Processes of Mergers and Acquisitions

Published Date: 19 Feb 2018

CHAPTER ONE: INTRODUCTION

1.1 Background

Mergers and acquisitions (M&A's) have become the dominant mode of growth for firms seeking competitive advantage in an increasingly complex and global business economy (Adler, 1997). According to (Schuler et al, 2003) a merger happens when two companies agree to join their operations together to form a new company in which they participate as equal partners. On the other hand, in an acquisition, one firm buys a controlling or full interest in another firm with the understanding that the buyer will determine how the combined operations will be managed.

ultimately, wealth increases for shareholders in the acquiring company. In practice, however, acquisitions often produce disappointing results. An example to illustrate this is a study by Mercer Management Consulting who looked at 150 acquisitions worth more than 500 million dollars. The Mercer study concluded that 50 percent of the acquisitions eroded shareholder value, while another 33 percent created only marginal returns. (Hill, C.W. L, 2007, pg.504).Another study by a stream of empirical researchers examined the post-acquisition performance of companies and has generally failed to find consistent evidence of improvements in shareholder wealth after post acquisition stage. These findings appear to hold both in the short run (Firth 1980; Franks and Harris 1989; Higson and Elliot 1998:16-20) and in the long run (Gregory 1997; Kennedy and Limmak 1996; Sudarsanam and Mahate 2003:13-50).These findings reveal that mergers and acquisitions may not yield successful results relative to the sought advantages. This is indeed worrying and raises questions about the value creation of mergers and acquisitions.

An important factor affecting the performance of mergers and acquisitions is the transfer of knowledge between the two units. Knowledge transfer is critical to the performance of knowledge creation and in leveraging knowledge for greater organisational performance (Von Krough et al., 2000). Therefore, there is a need for efficient knowledge transfer in mergers and acquisitions. In international mergers and acquisitions, two cultures are combined, and also two systems of knowledge and insights are integrated. In order to develop and sustain competitive advantages for the knowledge-intensive firm, strategic management should enable the development and sharing of new knowledge and other resources.

It is believed today by numerous researchers and managers that knowledge is one of the strongest sources of sustainable competitive advantage for Multi National Corporations (MNCs). The importance of developing and sharing knowledge in order to stay competitive for the future has been underlined by many. (Grant, 1996).

There are two forms of knowledge which are tacit and explicit knowledge. "Tacit knowledge is not easily expressible and therefore difficult to communicate to others. Explicit knowledge on the other hand, is formal and systematic so can therefore be easily communicated." (Nonaka and Takeuchi, 1995, pg.98). Tacit knowledge is non-linguistic, as it deals with the processes of the mind that is interested in reasoning and analysis. The data it renders is non-numeric, and is codified as personal or biased. From the above-mentioned definition of tacit knowledge, it can be seen as something that is rooted on experiences, deeply attached or related to emotions, is connected with the ideals, ethics and emotions of the subject. Explicit knowledge on the other hand is being codified when it is interpreted, used, and shared.

These forms of knowledge transfer can be affected by various factors which can be catogorised as organisational and individual factors. These can become barriers if not managed properly because they have a significant impact on knowledge transfer. This dissertation would therefore focus on the key organisational factors that affect the transfer of knowledge. The paper will establish the relationship between these factors and knowledge transfer in international mergers and acquisitions. These factors are flexible structures, organisational culture, communication and Information technology. (Ives et al., 2003 and Spender, 1996)

1.2 ?ignifi?ance of the Study

Over the last few years there has been an upsurge in interest among scholars on the importance of knowledge management in firms. This is because in successful organizations, their main advantage comes from the knowledge of their employees. In the past mergers and acquisitions were mainly conducted to obtain wealth. However, in recent years multinational corporations (MNC's) emphasize on the knowledge assets that can be gained from mergers and acquisitions. Thus, "techniques for archiving, transferring, and increasing knowledge are fundamental factors for the high quality performance of organizations" (Maurer, 1999). When companies undertake acquisitions in an international setting the challenge to transfer knowledge becomes more crucial therefore tacit and coded knowledge must be managed and developed in order to obtain an efficient transfer process.

This dissertation will therefore examine the organisational factors that influence the transfer of both tacit and explicit knowledge in acquisitions and the role the organisational factors play in the knowledge transfer process. This paper will begin by reviewing relevant literature on knowledge, knowledge management, transfer of knowledge in acquisitions and the organisational factors that influence the process, Chapter 3 will discuss a summary of the methodology. The results of the abovementioned objectives will be presented in Chapter 4 and a critical and analytical discussion of all results is presented in Chapter 5. Conclusions are then made from the analysis and discussion in the previous sections in Chapter 6.

To conduct this study, a semi structured interview will be conducted on two financial institutions engaged in an acquisition. The study will identify the key organisational factors that influence the transfer of both tacit and explicit knowledge in the acquisition, the effect of the organisational factors in the transfer process and the factor that has the greatest impact on transfer of knowledge. The focus of the case study will take place in the banking sector .This is because it is part of the global financial sector, which pursues a high level of International mergers and acquisitions.(IM&As).

The findings of this study will benefit employees as well by giving light to the actions taken by their respective organizations to aid them cope with the changes brought about by the relationship between knowledge transfer and organisational factors.

1.3 Aims and Objectives

The aims and objectives are to answer the main research question and to propose a strategic and effective way of managing the factors that affect transfer of knowledge in order to obtain efficiency.

The main research question is :

What are the effects of the key organisational factors that influence knowledge transfer in international mergers and acquisitions?

Following from the research question, the main objectives will be to establish:

Key Organisational factors that influence the transfer of both tacit and explicit knowledge in the acquisition.

The effect of the organisational factors in the transfer process.

The factor that has the greatest impact on transfer of knowledge

?HA?TER 2: LITERATURE REVIEW

To answer the research question this chapter starts with a brief insight into the nature of knowledge, and then proceed to provide a critical review of transfer of knowledge in mergers and acquisitions and then focus on the key organisational factors that affect the transfer of this knowledge.

2.1 The Nature of Knowledge

Knowledge can be experience, concepts, values or beliefs that increase an individual's capability to take effective actions (Alavi & Leidner 1999).Knowledge can be categorized according to its form and content. With regard to this, a number of typologies have been used, such as embodied versus embedded knowledge (Granovetter, 1985), knowledge as intrinsically versus instrumentally valuable (Degenhardt, 1982), scientific versus practical knowledge (Hayek, 1945), and know-what versus know-how (Gupta and Govindarajan, 2000).ref "Knowledge is a fluid mix of framed experience, values, contextual information, and expert insight that provides a framework for evaluating and incorporating new experiences and information. It originates and is applied in the minds of knower's. In organisations, it often becomes embedded not only in documents or repositories but also in organisational routines, processes, practices, and norms". (Davenport and Prusak, 2000)

In the literature on Knowledge Management (KM), there is much debate about what constitutes knowledge, what is data and what is information. Most literature on Knowledge Management classifies knowledge into two main categories: explicit knowledge and tacit knowledge. Explicit knowledge can be defined as things that are clearly stated or defined, while tacit knowledge can be defined as things that are not expressed openly, but implied (Choo 2000, Herschel et al., 2001).

This section will make a distinction between the two forms of knowledge tacit and explicit knowledge which was proposed by (Polyani 1962).

"Explicit knowledge is codifiable and objective and therefore easily transmitted, conceptualized and stored, with little cost. Codes can be differentiated by taking into account the number of elements and combination rules a code consists of, as well as the degree of ambiguity allowed." (Jorna, 2001). (Davenport and ?ru?ak, 1998, pg.41) say: "the aim of c?difi?ation is to put organisational knowledge into a form that makes it accessible to those who need it. It literally turns knowledge into code to make it organised, explicit, portable, and as easy to understand as possible". New technologies play an important role in the knowledge codification and make the prospect for those activities increasingly promising. Knowledge managers and users can categorise knowledge, describe it, map and model it, simulate it, and embed it in rules and recipes. Each of these approaches has its own set of values and limitations. Knowledge is being codified when it is interpreted, used, and shared. Codified knowledge comes in the form of organization of thoughts that matter to the individual and can be used for common decisions. Tacit knowledge is converted to explicit or codified knowledge, a form of knowledge that is used by company and/or organisation members. Codified knowledge is essential in the diagnosis, performance, training, and planning of the events in the company or in the life of an individual.

Tacit knowledge on the other hand, "resides within individuals and is non-codifiable, acquired through experience, personal and subjective. "These features make tacit knowledge difficult to formalise and transmit, leading to loss of organisational knowledge. Much of organisational knowledge is tacit" (Cook and Yanow, 1993.) This form of knowledge is non-linguistic, as it deals with the processes of the mind that is interested in reasoning and analysis. The data it renders is non-numeric, and is codified as personal or biased. From the above-mentioned definition of tacit knowledge, it can be seen as something that is rooted on experiences, deeply attached or related to emotions, is connected with the ideals, ethics and emotions of the subject.

It is this type of knowledge that has strong potential to be a source of competitive advantage, because it is difficult to assess from the outside and not readily available. The focus of this dissertation will be on these two types of knowledge. According to (Nonaka and Takeuchi, 1995), knowledge is created through interactions amongst individuals with different types and contents of knowledge. Through this social conversion process, tacit and explicit knowledge expands in terms of both quality and quantity. (Nonaka, 1990, 1991, 1994: Nonaka and Takeuchi, 1995) .This process goes through four modes of conversion between tacit and explicit knowledge which are Socialization (from tacit to tacit) Externalization (from tacit to explicit). Combination (from explicit to explicit) and finally Internalization (from explicit to tacit).

2.2 Knowledge Management

Knowledge management has been an important topic in organizations for years. Companies have hugely emphasized the importance of knowledge as the basis for competitive advantage (Teece, 1998). According to (Zack,1999), there is an obvious difference among knowledge, data and information. Data correspond to observations or facts that are not meaningful. Information results from the placement of data within a meaningful context. Knowledge, on the other hand, is more intricate because it can be both implicit and explicit. Implicit knowledge is understood and applied, and developed from experience. It is shared through interactive conversations and narration of shared experiences.

Companies have implemented knowledge management strategies to promote organizational learning. According to (Sarvary,1999), a knowledge management system is "the infrastructure necessary for the organization to implement the Knowledge Management process." This comprises IT and organizational communications. Organizational culture, internal governance mechanisms and appropriate incentive schemes are also required.

(Zack,1999) stated that "effective knowledge creation, sharing, and leveraging requires an organizational climate and reward system that values and encourages cooperation, trust, learning, and innovation and provides incentives for engaging in those knowledge-based roles, activities, and processes. I have consistently observed this aspect to be a major obstacle to effective knowledge management." The success of these strategies is contingent upon the battle between organizational roles and formal and informal structure with socio-cultural factors affecting knowledge management. Culture, power relations, norms, management philosophy, and reward systems are examples.

Knowledge management as a task, particularly in project-based international organisations, is an evolution of cognitive processes and social interaction. As knowledge formulation moves through the stages of intuiting, interpreting, integrating, and institutionalizing the tasks become less uncertain and more tangible. A mix of control mechanisms is therefore crucial for effectively managing knowledge capture and transfer within the organization. (Crossan et al., 1999)

2.3 Knowledge Transfer in International Mergers and Acquisitions

One of the most prominent contemporary trends in the business of an enterprise is the increasing internationalization of their basic activities. This trend originally started in the most developed countries of the world, where enterprises reached a level of development by economies of scale, as a basic precondition for further progress, which enable enterprises to spread rapidly into international markets. Today however, globalisation can be considered as a precondition for the survival of an organisation notwithstanding the size or the country of origin. Internationalization of business functions began with sales and marketing, continued with production, and today it covers strategic research and development as well (Kolalovic, 2004).Because the prerequisite of an economic development is the openness of the economy, globalisation of businesses has been an economic rule. Local enterprises accepted the importance of mergers and acquisitions as a great help in penetrating the international market and in gaining competitiveness (Hill, 2007).

International mergers and acquisitions (IM&A) have ballooned in the past two decades and key drivers of this have been globalisation and technological development. These key drivers have brought rise to an easiness of reaching markets, acquiring, managing and monitoring businesses abroad. On a macro level, International mergers and acquisitions (IM&As) can help companies remain competitive, achieve economies of scale and scope and improve positioning in the global environment. On a micro level, gaining valuable tangible and intangible assets can give industry specific competitive advantages; enhance efficiency, market power and growth potential.

Notwithstanding, the approach or strategies adopted by managers towards mergers and acquisitions (M&As), they may not yield successful results relative to the sought advantages. The risks associated with cross-border (M&As) are many and can precipitate tremendous failure. Knowledge transfer is one of these risks which will be a focus of this paper. (Galbraith and Stiles, 1984).

Knowledge transfer means "conveying or moving knowledge from one person or place to another. In the world of business, knowledge management would mean the manner on how we move knowledge from one point of the organisation to another" (Rutkowski, 1999). However in international mergers and acquisitions, knowledge would be conveyed from one organisation to another but in a cross cultural context.

Knowledge capture and transfer can be regarded as strategic issues. They benefit the organisation as a whole. The process of accumulating and documenting knowledge learned is more tactical because it involves costs attributable to a specific project and managers need to determine which type of knowledge will be useful for the organisation before they are codified.

According to (Davenport ,1996) and( Halal ,1996), the most recent and widely used vessel of knowledge transfer is the modern technology. Many companies worldwide use the Web or the internet access as a channel of knowledge sharing in workgroup and company levels. The purpose of the use of modern technology networks is to distribute information and computing resources among employees within the organization, enable the sharing of knowledge and expertise, overcome knowledge transfer barriers, exchange documents, and communicate effectively.

According to (Keen, 1997), modern technology in knowledge transfer has reach, range, and ease of use. "Reach" relates to the people who can access the company's online services and information resources. It can be possible for the organization to gather, transfer or share information from their systems through any computer linked to another computer anywhere across the globe. "Range" relates to the information and services that can be automatically cross-linked. The World Wide Web is a way of sharing information. "Ease of Use" pertains to how the system can access and navigate the use of the technologies. Web browsers are good examples of information retrieval systems.

In the transfer of knowledge in international mergers and acquisitions, most individuals are reluctant to share and transfer knowledge due to various factors. The announcement of a merger or acquisition creates a highly stressful environment of uncertainty, fear and distrust (Cartwright & Cooper, 1992). Even if redundancies are not planned, individuals in both the acquired and the acquiring firms may fear loss of status and changes to their established work norms (Hunt et al, 1987; Schweiger & Denise, 1991:49). They may react by resisting senior management's initiatives to encourage co-operation between the combining firms and may ultimately resign (Buono & Bowditch, 1989; Levinson, 1970, pg.98). These researched negative reactions are likely to be particularly problematic when knowledge transfer is an explicit merger objective. Knowledge transfer is above all an inter-personal process. Whilst codified knowledge may be shared relatively easily, the experiences and insights required to interpret and apply this knowledge reside within individuals. Individuals cannot be forced to share this knowledge with others but can only do so willingly.

When we specifically consider the international or global transfer of knowledge, then as (Bresman et al,1999,pg.17) have noted, with respect to international acquisitions, the lack of personal relationships, the absence of trust, and 'cultural distance' all conspire to create resistance, frictions, and misunderstandings. This observation is consistent with the conviction that a significant source of dissatisfaction in organizations today is the poor structures and networks for mediating and diffusing knowledge, values and experience within the organisational environment' (Claes, 1999,pg.68). Since the competitive advantage of most organisations is their knowledge, individuals from the acquired company in an acquisition refuse to share their knowledge because they might feel the acquirers will eventually find them unimportant and possibly make them redundant. Some also leave and take their knowledge with them to utilise in another company.

This is the reason why it is very necessary to identify the factors that influence the transfer of knowledge and improve on these factors to facilitate the process. These factors can be either individual, knowledge based or organisational factors. This dissertation will however, focus specifically on the organisational factors. This is because when they are identified and managed efficiently they help produce a positive transfer of knowledge.

2.4 Organisational Learning

(Fisher and White, 2000) defined organisational learning as "a reflective process, played out by members at all levels of the organization, which involves the collection of information from both the external and internal environments. This information is filtered through a collective sense-making process, which results in shared interpretations that can be used to instigate actions resulting in enduring changes to the organization's behaviour and theories-in-use."According to Crossan et al. (1999), organizational learning entails a tension between gaining knowledge of new learning or exploration, and using what has been learned or exploitation. This includes individual, group and organizational levels of learning, which are connected by the processes of intuiting, interpreting, integrating, and institutionalizing.

2.5 Organisational factors affecting Knowledge Transfer in Mergers and Acquisitions

(Hybels and Weaver, 2007) define communication as "any process in which people share information, ideas and feelings. It involves not only the spoken and written word but also the body language, personal mannerisms and anything that adds meaning to the message". Communication can be verbal and non verbal. In mergers and acquisitions, effective communication is very important because it helps coordinates and improves the transfer of knowledge. "Communication is a process and consists of various elements which include sending of information, receiving information and feedback. This is in a form of of a basic communication model where the sender encodes the message, uses an appropriate medium to transmit the message and the receiver decodes the message" (Hollensen, 2001).

Whilst every organization has a unique environment particular key organisational factors such as communication, structure, culture and technology play a crucial role in the overall performance of the organization.(Galbraith, 2002). Therefore, this dissertation will focus on these key factors: Organisational Culture, Flexible structures and support, Information Technology and Communication to determine its effect on knowledge transfer.

2.5.1 Organisational Culture

(Schein, 1985) defines organizational culture as a "set of implicit assumptions held by members of a group that determines how the group behaves and responds to its environment. It is reflected in the aspects of the organization such as its mission. It is reflected in the way the employees act, what they expect of each other, and how they make sense of each other's actions. Most of all, it is deeply rooted in the core values of the organization."

According to (Hill C, W, L, 2007) organisational culture comes from several sources. Firstly, influential leaders can have an influence on the culture of the organisation. Secondly, the social culture of a country where the company was founded also influences its corporate culture. The third influence is the history of the company and lastly decisions that yield high performance tend to become embedded in the values of the firm.

Many acquisitions fail because of the differences in corporate culture that exist amongst both units. This is because; if the differences are not managed properly they cause a strain on the integration process. An example is the Daimler and Chrysler merger which experienced a clash of corporate culture. Though it is not surprising that the merging of a German company and an American company would present dissimilarity in corporate cultures, there was insufficient support or consideration for these challenges offered to staff. Ideally both Daimler and Chrysler were to benefit "equally" from each other's strengths and capabilities and ultimately increase performance but the cultural clashes significantly affected the corporate structure and success of the merger. (Hill, C.W. L, 2007, pg.505). This caused high management turnover and eventually loss of knowledge and expertise.

(Bresman et al.,1999:17) therefore ?trepoe? the importance of cultural compatibility influencing international merger and acquisition success by arguing that the similarities of both parents organisational culture play a critical role in determining the international mergers and acquisitions extent of knowledge acquisition. With the view that cultural compatibility increases the possibility to acquire knowledge and the acquired knowledge then contributes to form new corporate cultures.

(De long and Fahey, 2000) identified four ways in which culture influences knowledge transfer. Firstly, culture shapes assumptions about what knowledge is and what type of knowledge is worth managing. Secondly, culture defines the relationships between individual and organisational learning by determining who can control a specific type of knowledge. Thirdly, culture creates the context for social interaction that determines how knowledge will be used in a particular situation. Lastly, culture shapes the processes by which new knowledge is created legitimated and distributed in an organisation.

For (M?rpoini,2004) the high failure rates of acquisitions observed over a long period of time by researchers are often due to company manager systematically overlooking the major cultural and organisational complexities involved in integrating the merging firms' operations and informal networks. As the increasing number of ?rpo?-border acquisitions brought public attention to the ?la?he? of management styles and ?hilpopohie?, many poh?lar? tried to test whether organisations pould dipolay a higher level of "cultural pom?atibility" for a ?upoepoful acquisitions. Many thought companies with compatible cultures would be less problematic to acquire and generate value but a research by (Schoenberg, 2000) found out that the impact of cultural compatibility on acquisition performance is revolving around the form of post acquisition integration and the relative attractiveness of the acquirers culture. When knowledge is deeply embedded in a unique culture and organisational setting, transfer of knowledge becomes very difficult and costly.

Researchers have argued that a major determinant of how much knowledge a company gains from a merger or an acquisition is its ability to learn from each other. (Hamel et al, 2002,). An example is the merger between General motors' (GM) and Toyota in 1985 to build the Chevrolet. Toyota achieved its objectives from the merger and transferred all the knowledge to General Motors which was never put to good use. GM focused on the explicit knowledge forgetting that the tacit knowledge was embedded in the organisation. They should have worked together as a team to transfer both types of knowledge throughout the organisation.

We can therefore say that to maximize the transfer of knowledge in a merger or acquisition both units need to adopt a common knowledge sharing culture across every part of the organisation. "A shared culture may help informal integrating mechanisms such as knowledge networks to operate more efficiently. As such, "a common culture may be of greater value in a multinational that is pursuing a strategy that requires cooperation and coordination between globally dispersed subsidiaries". (Hill, C.W. L, 2007, pp.472-474).

Organisational culture can also be maintained by effective communication, organisational culture training as part of the due diligence process, maintaining trust from the pre acquisition stage and then finally staff must be trained on the core values of both units.

According to (Baker and English, 2006), aspects of the business culture that can carefully be managed and improve knowledge transfer within the organization, is the use of a common business language and codes, the creation of a shared vision, and the construction of a common company culture that promotes knowledge transfer ."Human due diligence should take place more openly and managers must make use of cultural assessment tools like employee surveys and face-to-face interviews. "It is therefore useful to let the managers from both companies jointly review this data and agree on the cultural elements for the new company" (Harding and Rouse, 2007). Managers must also be aware that basic approaches, values, and philosophies about employment regulation vary widely from country to country around the world.

2.5.2 Communication

The positive outcome of the transfer of knowledge depends on an effective communication process which begins with the sender sharing the information, structuring the message in such a way that the receiver understands, selecting the appropriate method to convey the message to the recipient and then once an appropriate channel is selected and used, the receiver receives the message. Here he/she must decode the message. Meaning is attached to the various symbols and the channel used by the sender and now the receiver must interpret the message. This interpretation involves gaining an understanding from the message and is influenced by the receiver's personal experiences, relationship with the sender, knowledge, perceptions and culture. Feedback is the final step in the communication process. Feedback is the response the receiver sends to the sender. In feedback the receiver conceives, encodes and selects the channel just like the original sender did. The original sender then becomes the receiver since he decodes, interprets and responds (feedback) to the response (feedback) the original receiver sent.However, this communication process is subject to many influences that determine its successful transfer. (Welch, D & Welch, L, 2007).

There are different ways of communicating tacit and coded knowledge. These are face to face and electronic communication. Face to face tends to be the most influential medium of communicating. This is because it conveys the true reaction and responses of people who are communicating with each other. It also enables people to adapt a working relationship through interaction and socialization. Tacit knowledge is mainly transmitted through face to face communication. (Hedlund, 1999, pg.12) argued that: "the fact that much individual as well as organizational knowledge is tacit requires interactions to be intensive and extended in time for demerging, merging and remerging of knowledge elements to be possible." Further, Roberts 2000, pg.434 said "Given the importance of tacit knowledge as a factor enabling the assimilation of codified knowledge, face to face contact may be a prerequisite for the transfer of much codified knowledge. In addition the establishment of level of trust to facilitate the exchange of knowledge also favors co-location."

(De Meyer, 1991) study of 14 multinational companies proved that amongst six mechanisms to improve communication socialization was the most important; the firms used training temporary assignment and travelling as socialization tools. (Welch, D & Welch, L, 2007, pg348). Through these interactions it can be possible that tacit knowledge can be explicit. This is because "through people's discussions there is potential for both individual and collective learning to take place, which makes it easier for concepts interpretations and shared understanding to flow. This can create a common ground for discussions, which in turn can contribute to tacit knowledge becoming explicit".(Schulz and Jobe, 1998).

However whether the information will be used will depend on the credibility of source and the willingness of the recipient to disseminate that knowledge. Language can become a barrier in face to face communication therefore it is necessary for companies engaged in cross border acquisitions to adapt a common language and narrow any language gaps that might exist. If this is not done it will affect face to face communication which will intend prevent a successful transfer of tacit knowledge.

Electronic communication on the other hand involves the transfer of knowledge through electronic medium such as email, intranet and web based access. This is very effective for transferring explicit knowledge. "Intranets expose staff to greater amounts of online organisation information and support individual learning by converting explicit knowledge to tacit knowledge through the provision of capabilities such as computer simulation."(Alavi and Leidner, 2001).

To break down the barrier of distance, technology like Internet-based tools allow employees to continue the sharing of knowledge and conversations despite differences in time and distance. They can continue to work on documents cooperatively and build knowledge bases. We are in an era of technology so this has caused a reduction of face to face communication which is a disadvantage. Organisations must strive to achieve the right balance between the two main forms of communication, electronic and face-to-face. The importance of neither of these should be underestimated. Managers in organizations must comprehend when it is necessary to rely on face-to-face communication as a leadership tool and when to turn to technology.

Units that work directly with teams and promote direct communication among managers from different units are more likely to share more information with each other than by just using formal reports. In his book entitled "Managing the Global Network Corporation" (2003), Mckern discussed three actions that top managers may want to consider for a smooth flow of knowledge transfer. These are: promoting personal communication among managers, fostering and practicing a culture of trust within the company, and training managers from different units to establish stronger relationships built on trust among their subjects. Strengthening Mckern's claims, a study conducted by Bjorkman et al. proved such by using the Socialisation theory as basis. Results of this study showed that transfer of knowledge among other parts of the Multinational Corporation is greater when subsidiary managers interact more with managers of the MNC units through joint trainings, frequent visits, and also when there is more interaction between across unit committees and task forces. (Mckern,2004)

Previous studies by (Bastien, 1987), (Buono and Bowditch 1990), (Haspeslagh and Jemison 1991) which showed that intensive communication between acquiring and acquired companies is vital in the post-acquisition integration process where both companies will adjust with the new organisational set-up. If this communication is sustained, then it will lead to the formation of a "social community," which transmits knowledge transfer between the two firms (Kogut and Zander, 1992). This is aside from the fact that this communication may help allay any fear or misgiving that each party may with each other regarding their acquisition set-up, prevent miscommunication between them. Intensive communication leads to a high level of tacit knowledge transfer and this is very important for the development of innovation.

(Nonaka and Takeuchi, 1995) knowledge creation theory talked about how companies can create and disseminate knowledge within their organizations through constant communication between officials and employees. They believed that every company has tacit knowledge gained from their particular experiences in a field but that they do not realize its potential; these firms only realize their talent when faced with a crisis. The two researchers recounted how this transfer within companies occurs: "sharing tacit knowledge," "creating new concepts (explicit knowledge)," "justifying new concepts," "building an archetype," and "cross-levelling knowledge. Nonaka and Taekuchi added that these companies would have to consider some obstacles in sharing their knowledge; these are: understanding new market preferences, compatible market performance and expectations, identification of who will lead the product creation process, identifying the prevailing product development process, and design standardization.

(Nonaka and Takeuchi, 1995) suggested points reflect later findings by other organisational experts such as by (Simonin B, 2004), and (Bresman, Birkinshaw, and Nobel, 1999) who recommend that two companies wanting to share their specialized experiences and then create their combined explicit and tacit knowledge have to understand each other's skills and opportunities. In sum, organizations are able to transfer knowledge to an acquired firm if the organization's employees and management are willing, and that there is constant communication between an acquiring firm and an acquired company.

2.5.3 Flexible Structures and Systems

A company should also consider the readiness of its organisational structure to share information with a subsidiary and other foreign partners. In particular is its leadership structure. This is because their policies and plans would be the ones which will direct the transfer of knowledge. Consequently, organisational structure cannot guarantee the achievement of corporate objectives. However, it is essential to understand that a poorly structured organization could seriously hinder the achievement of the set goals of that organization (Badawy, 1995, p.108). As firms face a changing and competitive environment, organisational design is of critical importance. A firm cannot ignore the need to make changes in organization if it hopes to survive and grow. Organisational structures can help in the distribution and acquisition of knowledge as well. Although there is the current trend in the emphasis and use of technology and new methods in knowledge transfer, much knowledge still continue to be implicit. It can be effectively transferred from employee to employee, depending on the company's structure. "When an organization faces a dynamic environment, it may need to use several structures to support knowledge management in the firm". (Nonaka and Takeuchi, 1995). For example, some units may need to change team structures more often than others which require social networks, trust, and communication channels to integrate positively. Various incentives and reward schemes should be introduced to motivate employee's willingness to share knowledge. Monetary rewards and other forms of organisational recognition can encourage employees to be more acceptable to acquiring new information.

(Hansen et al,1999) argued that incentives play a major role in knowledge sharing. The transfer of tacit knowledge is used by more specialized firms to emphasise networks of people and dialogue between individuals rather than via databases. Incentive structures for these two strategies should be very different. Consideration for codification activities should be part of the performance review in the codification strategy. The tacit approach on the other hand, needs to reward people for sharing knowledge directly with other people. (Hanson et al. 1999) found that all firms used both the codification and tacit approaches, although each focused on one strategy and used the other in a supporting role. Cross and Baird (1999) recognize that employee turnover endangers organizational memory. They also recognize the importance of teamwork, the difficulties of dealing with conflicts between daily versus future pressures, and the personal recognition that can be used to motivate personnel. There is therefore an importance of having compensation systems that support knowledge transfer.

A study by (McKinsey,2001) shows that companies successful in knowledge transfer develop knowledge pull environment by implementing motivational mechanisms. Almost all of the successful companies analyzed in this study set ambitious goals for product development and process innovation, while only 33% of the less successful companies did so for product development and only 27% for process innovation. These goals for product development and process innovation are created by setting world-class standards, offering extrinsic employee incentives, and encouraging participative decision making in those two areas.The study also revealed that the 70 percent of the successful companies studied had incentive systems in place for employees who participated in knowledge transfer. (Hauschild, Licht and Stein ,2001).

Employers from both units of an alliance should therefore endeavour to change the organisational structures to suit the current situation of staff and these changes must be properly communicated to them.

2.5.4 Information Technology

(Keen, 1997) proposes that modern technology in knowledge transfer has reach, range, and ease of use. "Reach" relates to the people who can access the company's online services and information resources. It can be possible for the organization to gather, transfer or share information from their systems through any computer linked to another computer anywhere across the globe. "Range" relates to the information and services that can be automatically cross-linked. The World Wide Web is a way of sharing information. "Ease of Use" pertains to how the system can access and navigate the use of the technologies. Web browsers are good examples of information retrieval systems .The Web and the internet as a whole has become the provider of opportunities to increase the speed of knowledge acquisition, sharing, and transfer. "The Web allows organizations and companies to build a storage area of knowledge, and to broaden the scale of merging and collaboration in an easy and effective way. It provides the possibility to develop global collaborative Knowledge Management policies for international enterprises." (Davenport, 1996).

It is known that the trend these days is to include information technology in the endeavours of corporations, markets, and organizations. Included along this line of thinking is the idea that information technology is slowly becoming one of the integral components of operations. The inclusion of information technology is beneficial, especially given that information needs to travel over long distances for large corporations to communicate with its branches, and to avoid human blunders from passing on information manually.

Most researchers agree Information Technology (IT) has a positive impact on knowledge transfer from the creation of knowledge, storage and application. For example "Alavi and Leidner (2001, pg118) consider that company intranets expose staff to greater amount of online or organisational information and support individual learning through provision of capabilities such as computer simulation to support tacit knowledge".

"Modelling also contributes to the understanding of the source of knowledge, the inputs and outputs, the flow of knowledge and the identification of other variables such as the impact that management action has on the organisational knowledge." (Davenport and Prusak 2000).

In tacit knowledge, hands on training in information technology handling allows for the users to try for themselves the functionalities of the system and will be able to achieve real world solutions from their given stack of knowledge. It will be quite effective if they are going to be given enough lectures to fill in their knowledge base before they are given trainings involving tacit knowledge. As it has been discussed, tacit knowledge and codified knowledge are essential in the establishment of a working environment with workers who are at ease with the information they handle, and will be productive once the theories they have been fed have been tried on and were seen to be indeed helpful.

Besides the obvious that technology is a means of communication that allows individuals to master the knowledge they would want to learn both in the tacit sense and in the codified sense, it also allows for them to explore the general area that they are delving upon. There are many things that can be learned in using technology as medium, and these are comprehensive and up-to-date. Therefore, transfer of both tacit and codified knowledge in international merger and acquisitions is greatly influenced by the use of technology.

However, since it mainly promotes non verbal communication people with language problems might refuse to learn the companies common language and rather rely on IT to transfer knowledge. This will have a negative effect on the transfer of tacit knowledge. Although there is the current trend in the emphasis and use of technology and new methods in knowledge transfer, much knowledge still continue to be implicit. It can be effectively transferred from employee to employee, depending on the company's structure

CHAPTER 3: METHODOLOGY

This chapter will discuss the research approaches taken and also discuss the research methods utilized to collect data.

3.1 Research Question and Hypothesis

The literature review indicates that there are key organisational factors; communication, information technology, organisational culture and flexible structures that influence the transfer of both tacit and explicit knowledge in international mergers and questions. This framework served as a basis for my research questions below.

The main research question is :

What are the effects of the key organisational factors that influence knowledge transfer in international mergers and acquisitions?

Following from the research question, the main objectives will be to establish:

Key Organisational factors that influence the transfer of both tacit and explicit knowledge in the acquisition.

The effect of the organisational factors in the transfer process.

The factor that has the greatest impact on transfer of knowledge

From the review of literature I came up with the following Hypothesis:

Information Technology has a positive impact on knowledge transfer

Communication has a positive effect on knowledge transfer

Organisational Culture has a significant effect on knowledge transfer

Flexible structures and systems have a positive effect on knowledge transfer

To test these hypotheses, I employed the following research approach to build on previous research. The following sections will therefore discuss the research approach and methodology used for this dissertation.

3.2 Research Approach

The research approach employed in this dissertation will be inductive in nature; this is due to the fact that the approach to the topic has more to do with collecting data and seeking information which can be used to draw a conclusion as a result of the data analysis. This is also appropriate because of the study of a small sample.

The research is also qualitative in nature and geared towards analysis conducted through the use of conceptualization. (Saunders, Lewis and Thornhill, 2003, p.472)

The research strategies employed in this paper are descriptive and explorative. "The objective of a descriptive research is to portray an accurate profile of persons, events and situations" Robson, 2002 p.59). Descriptive research allows you to have an in depth analysis of knowledge transfer and the effects of the organisational factors in the transfer of knowledge in organizations involved in an international merger and acquisition agreement.

The exploratory approach helps to find out what is happening, "to seek new insights, to ask questions and to assess phenomena in a new light."(Robson, 2002, p.59). Conducting an exploratory research helped in obtaining a better understanding of knowledge, how it is transferred and the factors that influence the transfer process.

3.3 Data Collection Method

The data collection method used for this paper is documentary secondary data and primary data in the form of semi structured interviews. Documentary secondary data can be used in projects that also use primary collection methods. These include written materials and non written materials. (Saunders, Lewis and Thornhill, 2003).The use of primary data on the other hand, will help the researcher gather enough information and explore about a particular social setting, and to validate findings. The unit of analysis would be two organizations who were involved in an international merger agreement. A semi structured interview is conducted on two financial institutions which will only be referred to as company A and company B.

A multi-site and multi-source case-based methodology was adopted to satisfy the following conditions. First, it enabled the researcher to develop an in-depth understanding of the complexities of the merger process in a specific organization. Finally, it made it possible to combine multiple levels of analysis within the two companies.

Two merged companies were selected in order to maximize variability with a view to generating contrasting results. The differences in the organisational culture and size of firms were particularly pertinent to the issue of knowledge transfer. "Small firms rely upon informal ad hoc methods of sharing knowledge among staff whereas larger organizations tend to develop more formal systems for codification and dissemination in order to operate an efficiently leveraged organisational structure" (Maister,1993 p.74).

Consistent with the inductive nature of the research, semi-structured interviews formed the basis of the study, supplemented by data collected through secondary sources. 5 semi structured interviews in total will be conducted. Interviews lasted 30 minutes on average. On completion of each round of interview, Interview data will be transcribed analysed in conjunction with the data gathered from the archives and observation, with a view to identifying key themes and inconsistencies.

3.4 Ethical Issues

The research strategy does not present any ethical issues because the companies involved were anonymous and data provided was maintained confidentially.

CHAPTER 4: RESULTS

4.1 Background of Companies

The two companies involved in this study will be known as only Company A and Company B. This is because both companies wanted to remain anonymous and maintain confidentiality. Company A is one of UK's biggest and oldest banks. Founded in the early seventies the bank owns more than 40 well known consumer brands and up to 1 million small businesses. The company acquired Company B which is a Dutch investment bank. Company B is relatively smaller than company A but has an impressive knowledge base and assets.

4.2 Objectives of Acquisition

The rationale behind the acquisition was to increase Company A market share, maximise shareholders wealth and to gain market power. They also hoped to achieve synergy and strongly believed the takeover would quickly provide greater access to the Dutch market. Another objective of the acquisition was to gain access either to the technical knowledge or client relationships of the merger partner firm.

4.3 Transfer of knowledge

Two Interviewees from Company A and one person from Company B reported that the knowledge transfer process was relatively unproblematic. Both firms possessed extensive codified knowledge base, backed up by procedures for articulating and disseminating knowledge. Immediately following the acquisition, a team was established to identify best practice and create a standardized set of procedures. In most cases, the Company A manuals were adopted as the firm-wide standard but some of Company B methodologies were adapted and adopted. While some staff was not happy by having to learn new audit procedures, they did not report any major objections to these changes. The knowledge to be transferred already existed in a codified form. As it had already been articulated and codified, the problems typically associated with transferring tacit knowledge did not apply. Second, procedures for knowledge sharing and dissemination were already in place. The cultural norms and incentive structures that had been designed to facilitate intra-firm knowledge transfer also encouraged inter-firm knowledge transfer. Thirdly, the knowledge bases of both firms were broadly similar in terms of content, which minimized the problems of 'absorptive capacity' typically associated with transferring context-specific knowledge. These three firm-specific factors existed within the context of a profession that required all members to be trained in an extensive and codified common body of technical knowledge.

In contrast however, one interviewee in COMPANY A and one from Company B reported that the knowledge base was predominantly tacit and proprietary to individuals. Whilst the majority of staff possessed a common knowledge of strategy models acquired through their training, the expertise of each Manager differed according to his or her previous career and unique set of past projects. The Interviewees reported that knowledge was transferred according to an informal model and there were no established procedures for articulating and disseminating knowledge. They claim the company made very little investment in codifying skills and there was no incentive for an individual to do so. This is what one person had to say:

"Your value to the organization was derived from your skills. If you codified them, you diminished your personal value. We set about transforming our clients' mind sets. There is a kind of magic to what we do with our clients ... I can't really explain it to you ... I certainly can't codify it and put it in a manual. "(IT manager COMPANY A).

4.4 Key organisational factors that affected merger and its effect

Efficient transfer of knowledge within two merging companies are said to be affected by several factors but this study identified four main organisational factors which are IT, communication, organisational culture and flexible structures..

4.4.1 Communication

Results from the study gathered that communication was an important factor in the due diligence process. Company B staff were initially offered online group orientation. The programme was designed to share with participants from Company B how Company A makes decisions, its strategy and to deliver a clear understanding of Group structure and brand. They also encouraged team discussions and employee learning which is a positive approach.

However in contrast, two employees I spoke to felt senior managers did not develop detailed integration plans and made little attempt to formalise procedure for knowledge sharing. Instead the senior managers encouraged managers from the pombining firms' to seek opportunities to cooperate and to develop 'integrated projects'. They did not define what they meant by 'integrated' projects, beyond the fact that they would involve Manager working alongside each other to offer an extended and interponne?ted range of services to new and exciting client. By im?li?ation, this would require Managers to share technical knowledge with each other in order to explore market opportunities and to present a convincing image of an 'integrated' service to potential clients. This ?rpoepo quickly gave rise to considerable problems. Some managers who made contact with their new colleagues reported negative experiences.

Communicating both tacit and coded knowledge was made face to face and by electronic communication. All the interviewees said employers organised social interactions which served as a common ground for discussions. Through these interactions, tacit knowledge was made explicit. There was also constant communication between managers and staff. In terms of language the three interviewees from Company B said they had relatively good oral and written skills in English because they have worked in the UK for a long period of time. However, some few members had problems with the language because they had just joined the team from their home country. This affected team performance because there were difficulties in transferring tacit knowledge on certain projects. In spite of this, the acquirers (Company A) did not offer any language teaching programmes for them.

The interviewees also said that there were various electronic communications in the form of databases, storage systems, email and the intranet. This form of communication helped in accessing more information and created a speedy search for information. Both groups admitted that the technological base of both companies was very good. This made information very accessible and easy to transmit. The use of video conferencing at the initial stages of the integration process enabled the managers to communicate with some of the directors in company B. Some meetings were also arranged through video conferencing.

In terms of adopting a model all the interviewees said members of staff who were involved in knowledge transfer were given a brief education on the process of communication and the importance of feedback. They however said staff initially were unable to decode the knowledge from Company B but after constant training and socialization it became easier. The feedback mechanism adopted also helped transfer the knowledge efficiently.

From the interview regarding face to face communication, you will realise that the results were consistent with De Meyer, 1991 study which proved that communication through socialisation was very important and had a huge impact on the transfer of both types of knowledge.

4.4.2 Organisational Culture

Culture is the shared values, beliefs, and practices of the people in the organization. It is reflected in the aspects of the organization such as its mission. It is reflected in the way the employees act, what they expect of each other, and how they make sense of each other's actions. Most of all, it is deeply rooted in the core values of the organization (Schien, 1993).

There were marked differences between the cultures of both units. Company A was characterized by experience, flexibility and indirect communication whilst company B was very direct in communication, bureaucratic, rigid in decision making and detail oriented. Respondents from Company A said they found Company B's characteristics to be very different from theirs. The knowledge of company B was deeply embedded in their culture so transfer of knowledge was very difficult at the beginning. This also caused friction amongst some managers who were involved in the policy making of both units. The interviewees agreed this was because managers overlooked the effect of the differences that might occur.

Trust was also an issue from the beginning because Company A realised discrepancies in Company B's reports which caused friction amongst both groups initially. This issue also prevented an effective transfer of both tacit and coded knowledge in the initial stages because Company A refused to share their knowledge with Company B.

However after the post acquisition stage and after going through various training and interaction both units have adapted quite well to differences in culture. They also agreed that sharing ideas and socialisation helped in facilitating the transfer of tacit knowledge despite the various cultural differences.

4.4.3 Flexible Structures

From the interviews I gathered that in order to provide a positive transfer of knowledge some business units changed team structures and there were formations of different levels of interaction. Five interviewees admitted that the structures of both companies were changed. The facilitators introduced new designs and new job specialisations. This procedure was not properly communicated to staff before the acquisition so it eventually resulted in high staff turnover which resulted in the loss of tacit knowledge. Some jobs were also grouped together and span of control for managers increased tremendously.

On the contrary, one person from Company A found this process to be easy and suitable because their organisational culture was flexible and easy to change. He agreed with management's strategy and believed the changes suited the business needs at that time. He also noted that when a company has grown to a bigger size management will need to reorganise staff. He also mentioned that the use of incentives also increased the transfer of knowledge. This is consistent with McKinsey study which demonstrated that "companies successful in knowledge transfer implemented motivational mechanisms." (McKinsey, 2001)

All the interviewees mentioned that the leadership structure was very good so this enhanced a direct thrust of information sharing between the two companies.

4.4.4 Information Technology

One of the organisational factors suggested by many researchers and practitioners as an important mechanism in knowledge management is information technology (IT). The interviewees from both sides concluded that information technology improved the knowledge transfer of both tacit and explicit knowledge before and after the merger. It enables the company to access all information as well as enhance communication between staff. The intranet and email updates offered information on changes in structures and business support. Some of the interviewees agreed the application of IT had a positive influence in facilitating effective knowledge transfer of explicit knowledge. This was done by electronic media, groupware and electronic data exchange. Company A set a new database consisting of fused information from both companies. They also introduced an E learning programme to demonstrate the changes in systems and structures. They agreed that this method adapted enabled access to retrieve and search for information as well as providing information about both companies. Since both companies were similar in terms of content, it minimized the problems of 'absorptive capacity' typically associated with transferring context-sp