Editor's letter

After falling out of favour, company mergers are back in fashion. Last year was the most active for mergers and acquisitions (M&A) worldwide by value since 2000, and recent announcements from firms including Procter & Gamble and Gillette, and AT&T and SBC, for example, have fuelled impressions that the urge to merge is gaining strength. In the 1990s, a similar compulsion gripped the corporate world, with often disastrous consequences for the companies involved. But with record profit announcements seemingly now a daily event and corporate-governance reforms well underway, the hostility among investors towards M&A has abated. Thoughts are once again turning to expansion and diversification.

For knowledge-management practitioners, company mergers represent both an opportunity and a threat. The worst-case example is that of Clarica/Sun Life, which Jerry Ash discussed in the context of KM sustainability in these pages last month. Briefly stated, Sun Life’s acquisition of the much smaller Clarica resulted in the demise of a celebrated knowledge initiative, which was led at the time by renowned KM practitioner Hubert Saint-Onge. Rather than look to integrate the practices that Saint-Onge and his team had worked so hard to cultivate among Clarica’s employees, Sun Life allowed the programme to stagnate and eventually disintegrate. As Saint-Onge told Ash, “The new owner never really took the time to understand what was being done and why. Then and now, the knowledge and learning effort was seen as an unnecessary expense lacking in justification, pure and simple.”

The opportunity that M&A present, on the other hand, stems from the huge influx of knowledge, experience and creativity a company merger precipitates. Indeed, a McKinsey survey conducted in 2001 found that knowledge acquisition was becoming a prevalent reason for M&A in the first place. There is a caveat, of course: acquiring knowledge and ensuring it is integrated and accessible across the enlarged enterprise are very different. Aligning systems, processes and, above all, cultural behaviour is an enormous challenge. Likewise, valuable knowledge may easily slip out of the back door during a merger. But the potential rewards for the organisations involved are enormous. In one swoop, the combined enterprise is given access to an expanded pool of expertise and extended collaborative networks that have the potential to contribute immediately and directly to the bottom line.

All of which reinforces what most readers of Inside Knowledge will intuitively comprehend: the role of the knowledge manager, and the importance of KM-based principles and practices will only be enhanced as M&A activity gathers pace. Company mergers present a massive opportunity, but are likely to fail unless as much, if not more, attention is paid to integrating intellectual assets as is usually paid to integrating physical assets. It is perhaps no consolation to Saint-Onge that Sun Life is probably yet to realise the full cost of its short-sighted and misguided attempts to shave a few dollars from the combined organisation’s operating budget.

Simon Lelic
Editor

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