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    Cid ressum integrating_management_accounting_systems_mergers_may10 Cid ressum integrating_management_accounting_systems_mergers_may10 Document Transcript

    • Integrating managementaccounting systems in mergers research executive and acquisitions: the role of summaries management accountants Volume 6 | Issue 5 Agyenim Boateng Roberta Bampton University of Nottingham Leeds Metropolitan University ISSN 1744-7038 (online) ISSN 1744-702X (print)
    • Research executive summaries series Integrating management accounting systems in mergers and acquisition: the role of management accountants Key findings: • Management Accounting System (MAS) integration goes through four phases, namely, pre-integration, integration planning, implementation options, review and evaluation. • Management accountants tend to focus mainly on task aspect of MAS integration. • Regardless of industry and implementation strategy, similar activities are performed at pre-integration and planning stages. • Activities performed at implementation stage is contingent on the size of the firm and implementation option adopted.The authors would like to thank the sponsors of this Therefore, the actions that are taken to manage the taskproject and the CIMA reviewers for providing useful involved in management accounting integration are a keycomments on an earlier draft of the research executive to successful performance.summary. The high rate of M&A failures, the dearth of research andOverview of project the lack of explanation of the role of the management accountants in M&A integration process raises someMergers have become part of the business landscape and important questions for senior financial managersa popular strategic choice for companies’ growth and charged with the responsibility of integrating the variousexpansion. To quote Jemison and Sitkin (1986; p. 107), functions and tasks inherent in the MAS integration‘the use of acquisitions to redirect and reshape corporate process. This study attempts to rectify this positionstrategy has never been greater.’ Yet despite the popularity by examining and mapping out the role played byand strategic importance of mergers and acquisitions, management accountants in the integration process ofseveral major consulting, advisory services firms and MAS in mergers and acquisitions with a view to providingacademics have reported that about 60–80% of all a guide for practicing accountants and senior managersmergers are financial failures when measured in termsof their ability to deliver profit increases or wealth gains Objectives(KPMG, 1999; Mergerstat, 2000; PricewaterhouseCoopers,2000; Henry, 2002). Mergers and acquisitions (M&A) The main purpose of this research is to examine andare clearly beset by numerous problems and the issue of map out the role of management accountants in themergers and acquisitions’ failure is central to research in integration process of MAS in mergers and acquisitions.M&A studies. The study focuses on the role played by management accountants prior to, during and after the M&A of theSystematic research evidence indicates that one of the two companies involved. Specifically, this study attemptsreasons attributed to mergers and acquisitions’ failure to answer the following research questions:to create value for shareholders is lack of effective andsuccessful integration of the two companies. Researchers • What is the role played by management accountantshave addressed the issue of post-acquisition integration in the M&A integration process?process from human resources, cultural and corporate • What are the main factors influencing the MASpoints of view. However, in the context of management integration process?accounting integration, we know very little about whatmanagement accountants do when two companies The role of management accountants in MASare merged. A MAS which encompasses accounting integration in M&Asystems designed to provide information for use by Using in-depth interviews with eight companies,managers within an organisation, is regarded as the most the study finds that the integration of managementimportant formal source of information for all aspects accounting systems goes through four sequentialof business planning and control. Moreover, it is argued stages with a number of activities being performed bythat acquisition success is, to some extent, contingent management accountants. Our framework for MASon the effective management of the integration process. Research executive summary | 2
    • Research executive summaries series Integrating management accounting systems in mergers and acquisition: the role of management accountantsintegration suggests a three staged process which • The choice of integration option to achieve speedencompasses the following: of integration, hold on to or retain customers and key staff members, provide relevant and reliable• Pre-integration stage is designed to foster information for performance evaluation and the co-operation, trust and understanding of the acquired achievement of synergies. MAS to help plan the integration. • Review and evaluation is designed to learn from and• Integration planning stage aims to develop a blue rectify problems arising out of implementation. print and decide the integration option to follow. Figure 1 captures the activities which are performed and goals of each of the four phases are discussed below.Figure 1: framework for MAS integration in M&A Phase 1 Phase 2 Phase 3 Phase 4 Pre-integration Integration Implementation Review and planning options Evaluation Activities: Activities: Examination of: • Prepare plans • Training needs • Identify best practices MA manuals and reports in both firms • Coordinate integration 1 2 3 • Budget for staff • Integration time table Immediate Gradual Keep acquired • Review option development • Integration wholesale absorption: and acquirer choice • Conduct face-to-face team/committee absorption: • Two systems system • Learn lessons meetings, interviews • Clearly defined roles • Close down operate initially independently and feedback with key staff and responsibilities existing • Gradually phase • Articulate shared • Rotate staff system out acquired or purpose acquiring system Goals: Goals: Operate newly • One integrated Trained staff • To foster corporation • Set integration goals installed MAS system operate and collaboration • Decide on integrating system - • Gradually acquired or • Build trust option trained staff installed - existing system • Understand acquired • Train staff trained staff to system • Validate information run the system • Gain valuable memorandum knowledge from key • Use/apply valuable employees knowledge in decision • Allay fears and anxiety making • Build confidence Goals: Identify areas Action plan • Speed of integration for integration • Adequacy of the new system Research executive summary | 3
    • Research executive summaries series Integrating management accounting systems in mergers and acquisition: the role of management accountantsPhase 1: pre-integration These activities are carried out to foster co-operation and build trust, and to facilitate understanding of theThe first phase pre-integration stage involves the acquired MAS. More importantly, this phase helps toacquirer preparing the ground for the integration to take draw a list of priority areas to take immediate control of,place. This involves information gathering with a view to to ensure continuous flow of information for customerdevelop trust through various means of communication. retention, facilitate the identification of training needs,It is important to point out that it is in this stage where preserve quality of data and areas to integrate, increaseemployees of the acquired and acquirer will have to shareholder confidence, ensure costs are controlled andwork with each other in order to obtain information integration synergies are capable of being measured andto accomplish the goal of successful integration. As achieved during the integration.a result, communication is intense and done mostlyon a face‑to‑face basis where feasible, and in some Phase 2: integration planningcases through telephone and emails. This point wasemphasised by a number of respondents. A respondent The second phase aims at creating a plan for integration.indicated that ‘at the early stages of the integration This phase is very important as it outlines the integrationprocess, communication cannot be done remotely process. It may be argued that every merger deal ison the telephone, and it is a lot easier if people spend unique and may involve different sets of problems,some time with the person who hands it over to you.’ however, it should be recognised that the performanceThis is supported by the respondent who said ‘trying of certain common activities will result in a higher levelto get people from the acquired company on board by of synergy and promote the eventual success of thecommunicating carefully actually helps.’ Communication integration. Prominent among the activities performed atwith key management accounting staff, and continuous this stage are:communication with all employees and unions to clarify • selection of integration/installation teamissues such as possible redundancies, at the early stageis therefore central to the achievement of the effective • validation of information memorandumintegration and reduction of employees’ resistance. • set integration goalsThe extent of the acquired accounting employees’ • prepare the blueprint for integration with time tableparticipation at this stage has a tremendous influence onthe integration outcome hence it is important that the • prepare the training plan with checklistacquirer’s management accounting team acknowledges • clearly define the roles and responsibilities of thethe importance of the acquired accounting employees’ installation teamrole and handles it through continuous and face-to-face • establish the reporting linesinteraction. During this phase, the following activities arecarried by the management accounting staff. • decide on the integration options to be used for implementation.The acquirer management accounting staff undertakesregular on-site visits to: Phase 3: implementation and choice At this stage, the integration strategy has to be decided• conduct face-to face meetings, interviews with key and how the MAS is going to be integrated with structure members of accounting staff and control systems. We found that three integration• examination of MAS manual and reports strategies/options are used by management accountants• distribute and collect an information request form and they are: (also called information memorandum) from 1. immediate absorption management accountants giving details about the acquired company MAS 2. gradual integration• articulate shared purpose through regular meetings 3. two management accounting systems operate with the management accounting staff independently.• jobs rotation – where key members of staff in both The key activities normally performed at this phase are target and acquired firms exchange jobs and/or co-ordination, standardisation, absorption of the acquired work together to familiarise themselves with the management accounting system and closing down the management accounting systems in both companies. acquired MAS system. Research executive summary | 4
    • Research executive summaries series Integrating management accounting systems in mergers and acquisition: the role of management accountantsOption 1: immediate absorption improvement of MAS, staff and customer retention, speed of integration and realisation of operationalThe primary aim of this approach is to consolidate synergies.completely the MAS of both firms through assimilatingthe target firm MAS into that of the acquiring firm. Here Factors influencing the choice of MASthe acquired MAS is replaced with the acquirer system. integration optionAs this method of integration involves a significantdegree of change in the target firm, it is important to Regarding the factors influencing the choice ofprepare a preliminary plan for key integration issues, implementation option (namely, immediate absorption;transitional structures, techniques for continuous gradual integration of the acquired companies; or thecommunication, co-ordination and preparation of a two systems operating independently) to be adopted,time table for the closure of the acquired management we find that two sets of factors influence the choiceaccounting department and its eventual movement of integration approach: firm-specific factors andto the acquirer’s system. The change is carried out in a performance-evaluation factors.relatively quick manner to reduce the level of disruptionresulting from the delay in the integration of MAS. It Firm-specific factorsis pertinent to point out that the communication tool Firm-specific factors relate to the unique characteristicsemployed is predominantly face-to-face and more of the acquired firm and the extent to which they differintense in nature. from the acquirer system. These include:Option 2: gradual integration • size of the acquiredThis option involves the following activities: training • complexity of the management accounting systemof staff/development, co-ordination, standardisation • familiarity of the acquiring firm with the target firmof documents and consolidation and regular review. • reporting requirementsIn addition, many of the activities involved in theimmediate absorption will also be undertaken. This • the adequacy of the acquired systemoption is relatively slow and may take about 6-18 • compatibility of IT systems.months to complete depending upon the size of thefirm and the complexity of the management accounting The firm-specific factors impact both on thesystem. This is the most popular option for the effectiveness of performance evaluation and theorganisations surveyed in this research. management accounting system integration. For example, the complexity of the production systemOption 3: two systems operating independently influences the extent to which the MAS can be simplified and consequently the choice of management accountingThis option involves operating each system implementation option to be adopted.independently after acquisition. This approach isnecessitated by a high need for operational autonomy Performance-evaluation factorswith the acquirer and target systems being kept atarm’s length. The most important activity here is staff This is driven by factors which facilitate good evaluationdevelopment, in particular, the use of job rotation to help and performance. These include:accounting staff of the two companies to understand • to facilitate comparabilityboth systems and improve quality of information neededfor decision making. • to simplify MAS to ensure adequate and timely production of informationPhase 4: review and evaluation • perceived level of resistance by the acquired staffFollowing the implementation of one of the options is • future information needs andthe review and evaluation of outcomes. Here lessons • level of co-ordination and communication required.are learned and fed back into the process for futuremanagement accounting integration. It is pertinent to note that the list of factors identified in our theoretical framework cannot be consideredFrom this process, the success of post-acquisition exhaustive since we were unable to identify and includeintegration process is measured. These include all factors. Research executive summary | 5
    • Research executive summaries series Integrating management accounting systems in mergers and acquisition: the role of management accountantsFactors influencing the post-acquisition Notwithstanding the common activities we documentedintegration process and normally performed by all management accountants, it is pertinent also to point out that we also find thatWe found that size is the single most important factor. each acquisition tends to be unique and different withOne of our respondents pointed out that ‘whether to many contextually divergent issues influencing thereplace the acquired system immediately or integrate on a integration approach to be adopted or used.gradual basis is ‘very dependent on the size of acquisition.’Supporting this view, another interviewee said ‘it isvery much dependent on the size and the similarity of Another important conclusion to be drawn fromthe systems to be integrated.’ This point was further this study is the importance of communication. Wereinforced by the other respondents. identified communication as a major tool for reducing the uncertainty among the people involved. GatheringSummary important information about the target MAS is aThe study has examined the role played by management key to stabilising volatile situations and reduce theaccountants in MAS integration process of mergers dysfunctional effects likely to undermine the integrationand acquisitions. This study represents one of the first process.attempts to provide a framework for MAS integrationand therefore makes a significant contribution to an Lessons learned and suggestions forunder-researched area of management accounting. management accountants An examination of the framework for integration processThe study finds that the role of management we have put forward in this study indicates that theaccountants in the MAS integration is focused on task integration of MAS in mergers and acquisition involveaspects of the MAS integration process with relatively both task and human resources integration activitieslittle attention on human aspects of integration. The with a number of common activities being performed byemphasis of task integration process by the management management accountants during the integration process.accountants is not surprising in that the activity The implication of this for management accountants issegmentation during acquisitions creates a process in that, certain common activities are important for thewhich managers focus on the job they have been given successful integration of MAS in M&As. We suggestrather than on the whole (Birkinshaw et al., 2000) hence that managers should pay attention to these activities,management accountants may focus on task to get the particularly, those relating to the first and second phasesjob done. of the integration process.The study also finds that all the acquirers (regardless Another important implication of the finding is thatof the industry size and implementation strategy to be management accountants of the companies examinedused) follow the similar activities outlined in the first place more emphasis on the task aspects of MAStwo stages of MAS integration framework i.e. pre- integration process in mergers and acquisitions withintegration and integration planning. However, at the relatively little attention on the human aspects ofimplementation phase, the activities to be performed integration. Although, it is acknowledged that theare contingent upon the implementation option concentration on task integration can lead to theadopted. Companies adopting immediate absorption achievement of synergies but may also result in poortend to undertake minimal changes while companies employee motivation. Given that the integration of MASadopting gradual integration tend to perform a number involve people, who in some cases, are about to lose theirof activities ranging from co-ordination, standardisation jobs, lack of full and proper attention in this vital aspectsof documents and consolidation. In addition, this study of integration may result in uncooperative attitudesfinds that large acquirers are more likely to immediately towards the integration process with potential negativeabsorb the management accounting system of relatively consequences. The important lesson to be learned heresmaller acquired system. This is not surprising given that is that, although task integration and human integrationintegrating a relatively small firm tends to be easier. require separate and different management actions,However, where the acquired system is unrelated, the efforts must be made by management accountants toacquirer is more likely to retain the MAS and allow it to give equal attention to both task integration and humanoperate independently. integration as they both constitute important elements Research executive summary | 6
    • Research executive summaries series Integrating management accounting systems in mergers and acquisition: the role of management accountantsfor successful integration. For the process to generate charged with the responsibility of dealing with humanmaximum benefits both task and human integration aspects of the integration far beyond just taking actionsissues should be at the core of MAS integration process. to get co-operation and information of the targetSpecifically, we suggest that there should be personnel employees.among the management accounting integration teamReferences and further reading1. Birkinshaw, J., Bresman, H. and Hakansen, I. (2000). Managing post acquisition integration process: How the Human Integration and Task Integration Process Interact to foster value creation, Journal of Management Studies, 37, 3, pp 395 - 425.2. Granlund, M. (2003). Management Accounting System Integration in Corporate Mergers: A case study, Accounting, Auditing and Accountability Journal, Volume 16, 2, pp 208 – 243.3. Henry, D. (2002). Mergers: Why most big deals don’t pay off. Business Week (October, 14), pp 60-70.4. Jemison, D and Sitkin, S.B (1986). Corporate Acquisitions: A process perspective, Academy of Management Review, Vol. 11, pp 145-163.5. Jones, C.S. (1985a). An Empirical Study of the Role of Management Accounting System following Takeover or Mergers, Accounting Organisation and Society, Volume 10 (3), pp 303 -328.6. Jones, C.S. (1985b). An Empirical Study of the Evidence of Contingency theories of management accounting systems in conditions of rapid change, Accounting Organisation and Society, Volume 13 (3), pp 283 -310.7. KPMG (1999). Unlocking Shareholder value, The Key to Success (Mergers and Acquisitions: A global research report), November.8. Mergerstat (2000). Two tales can be told about the M&A market in 2000, PR Newswire (December 28).9. PricewaterhouseCoopers (2000). PricewaterhouseCoopers forecast. While M&A outlook remains strong for 2001, acquirers look for more than size as they struggle with new economy growth model, Business Wire (December 18).Researchers:Dr Agyenim Boateng, University of Nottingham, China Campus, 199 Taikang East Road, University Park, Ningbo,315100, PRCDr Roberta Bampton, School of Accounting & Financial Services, Leeds Business School, Rose Bowl 417, CalverleyStreet, Leeds, LS1 3ED, UKProject is sponsored by CIMA General Charitable Trust. Research executive summary | 7
    • Chartered Institute ofManagement Accountants26 Chapter StreetLondon SW1P 4NPUnited KingdomT. +44 (0)20 8849 2287F. +44 (0)20 8848 2450E. research@cimaglobal.comwww.cimaglobal.com