159-184. Cambridge, MA: Ballinger.
[6]Kogut B & Zander U. Knowledge of the firm, combinative capabilities and the replication of technology. Organization Science, 1992. 3(3): 383-397.
[7]Albrecht, F.: Strategisches Management der Unternehmensressource Wissen, Verlag Peter Lang, Frankfurt am Main, MA, 1993
