The Strategic Value of Knowledge in M&A

The Strategic Value of Knowledge in M&A

This week’s (January 03, 2011) McKinsey missive focuses on the strategic value of IT in M&A. All well and good, and I encourage your review, but I think there is a bigger issue, and that is the value of knowledge in M&A.

IT is a knowledge capacity. It is not just a tool, but through software, it represents the embedded process knowledge of an organization, and to a lesser extent, explicit knowledge. Unfortunately, most systems still fail to recognize the representation issues of knowledge, and therefore explicit knowledge remains hard to retrieve and even harder to interpret, which is why knowledge is so important in M&A. The hard assets and I include databases and document repositories within the purview of hard assets, may not be as valuable without the right people around to interpret them.

In mergers and acquisitions, people are fired, laid off, promoted, and re-assigned. These moves point toward redundancies or aligning talent, but they are often very tactical, and very cost-conscious. They are rarely if ever, holistic, insightful, or empathetic. They are very often meant to move past the instability introduced by the merger or acquisition and establish the winner’s culture as dominant, and as rapidly as possible, get the company humming along its new bigger path as quickly as possible in order to start generating shareholder returns.

This stereotypical, but not atypical, view of M&A activity does not take into account organizational knowledge at its deepest level. The goal of rapid assimilation precludes this. Even for those left behind, the new management structure is so focused on leaving the transaction behind it fails to accomplish the due diligence due to its shareholders and employees. IT, as McKinsey points out, is important. Disparate systems are often ignored during M&A discussions because they shout out the hidden complexities of the usually mundane legal proceedings.

But again, IT is just one form of knowledge. Organizations must also consider strategy, how collaboration takes place, their definitions of competency, how knowledge is transferred, how knowledge is measured, communities of practice continuity, innovation, partnerships, and practices.

For those who have seen me speak, they know I make a point to avoid the use of the term “best practice” and that my proclivity for “practice” over “best practice” comes from my M&A experience. Every merger or acquisition I have been involved with, as participant or advisor, ends up with duplicate processes, many of which have been designated “best” by the originating organization. When the M&A work concludes, it is clear that “best” is contextual at best and meaningless at worst. What happens is a blending of practice based on necessity. The merger or acquisition creates a new context, and practice needs to be revisited—few if any of the “bests” survive.

We can learn from this “best practice” experience when considering knowledge during a merger or acquisition. Even the 800-Pound-Gorilla is incapable of anticipating the new context. The complex interactions among people and process, culture and technology, cannot be anticipated by lawyers or planners. The new organization must emerge from the details of the work, and if knowledge isn’t considered, and if knowledge isn’t recognized as being held in people’s minds, then the merger or acquisition won’t generate expected returns because huge swaths of value were disregarded during the deal. Those who recognize, appreciate, and embrace the knowledge they have acquired will do better than those who don’t.

In the fervor to do deals, do create efficiencies, and deliver value, those involved often fail to understand that much of the value of an organization exists in how its people interpret its existence, and the changing of context affects perception. That one piece of knowledge may be the most crucial factor in creating real value from bringing two or more organizations together.

For more serious insights on knowledge in mergers and acquisitions click here.

Daniel W. Rasmus

Daniel W. Rasmus, Founder and Principal Analyst of Serious Insights, is an internationally recognized speaker on the future of work and education. He is the author of several books, including Listening to the Future and Management by Design.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.