Case study: Reining in knowledge during an M&A

During a merger, much time and energy is given to the integration of physical assets but intellectual assets are often ignored. If people feel undervalued or threatened by the change process companies run the risk of allowing knowledge to walk out the door. Kathy Rod highlights the role knowledge management should play in the planning and integration process to ensure the retention of key personnel.

Does knowledge management have a role to play in a merger process? The answer should be a resounding ‘yes’, particularly for professional-services firms where employees’ knowledge and experience are the primary assets. During a hectic merger period, when time and resources are spent in integrating the physical assets and in developing joint processes and systems, it is critical that the task of integrating intellectual assets is not overlooked.[1] Uncertainty, lack of communication and poor attention to cultural issues can lead to valuable knowledge walking out the door. Not promoting the swift integration of intellectual assets can also lead to failure in realising the expected knowledge synergies that should be available through an expanded knowledge pool and through extended collaborative networks. In human terms, a merger presents a challenging change-management process, with communication playing a central role. Knowledge management should be built into the integration plan to ensure knowledge is transferred successfully and the extended knowledge resources utilised effectively.

McKinsey & Company conducted a global survey of knowledge management in 2001, which found that knowledge acquisition was becoming a prevalent reason for mergers. The McKinsey report highlights the importance of reassuring staff at all phases of the merger to ensure coveted knowledge does not leave the firm because people do not feel valued. The report states that management needs to create a dynamic, creative environment full of knowledge pull, and make sure the knowledge synergies are exploited.[2]

The merger of Allen Allen & Hemsley (AAH) and Arthur Robinson & Hedderwicks (ARH) in July 2001 to create Allens Arthur Robinson (AAR) provides some practical insights on the integration of intellectual assets. Although there were many integration tasks, this case study focuses mainly on a number of knowledge-related tasks, such as knowledge retention, the identification of expertise to enable knowledge pull, and the development of communities of practice to exploit knowledge synergies.

Putting the merger in context

In March 2001, two of Australia’s top-tier law firms, AAH and ARH, announced they were going to merge after a successful 15-year strategic alliance. During the previous years as de facto partners, the firms had worked together well and had aligned many of their systems, in particular their IT platforms. Although the longstanding relationship and technology alignment made the merger easier on a practical level, there were still issues to address in terms of structure, culture, procedures and processes.

The merger had to take into account the expectations and requirements of the key stakeholders as well as staff in 11 offices across seven countries. Both firms had significant experience in mergers and acquisitions on behalf of their clients. Each had previously entered into mergers during their long history of providing legal services in Australia.

The firms were aware of the potential pitfalls in merger situations and the less-than-impressive track record of mergers between professional-services firms. To ensure thorough preparation and ongoing success post-merger, the firms formed an integration team to chart a course through all the pre and post-merger issues.

The timetable for the merger process was 100 days from the time of the announcement to the date of the actual merger on 1 July 2001. The time span was deliberately short, with the new structure and senior appointments announced quickly. According to Brad Banducci, head of Boston Consulting Group’s corporate-development practice in Asia-Pacific, the speed and transparency of a merger process is critical to its success.[3] For example, the operational success of the merger between global accounting firms Price Waterhouse and Coopers & Lybrand in 1998 has been attributed to its speed. Uncertainty due to delays or indecisiveness can lead to knowledge walking out the door. People problems are a major cause of failed mergers. To retain key individuals, managers need to move quickly, communicate clearly, and share information transparently.

Communicating change

The integration team was aware that good communication was vital for the success of the merger process and for reassuring staff. Meetings were called at each site of AAH and ARH to communicate the why, when and how of the merger. Broadcast e-mails were sent out to all staff providing information on the merger’s process. The restructuring of departments, appointment of new department heads and the assignment of staff to relevant departments were communicated as quickly as possible. Where there were opportunities for economies of scale that resulted in downsizing, management created a timeframe for the change and provided the staff affected with information on the steps that would be taken to assist them.

To ensure as much transparency and consistency as possible in the communication process, the integration team needed a suitable communication channel. The communication solution was to develop a joint intranet site to communicate all merger announcements, such as appointments, new structures, systems and policies of the new firm. This interim intranet was called AAR Countdown and a link to it was placed on the homepage of each firm’s intranet site. The site was first launched with 100 days to go and the countdown to merger was visible on a banner. The design of the intranet introduced the new firm’s branding and reinforced the development of a new identity as AAR.

As a communication tool the choice of an intranet site seemed ideal. Important communications could be sent as a brief e-mail to all staff, with a link to the intranet site for those who wanted more detail. This ensured that inboxes were not overloaded with lengthy attachments and the key messages could be available for future reference. Rather than rely on the firms’ grapevines or rumour mills for communication, the integration team chose to provide as much information as possible to alleviate staff concerns about job security and their place in the new structure.

Initially the AAR Countdown site received a large volume of traffic but as the merger deadline approached, the intranet was not keeping up with the increasing number of e-mail bulletins being sent out, and fewer people made use of it. Comments on the effectiveness of AAR Countdown indicated that the site was not updated quickly enough and did not have enough content.

Another drawback to its effectiveness, which did not surface until later, were the differences in the firms’ development and use of intranets. AAH and ARH both had well established knowledge-management practices and were committed to investing significant resources into a focused, long-term programme of knowledge management. The success of this investment had been dependent on the vision and commitment of key stakeholders, and on the development of a knowledge-sharing culture. Both firms extended this vision and commitment to the building of intranets that were used to share information and promote knowledge resources, whether standard documents, advice, library materials or internal experts.

The firms’ intranets reflected alternative approaches that highlighted the differences in culture. ARH’s intranet was relatively new and, as a result, had limited content. It had a consistent well designed look, was easy to navigate, used specific colours and opted for centralised content management. The centralised approach ensured consistency but slowed down the development of content. Daily usage for ARH’s intranet was approximately 40 per cent. AAH, on the other hand, had a well-established intranet that had little uniformity in its look and feel, and allowed a wide choice of colours, styles and images. It tended to rely on an effective search facility for navigation, provided for decentralised content management and was rich in content. Daily usage for AAH’s intranet was 87 per cent.

The result of these differences in intranet usage was that ARH people rarely accessed AAR Countdown. They relied more on the broadcast e-mails from the integration team to keep themselves informed. At AAH, the link to AAR Countdown was visible on users’ desktop but ARH people needed to open their intranet to find the link. In retrospect, AAR Countdown did serve its purpose as a communication tool but its effectiveness was hampered by people’s willingness to take the extra steps to access it.

A new wineskin

Though the merger of AAH and ARH was one of two equal partners, the new firm needed an identity of its own and the opportunity to establish its own brand in the marketplace. According to Ghosal and Gratton, effective horizontal integration occurs when managers provide a shared sense of identity and the ability to connect to a common knowledge base and build social relationships.[4] The integration team was committed to developing that shared sense of identity. The marketing campaign to inform clients, staff and the public in general about the new firm revolved around the concept of ‘clear thinking’. The merger was an opportunity to establish the AAR image as modern and clever, providing cutting-edge legal work to clients and the ability to cut through complexity to find the real issues in a transaction or dispute. We were not going to pour new wine into an old wineskin.

Brand development involved not only a new logo, but also new styles for all documentation. Developing a strong brand consciousness assisted in breaking through the ‘them versus us’ syndrome so common in merger situations by providing a focus on new directions and opportunities. Experience has shown that if this syndrome is ignored it can perpetuate polarisation and defeat attempts to build collaborative networks for sharing knowledge.

Focusing on best practice when merging services and processes is another method advocated by the experts to reduce the ‘them versus us’ syndrome.[5] A practical example of how this was used during the AAR merger was the combination

of the two knowledge-management teams. Both AAH and AAR had well established teams consisting of professional-support lawyers and technical staff responsible for capturing, storing, indexing, disseminating and, at times, drafting internal legal knowledge. The combined group came together for the first time in May 2001 at a special workshop. They met to review their combined strengths and weaknesses, and to establish new practices and procedures for the group. An external knowledge-management consultant was invited to attend the workshop and speak to the group on international good practice for knowledge management in law firms. Small working parties were formed to develop and write new procedures and processes. The working parties were able to review their current practices in light of established good practice rather than compare the AAH method with that of ARH, and perpetuate polarisation. The newly formed group could then get on with the task of combining the knowledge repositories.

The initial commitment to a new identity did not extend to the intranets. The content-management team was told that links to the existing intranets would be made available on the new AAR desktop and they continued to maintain two separate content-management systems. A month before the merger there was a change of tack. The decision was taken to incorporate the intranets into the new wineskin concept. Only AAR-relevant information was to be available on the new intranet from 1 July – anything that related to the previous firms was to be removed. Practice groups and departments were immediately notified that their content would not be published until it was updated and restyled to reflect the new firm’s structure and style. We believe this editing process assisted in building the new image by allowing content providers to identify with the new style.

The web designers and intranet-content managers had a very short time frame to develop the AAR intranet design and they worked frantically to build in enough relevant content to attract users on 1 July. The killer app that drew people to the intranet was the internal directory – the only means by which employees could locate others within the firm.

The decision to build an AAR intranet in 30 days was very stressful for the intranet-development team with many long days and nights invested to achieve a viable outcome. In retrospect, we believe this was the best decision for AAR. It assisted in building the new identity and established a one-stop shop for information on new policies and procedures, departments and practice groups, the management team, and the location of people in the firm. We subsequently attended two of Ark Group’s workshops on intranet benchmarking to observe how some organisations that had recently gone through mergers were still grappling with multiple intranets, and how to disperse information.

Locating the experts

Another knowledge-related task that needed addressing was how to locate expertise in the new firm. Photos were regarded as an essential part of the solution. Additional fields were created in the staff profile form on the internal directory to seek information on expertise areas, language skills, etc. Initially the form allowed for free-text entries but, after testing was carried out, we quickly realised that there were too many ways to describe similar expertise areas. A decision was made to compile an expertise taxonomy that could be updated regularly but would provide consistent terminology, making it easier to locate the experts.

Because of the short time frame involved, everyone was asked to fill out their own profiles by 1 July. Staff members were visited in their offices for impromptu photo shoots. As the deadline approached it became obvious that there were many who had not filled out their profiles, and a large number did not have photos. After further investigations we found that people with limited computer skills found completing their profiles daunting. The lack of photos had many explanations, one of them being objections to the skill of the amateur photographer and quality of the photos. Subsequently, the knowledge-management group added the expertise information in people’s profiles centrally from the details provided by the experts. This ensured that all relevant profiles were updated and available for searching. The problem with the photos continues - some people never seem to be satisfied with the end result.

The emphasis on identifying experts acknowledged the importance placed on tapping into the wealth of knowledge now available and making use of the synergies offered. Another way to locate experts and check experience internally was by making the curriculum vitae of all partners and senior lawyers available and fully searchable on the intranet. For clients and potential clients, a simple directory was placed on the newly created AAR website, which focused on general practice areas that clients would be more familiar with rather than the discrete levels of legal expertise that were needed internally. For example, the term ‘capital markets‘ was used rather than the more specific area of ‘warrants and structured products’.

Supporting communities of practice

In mergers, inter-organisational communities of practice are ideal vehicles for realising the knowledge potential that exists across firms.[6] After a merger, interactions that incorporate wider knowledge networks need to be encouraged so that new formal and informal communities of practice can develop across geographical, departmental and traditional boundaries. Although lawyers at AAR were assigned to specific departments before the merger, they were able to select the formal communities of practice that they wanted to join and work in – most were members of at least two communities.

The communities have developed well and tend to have a national (and, in many cases, international) focus, and are very inclusive. At the centre of the community is a team of experts, who are the core members, and then a larger group of members active in the area of practice. There is also a group of peripheral members or observers that tend to be interested in the area but not actively involved. These communities built up quickly and started meeting regularly using video- and audio-conferencing facilities. Each community needed a space to share information. The newly created AAR intranet provided the communities with a one-stop shop where they could not only provide information for new-comers on what the community represented, but could also share community-specific knowledge and resources with its members.

Knowledge-based organisations have been likened to a marketplace where there are buyers and sellers who interchange roles frequently, and where the underlying atmosphere is one of trust.[7] There are other roles in a marketplace, especially a new marketplace where people are not yet familiar with what is available, do not know who to talk to or where to find expertise. One of these, the knowledge broker, is such as role. The broker is someone who brings the buyer and seller together. We found that professional-support lawyers spent much of their time initially providing a knowledge-broking service until such time as people became more familiar with the knowledge tools available.

Leveraging the foundations

Two years have passed since the merger. The eventful 100 days of integration are now part of AAR’s history. From a knowledge-management point of view, the merger provided us with valuable lessons learnt.

We had a new identity, a new expanded knowledge base and new social networks. The firm is continuing to build on its areas of expertise and to foster informal as well as formal communities of practice. Collaboration for exchanging knowledge is now being extended to consider other stakeholders, including clients. The merger provided us with a strong foundation to leverage the combined knowledge of the firm’s experts.

Kathy Rod is manager of the Knowledge Management Group at Allens Arthur Robinson. She can be contacted at Kathy.Rod@aar.com.au

References

1. Mazzie, M., ‘Mind melds’ in CIO Magazine (CXO Media, 15 October 1999)

2. Kluge, J., Stein, W. & Licht, T., Knowledge Unplugged: the McKinsey & Company Global Survey on Knowledge Management (Plagrave Macmillan, 2001)

3. Stenholt, J., ‘Mergers must be fast and fair’ in Business Review Weekly (Fairfax Business Media, 11 April 2002)

4. Ghosal, S. & Gratton, L., ‘Integrating the enterprise’ in MIT Sloan Management Review (MIT Sloan School of Management, Autumn 2002)

5. Mazzie, M., ‘Mind melds’ in CIO Magazine (CXO Media, 15 October 1999)

6. Wenger, E., McDermott, R. A. & Snyder, W., Cultivating Communities of Practice (Harvard Business School Press, 2002)

7. Davenport, T. & Prusak, L., Working Knowledge (Harvard Business School Press, 1998)