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Jul 20, 2021

Mergers and Acquisition – A Leaky Knowledge Faucet


Company mergers, needless to say, are a result of multiple considerations, strategic goals, executive decisions, screening of the landscape, thorough due diligence, and so much more. Yet 30% of mergers fail within the first 3 years, including large conglomerates. Quaker Oats, for example, after the success of Gatorade drink, purchased Snapple at $1.7 billion, a price higher than the company’s then market value, only to witness a massive loss of $1.6 million/each day & an eventual sale at $300 million. 


There can be multiple factors behind the failure of a merger, one of the biggest being the mismanagement of knowledge mergers. In our previous blog, we explored how employee turnover or retirement leads to knowledge loss. In mergers, there are often large-scale employee turnover and shifts in technologies & organizational cultures, leading to hemorrhaging of knowledge which can translate into inefficient operations and eventual merger failures. 


Can Knowledge Loss Cause Merger Failures?


The intangible nature of knowledge makes it hard to assign a value to its loss on a spreadsheet. Yet we feel this loss deeply when losing a skilled & knowledgeable employee. During mergers, however, this factor goes largely unnoticed. The market value and growth potential can be numerically accessed, but it is difficult to predict the inevitable knowledge loss. 


In the case of Quaker Oats, they not only paid higher than the company value to acquire Snapple but incurred losses, post-acquisition, due to the loss of Snapple’s brand knowledge that went away with its employees. Their effort to reshape Snapple by leveraging their large retailer & supermarket footprint resulted in a campaign disaster & its eventual downfall. Quaker failed to understand its original value proposition at convenience stores, gas stations, and smaller outlets, something that Snapple’s employees and brand advocates understood. 


How does Organizational Change affect Productivity?


Organizational changes like M&A and Re-orgs can drastically reduce the productivity of employees and increase the cost of operations. Here’s how:


Communication Barriers & Employee Engagement: A company, post-merger, can face internal communication problems. This is because, during M&A, employees & managers are mostly left in the dark. The flux created when trying to integrate the two knowledge universes leads to the unavailability of answers and no defined processes. This affects middle management and trickles down to the employees. When the managers have no information or answers for employees, it creates uncertainty & distrust in the organization. 


Client Relationship: Post-merger challenges are limited to an organization’s internal matters and spill over into external matters. While employees might find documentation on the supply chain, client data, etc. to facilitate external communication, there will be no information on the kind of relationship a former employee had with clients, which is critical to efficient communication with clients.


Poorly Managed Data Amalgamation: Data amalgamation refers to the act of combining knowledge universes for the two companies so that it is available to all employees easily, irrespective of the source. When two companies merge, they bring along their legacy data which needs to be blended or eliminated (in the case of redundancy) for effective functioning & clarity. This helps employees in locating information, otherwise scattered across different systems & applications of both companies. If not done properly this can create conflicting or missing information. 


Lack of IT Integration: There are multiple systems in an organization for HR, marketing, sales, etc. And when companies merge, the number of such systems is only bound to increase as the two companies will likely have different technologies. Thus, not having an effective IT integration can lead to miscommunication between departments & reduce productivity, causing errors & replication. A system that integrates different technologies can promote smooth operations. 


Compliance & Regulation Challenge: Every company has its unique policies, procedures & guidelines, and so is in a merger where two different entities with different policies become one company, conflicting policies and guidelines emerge.  There can be ambiguity amongst the employees regarding which policies & guidelines to be followed, sometimes creating compliance issues. 

Key Reasons Behind Knowledge Loss


Employee Turnover: The main reason behind knowledge loss is employee turnover during mergers. Company mergers can induce layoffs and/or fear amongst employees, causing large-scale employee turnover. When employees leave, the information they acquired during the course of their work gets lost or forgotten. Even if they record their knowledge in the company systems, only they know where to find it. 


Shift in Technologies: Sometimes unconsciously, companies end up erasing whole areas of the acquired company’s past when they witness a shift in technology due to mergers. Technology shifts require the setting up of a new system, & the efficient transfer of information from the original system to the new one or integration of the two systems. This process often goes awry resulting in information loss. A classic case of this is Newco’s (now Argil) turning off Lotus Notes after getting acquired. All the legacy Lotus Notes data was lost and was never restored. 


Maintaining Clarity and Transparency through Organizational Changes


Mergers are messy and for them to be successful, not only do tangible assets and technologies need to merge but so does knowledge. However, while it is easy to define & locate tangible assets, we cannot say the same for knowledge, so when the two knowledge universes collide, there is chaos. As a result, the resultant workplace lives under a shadow of uncertainty, fear & distrust. An efficient solution would be to something that provides full transparency and clarity at every stage of a merger. There are two ways to achieve this:


Employee Engagement: Regular communication should flow throughout the integration process. Both internal & external communication challenges can harm the organization’s functioning. This hampers employee morale during the integration process. Open information flow, 1-1s to provide clarity can boost the confidence level of employees and motivate them to achieve their goals while the merger is being completed.


Technology for Data Integration: Efficient Information amalgamation is the key in ensuring loss of knowledge doesn’t happen and employees have a dependable and go-to source of truth. Employees with the best intention of recording everything they learn during the course of their work will record things in different places, systems & applications. Blending this information across all of these places, systems, and applications, while creating a single source of truth will provide the required sanity, clarity, and stability required during these changing times. 


We believe that efficient knowledge management is what drives an organization before, through, and after mergers, and if done poorly can unravel the entire effort. Nesh, an enterprise answer engine, amalgamates knowledge from multiple knowledge sources and provides a simple way for employees to find answers to their questions before, during, and after organizational changes like re-orgs and mergers. She provides more clarity through changing times as teams can ask Nesh about the new policies, procedures, best practices, legacy information and so much more, without worrying about where the knowledge resides. 


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