The post-merger integration and implementation of management information systems

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The post-merger integration and implementation of

management information systems

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Master thesis Britt Wilbrink

University of Groningen

Faculty of Economics and Business

MSc Business Administration

Specialization: Organizational and Management Control

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st

of July 2010

Britt Wilbrink

Address: Vlasstraat 3a Postal code: 9712 KS City: Groningen

Email address: b.d.a.wilbrink@student.rug.nl MSC Business Administration

Specialization Organizational & Management Control Studentnumber: S1552821

Coordinator: Dr. B. Crom

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Preface

This Master thesis has been written as a finalizing work to obtain the degree of Master of Science in Business Administration at the Faculty of Economics and Business at the University of Groningen. Inspiration for this thesis was found during my internship at Gasunie. There I wrote this master thesis during an internship of five months. Gasunie was looking for a student who could apply academic knowledge on an actual problem, which was of great interest to me. The topic was in line with what I learned in my courses Organizational and Management Control at the University and provided me the opportunity to apply this knowledge.

I would like to thank several people for their support during the process of conducting this thesis. First, I would like to thank my first supervisor Dr. P.E. Kamminga, who guided me, took and made time for me and provided me with many useful advices. In addition, I would like to show my appreciation to Dr. W. Westerman, who was my second supervisor from the faculty Economic and Business at the University of Groningen.

I would also like to thank my supervisor of Gasunie, Luuk Feenstra, for his positive feedback, support and advice during my internship and the opportunity to work on my research project at Gasunie. Also the other employees of his department were very helpful. I also thank them for the resources they made available and the trust they had in me. The way they were interested and caring about me deserves an enormous compliment.

Furthermore, I hereby seize the opportunity to express a word of gratitude to my family and friends. My greatest thanks go to my family, who has supported me not only during the thesis work but also during the whole bachelor and master’s studies. And also my friends, they gave me such great support in so many ways during the completion of my thesis.

Writing this thesis has been a valuable experience but nevertheless I am glad it is finished. I am looking forward to a new period and I am sure that the experiences of past years will be of great help.

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Summary

This thesis establishes a framework that helps organizations by making a decision about the extent of integration of management information systems (MIS). Both post-merger integration and the implementation of a MIS are sources of radical change in an organization. The analytical framework is applied to a longitudinal case study of post-merger IS integration at Gasunie after it acquired the network of the former gas transport division of BEB and EMFG (now: Gasunie Deutschland) in Germany.

The case study reveals that the variables of the model influence the post-merger IS integration process. The variables are merger objectives, growth strategies and situation variables; geographical distance and relative size of the companies. There are several differences between the IS integration at Gasunie and the expected outcomes according the theoretical model. The most important explanation for this difference is, is that there is no clear plan for the implementation process of the IS integration strategy and if there is no clear plan and no vision of the future of IS, it becomes hard to communicate this to the employees. The model is mainly based on economic arguments and how to be efficient and does not take the time factor into account. Also the time dimension is important and the consideration of fast or slow integration has to be made carefully. The differences between the situation at Gasunie and the expected outcomes according the theoretical model are explained by factors which are not in the model. These are variables like employee resistance and managerial support that influence the IS integration decision.

The integration of MIS in mergers and acquisitions is a difficult undertaking, which needs to be planned carefully. It would seem that a higher degree of integration, combined with excellent communication, a clear vision, positive support of executive management and change management, will most likely to provide more long-term benefits.

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I. Introduction

1.1 Motivation for the study

Gasunie is a European gas infrastructure company and wants to be a leading company in North West Europe. Gasunie provides the transport services chiefly through their transmission network, operated by Gas Transport Services B.V. (GTS) for the Dutch part of the network and by Gasunie Deutschland Transport Services GmbH (GUD) for the German part. The Transmission System Operators department (TSO) is responsible for the day-to-day management of the gas grid.

In 2008 Gasunie strengthened position through acquisition of the north-German gas transport network and also through the increasing number of other ventures. The other ventures are in the Joint Ventures & Business Development business unit (BBL, Gate terminal, Zuidwending and BBL). In the regulatory arena, various significant developments manifested themselves in the first half of 2009, both nationally in the Netherlands and Germany and at the European level. These developments have significant consequences for Gasunie. Gasunie Netherlands and GUD are in the current situation two organizations. They are both in the same business and have the same activities. Gasunie is keen to serve the German market in the same way it serves the market in the Netherlands.

Gasunie Netherlands and GUD have different steering principles, different steering focus and different reporting principles. There are several problems Gasunie is facing due to the acquisition of GUD. SAP is used as collaborative business software within each company and the controllers of Gasunie Netherlands do not have a clear oversight of the system in Germany and vice versa. Is it necessary to integrate the SAP systems and which information system should be used?

In the Business Plan 2010-2013 Gasunie points out that they want to be a “fit for purpose” organization. They want to have organizational capacity to implement additional efficiency and to build in flexibility by integration of processes. Gasunie wants to become a more agile organization with a higher focus on service. Knowledge management, performance management, education will be strengthened. Efficiency is one of the overall key drivers for Gasunie.

1.2 Purpose of the study

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to be integrated and how the implementation has to take place. First, post-merger integration and implementation will be researched on the basis of a review of literature. Regarding the technical aspects of MIS, technical details are not in the focus of the present study. Rather, the study concentrates on the principles of management control practices at the corporate level in this regard. After the literature study, the theory is applied on the Gasunie situation.

1.3 Research question

Based on the brief introduction above, the question where this thesis will focus on is;

• To what extent do the management information systems of Gasunie Netherlands and GUD have to be integrated and how should the implementation have to take place?

In order to find a clear answer to this question, the following sub-questions are used for a further research:

1. Which factors have, according the theory, influences on the extent of integration of the information systems?

2. How can you apply the theory of sub-question one to the Gasunie case?

3. Which factors influence the implementation of the integration of the information systems? 4. Which factors, according to the theory of sub-question three, influence the implementation of

the integration of the information systems at Gasunie and what are the practical and theoretical implications?

1.4 Research methodology

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employees who are involved with the integration of the organizations and last about 60 minutes. The interviewees adequately cover various actors and management levels that were involved in the IS integration processes. My supervisor (the business unit controller) helped with the selection of employees, judged on their capability and knowledge to answer the questions. Semi structured theme interviews were conducted. The interviews were conducted in the mother tongue of the interviewees (i.e. not English). The interviews followed the themes presented in appendix I. The themes were selected according to the respondent, for example, if the interviewee had not any knowledge about a certain theme, the questions about that theme were omitted.

Figure 1 Research model

The model in figure 1 shows the research model. The exploration of theories results in an initial framework. The framework will be applied to the situation at Gasunie. After that the practical and theoretical implications are discussed and a conclusion will be drawn.

1.5 Structure

To enhance the understanding and the outline of this thesis the structure of the research is explained here. The purpose of this study is to contribute to an overview of the information systems integration possibilities for Gasunie which could help to overcome the possible problems they are facing with due to acquisition of GUD. Chapter one introduces the research. It describes the motivation for the study, the purpose of the study, the research questions, the research methodology and the research model. The first part of the thesis presents the general theory about the information system integration process, based on available academic literature. After that the theory is applied to the Gasunie situation. The second part of the thesis describes the general theory about the implementation process. This part focuses in-depth on points of interest from academic literature to describe the factors that influence the implementation of the integration. Then the factors that influence the implementation process are pointed out and there is a discussion regarding the practical and theoretical implicatons. In

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the final part conclusions are drawn and limitations and recommendations for further research are made explicit.

1.6 Key concepts

The following concepts are used throughout this thesis. Terms listed are defined as commonly used in library science or management.

Implementation of the integration of the management information systems

Implementation is the realization and execution of the integration of the management information systems (Al-Mashari & Al-Mudimigh, 2003).

Integration of IS

The process of linking the applications within the organization after the merger in order to simplify and automate business processes (Al-Mashari & Al-Mudimigh, 2003)

IS integration strategy

An IT integration strategy is the route to establishing the desired level of IT integration, and consists of IT integration objectives and an IT integration method (Wijnhoven et al., 2006).

Management Information systems (MIS)

Management accounting systems are formal systems that provide information from the internal and external environment to managers. They are formal mechanisms for gathering, organizing and communicating information about an organization’s activities (Hongren et al., 2005).

Merger

The case where two (or more) companies are merging into a single company, this includes acquisitions or any other form of merging (Wijnhoven et al., 2006).

Post-merger phase integration

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II Factors of influence on the extent of integration of the information

systems

2.1 Introduction

This chapter deals with the first sub-question; which factors have, according the theory, influences on the extent of integration of the information systems? The goal of this chapter is to get a good insight of the academic literature about post-merger information system integration.

The aim is to determine the most appropriate extent of integration of IS and this leads to the most appropriate IS integration strategy. To determine this IS strategy other variables have to be observed. First, the general objectives of a merger are described and also the growth strategy of the organization is essential. These merger objectives have a relation with the growth strategies. After the determination of the merger objective and the growth strategy there follows a discussion about why an organization would integrate their IS. This will lead to one of the three IS integration strategies, which determine the extent of integration of the IS. Furthermore, the situational factors that influence the relationship between the merger objectives/ growth strategies and the extent of integration of the information systems are described. These variables are the geographical distance and the relative size of the companies. When the most appropriate IS integration strategy is determined, there can be made a choice concerning the approach; the partnering or integrating approach and the most appropriate IS integration method. Finally, these variables are presented in an integrated model which explains the influence of variables on the IS integration.

For this thesis, a merger consists of three broad phases, occurring in succession: pre-merger, merger and post-merger. The pre-merger phase broadly consists of: strategic planning, searching for a partner, due diligence analysis, negotiations and announcement to media and analysts. The relatively shorter merger phase typically begins after the shareholders approve the merger and end on ‘day one’. This is the day the two entities close their deal and legally become a single entity. The post-merger phase begins on day one and continues until the new firm settles down. Previous studies have suggested that the majority of post-merger changes occur within two year of day one but the integration process may continue for several years afterwards (Mehta & Hirschheim, 2004).

2.2 Merger objectives

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• Absorption

In this strategy the target company is completely absorbed by the bidder company to form one new entity in which the target company ceases to exist. The aim is achieving benefits of scale and increasing market share. The main synergy benefit is cost reduction; this can be achieved through resource rationalisation by combining redundant processes, deploying one standardized information system (IS), resource sharing, and the integration of similar business functions. This strategy thus requires complete integration of the operations, IS, organization and culture.

• Symbiosis

This is a merger strategy in which synergy is created by combining only the strengths of both parties. Scope advantages are possible since complementing capabilities are obtained to enhance the resulting company’s market power. The processes of each company that contribute to the strategic purpose of the merger are left intact and those that are similar are combined to reduce redundancy. In this strategy thus only partial integration takes place.

• Preservation

In this merger objective, the capabilities of the acquired company are maintained in order to allow them to further exploit and develop their capabilities from which the bidder company can benefit. The main benefits are based on the strengths of the target company that should be maintained. No integration occurs because the operations remain autonomous.

Problems that can arise from integration of two previously independent IS are mainly caused by choices regarding changes to the company structure after the transaction. First of all there are technical difficulties due to physical integration of the IS components and any lack of data compatibility. These problems can sometimes be solved by expensive investment and with integration design involving the whole company. There are also organizational problems, mostly depending on company culture. These problems are difficult to solve and are often underestimated (Haspeslagh and Jemison; 1991).

2.3 Growth strategies

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Merger objectives Growth strategies Absorption Horizontal integration Symbiosis Vertical integration Preservation Diversification

Table 1 Merger objectives and the growth strategies

The concept of synergy is fundamental to understanding the rational reasons why corporations participate in merger activities. When a company merges with another company they want to expand their business; they want to grow. External growth may have four different goals; growth strategies. The first one is horizontal integration. The aim of horizontal integration is to increase the dimensions in the market; it is the acquisition of additional business activities at the same level of the value chain. The merging partners have similar businesses and marketing at the same stage of the value chain. It provides access to new markets for the acquiring firm and eliminates competitors. The second is vertical integration; the aim is to gain other levels of the production chain. It occurs when a firm acquires or merges with another firm with which it earlier had a supplier-customer relationship. The third is diversification; this strategy is used if there is a search for a broader portfolio of industrial activities to reduce market risk. The last ones are other strategies that do not depend on industrial policies, such as organizational change due to fiscal gain (Trautwein, 1990). The different kinds of growth strategies pose different requirements on IS integration, as will be explained later.

The growth strategies are the strategic objectives of the acquisition. In table 2 this is combined with an analysis of the business acquired.

Growth strategies Kind of business acquired Resources Horizontal integration Same business Similar resources

Vertical integration Similar/same business Complementary resources

Diversification Different business Unique resources

Table 2 Growth objectives and kind of business acquired/ resources

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2.4 Why integrate the information systems?

When the merger objective and growth strategy are defined the organization can determine why they want to integrate the IS. The IS requirements directly influence the IS architecture and configuration, through the follow issues:

• Economies of scale: these are the cost advantages that a business obtains due to expansion due to centralization of the computer system.

• Operative behaviour consolidation: this promotes similar culture by standardizing business processes.

• Report standardization/ data integration: promote inter-company integration by standardizing information management and data representation (Giacomazzi et al., 1997).

With these requirements an organization wants to create synergies. Synergies encompass cost savings, revenue enhancements, process improvements, financial engineering, and tax benefits (Eccles et al., 1999). Synergy, in this context, is ‘generating revenue due to combined offerings’ (Mehta & Hirschheim, 2004). Goldberg and Godwin (2001) state three main categories of synergy value sources in acquisitions:

1. Strengthening or levering core businesses: accessing new customers or new customer segments, for example by entering new geographic markets, or by offering complementary or better products.

2. Reducing costs: this can be done by the principle of economies of scale; it is possible to lower costs by using resources more efficiently.

3. Benefits from technology or skill transfer: being able to use and transfer special technology or skills between the merging partners allow them to use these at a greater volume.

In an acquisition situation, information systems could contribute to all three of these goals although the most obvious contribution of information systems lies in reducing costs. This can be achieved by using centralized systems; resources can be used more efficiently, thereby directly reducing costs (Goldberg & Godwin 2001).

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How does IT play a role in post-merger integration? Savings come from reducing duplicate software applications and licenses, maintenance and network contracts, consolidating data centres, and eliminating telecom contracts. Organizational and support costs go down as duplicate applications and technologies are retired, while unneeded roles are eliminated as skills and competencies are better defined (At Kearney, 2008).

The integration of IT brings short- and long-term benefits that cannot be ignored, by enabling business synergies, providing business continuity and creating cost savings for the new organizations.

Short-term role Long-term role

Synergies:

• Integrate major business functions and communications

• Ensure uninterrupted customer experience

• Enable broader business functions

Capabilities and operational model: • Develop capabilities to support

integrated business model

• Build capacity for planned business growth

• Maintain cost-effective technology infrastructure

Cost savings:

• Deliver IT cost savings

• Define IT projects to support cost-cutting initiatives

• Minimize cost and risk

Table 3 IT role in post-merger integration (Chandra et al., 2009)

2.5 Integration ambitions and integration objectives of information systems

There are different integration ambitions in organizations, these ambitions fit with different IS integration strategies. In this paragraph the integration ambitions are discussed and are related to the IS integration strategies.

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However, it will also afford the potential for positioning for significant long-term benefit through creating synergies and reducing duplications (Niederman & Baker, 2009).

With a moderate integration ambition, the most appropriate merger objective is symbiosis. Where synergies can be realized the processes and systems are integrated. In this situation total integration is not necessary; the integration of a part of the processes can be enough. In the case of a low ambition to integration, the merger objective is preservation. The ISs of both companies remain unchanged. The acquired company is treated as a stand alone business.

Generally, firms experience costs and risks in aggressively pursuing integration immediately, and there is a temptation to allow the merging organizations substantial independence to mitigate these costs and risks. However, in providing such independence, the opportunity to create synergies, may be reduced or lost. Even though, the synergy is at least part of the rationale for acquisition. In the short run, extending the time period for managing change may allow for targeted use of limited resources, but over time accumulation of redundant business processes may be more difficult to integrate as the organizational ‘unfreezing’ caused by the acquisition will have refrozen into patterns less easily modified (Niederman & Baker, 2009).

Very few articles define integration explicitly. In this dissertation it is defined as the ‘blending together of organizational components’ (Mehta & Hirschheim 2004). Giacomazzi et al. (1997) distinguished three different IT integration ambition levels.

• Complete integration

This is the most ambitious objective in IS integration. In this case, two separate ISs are merged. Business processes, product lines, staffing assets, and physical plants are fully integrated into a single new combination.

• Partial integration

This establishes priorities, based on which most important processes and systems are first integrated, and the remainder is left to a later stage. This strategy can be used when synergies can be realized in some processes but not in others.

• Marginal integration (co-existence)

This strategy tries to keep the two ISs of the merger partners unchanged, and only realizes bridges for data exchange and consolidation where absolutely necessary. The acquired entity is left as a stand alone and independent component.

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theory with which merger objectives and with which growth strategies given the level of integration aimed at.

Merger objectives Growth strategies Integration ambition organization

IS integration objective

Absorption Horizontal integration High Complete integration Symbiosis Vertical integration Moderate Partial integration

Preservation Diversification Low Co-existence

Table 4 Mergers objectives, growth strategies, integration ambitions and IS integration objectives

2.6 Situation variables

Situation variables describe the moderating conditions of the acquisition. The moderation occurs when the relationship between two variables depends on a third variable. In this case the situation variables. These are variables which can have an influence on the relation between the merger objectives/growth strategies and the IS integration strategy. The situation variables described in this thesis are the geographical distance and the relative size of the companies.

2.6.1 Geographical distance

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process. ‘Us and them’ attitudes may develop among the employees of the merging units, but also in relation to the information systems, as the users may feel that they need to start using ‘the others IS’ with which they are not familiar. They may fear that the new IS will not support their work and therefore they resist it (Robbins & Stylianou, 1999).

When the distance between two companies increases, the chance of more cultural differences also increases and the extent of integration gets more difficult. In this case it can be a better solution to choose partial integration or even co-existence. There is a negative relation between the geographical distance and the extent of integration. However, organizations have to be aware for the psychical distance paradox. This contains that acquiring businesses in ‘close to home’ countries on perceived similarities could result in bad performance because of bad preparations for the real differences. So it may be very difficult to merge in these markets because the executives may not be prepared for differences (O’Grady & Lane; 1995).

2.6.2 Relative size of the companies

Mergers or acquisitions of evenly sized entities either large purchasing large or small purchasing small differs significantly from large entities purchasing smaller ones. In the latter case, the acquiring organization can set up task forces and regular procedures to minimize the difficulty of such integration and regularize procedures. Generally with this situation the authority for action is in the hands of the larger firm, and the issue becomes one of most effectively creating the new IT entity. It can become a challenge in this environment for the acquiring firm to insure that it is carefully screening in the beneficial practices, employees, and assets of the acquired firm (Niederman & Baker, 2009). The impact of size differences is also actualized through escalation of beliefs about the acquiring firm’s legitimate right to dictate to the target firm. Often, managers of the acquired firm are not allocated senior titles, reducing their relative status and power. Because of this acquirer-target power differential, it is the target firm that must tolerate the acquirer’s policies, systems and plans. It is also typical in M&A situations for different types of power and political issues to emerge. Power and political issues arise not only between organizational units, but also between managerial levels. Problems may emerge among the managers responsible for the IS integration, and may be aggravated if they come from different organizations and do not have a common history and established social relationships (Mehta & Hirschheim, 2004).

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of politics or expertise as well. Almost anything can be used as a source of power, for example access to social network, authority, possession of resources, possession of knowledge, formal (legal) structure and skills (Mehta & Hirschheim, 2004).

2.7 The partnering or integration approach?

When the choice for total integration, partial integration or co-existence is made, there rises another question; how is the organization going to implement this IS integration strategy. Kale et al. (2009) distinguish two approaches, the integrating and the partnering approach. The partnering approach entails keeping an acquisition structurally separate and maintaining its own identity and organization. The acquirers retain the senior executives of the acquired organization and give them the same power and autonomy they used to enjoy. The acquirer treats the acquired organization as it would a partner in a strategic alliance. In this case the organization is able to manage the acquisitions’ organizational drivers in a nonthreatening way, reduce the unintended consequences of integration, and create an environment in which companies can easily share knowledge and best practices. Kale et al. (2009) argue that creating common procedures and reporting relationships is complex and consumes significant amounts of top management’s time. In this process, organizational morale dips and employee turnover increases. These hidden costs, many emerging companies have found, outweigh the monetary benefits of structural integration. This approach corresponds with the co-existence strategy and for some extent to the partial integration strategy (see figure 2). The other approach, the integration approach, has another structure. The acquirer absorbs the acquired company and the core and supporting activities are integrated. This fits with the total integration strategy.

Figure 2 IS integration strategies and approaches

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2.8 Merger types and their combined IS integration methods

The merger objectives and growth strategies described above were used in order to identify consequences on the information systems in each of those variances. The first part of that is to identify any aspects of the merger variances that are relevant to the IS. Given these aspects the consequences on the IS can be identified for each merger variance. Each one of the mergers and the matching IS strategy can be realized by either one of the four IS implementation methods that Harrel and Higgins (2002) have identified. The table below shows which method is suited for which variance.

• Renewal involves the designs and realisation of completely new processes, activities and related systems. It starts by replacing all current information systems from both parties in the merger. Therefore this method can only be used in an ‘absorption’ situation (Wijnhoven et al., 2006). The first period inside the merger can take quite a long time if the merger happens to be between two large companies. But that is not the only consequence a renewal-approach has on the IS, technologies which are used to store data in the IS have to be interchangeable, because data in the IS also has to be migrated into the new information systems (Wirz & Lusti, 2004).

• Takeover keeps the information systems from the bidder company intact, but replaces the information systems in the target company. In this strategy, a fast integration is possible but no new processes or systems will be developed. Because the target company does not keep any of their existing information systems, this method also allows for one situation, absorption. In this case, conflicting situations between the two parties, often with a preference for their own system, can easily arise. Sometimes the chosen system may lack functions that are crucial in the new processes and thus it requires some addition of functionalities to meet the new situation. Takeover results in substantial disinvestment and may lead to high resistance from one merger partner. However, it may be an appropriate strategy for avoiding the cost of information system redundancy, when aiming at high synergies, or when the information system of one merger partner is superior to that of the other. The major consequences for the existing information systems on the target side are that they will become obsolete, but the IS from the bidder company that replaces the IS in the acquired firm will need to be adapted to the existing business model (Wijnhoven et al., 2006).

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the available IT portfolios, based on the firm’s planned architecture. This method can be used when completely integrating the information systems (absorption), but one could also use this when partially integrating (symbiosis). In the former situation all of the information systems will be replaced by this new system, but in the latter only some main systems will be integrated, leaving some ‘independent’ systems intact. This approach in particular requires organizational time and discussion in determining what exactly is ‘best in breed’ (At Kearney, 2008).

• Synchronisation realizes only marginal information system integration since it preserves the original information systems of both organizations, and creates software and hardware bridges to consolidate the date or periodically synchronise the different systems. This strategy does not abolish any of the systems, but does create additional information flows from both systems to each other (Wijnhoven et al., 2006).

Renewal Takeover Standardization Synchronisation

Complete integration Yes Yes Yes No

Partial integration No No Yes No

Co-existence No No No Yes

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Figure 3 IT integration methods. A and B is IT of MA partners A and B, respectively. C is the newly created IT. (Wijnhoven et al, 2006)

2.9 Integrated model

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Figure 4 Influence of variables on information systems integration decision

Situation variables Geographical distance

Relative size of the companies

Merger objectives and growth strategies

Absorption - Horizontal integration Symbiosis - Vertical integration Preservation - Diversification Methods Renewal Takeover Standardization Synchronisation Information systems integration strategies Approaches Complete integration Integration

Partial integration

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III The theory applied on the Gasunie case

In the previous chapter the academic literature about post-merger integration of information systems is discussed, in this chapter this literature is used to determine the most appropriate IS integration strategy for Gasunie. The sub-question of chapter two is applied to the Gasunie situation; which factors have influences on the extent of integration of the information systems of Gasunie Netherlands and GUD? First, there is given some background information about the organization. The model introduced in the second chapter is applied to the Gasunie situation. The several variables of the model are discussed. The paragraphs begin with what theory says and how the situation should be according the theory. The characteristics of the acquisition situation help to explain the strategic choices; what the merger objectives are, what type of growth strategy it is, which IS integration strategy is appropriate and which method fits with the strategy. Finally there is a discussion about the fit of the IS integration in practice with the theoretical model and the differences are discussed and explained.

3.2 Background information

In 2005 Gasunie was divided into two independent companies: a gas transport company operating under the name N.V. Nederlandse Gasunie, and a natural gas purchasing and sales company, Gasunie Trade & Supply. The activities of the new N.V. Nederlandse Gasunie include the management and development of the national gas transport network and the supply of gas transport services. In carrying out these activities, Gasunie will exploit the increasing international gas flows. Gas Transport Services B.V. (GTS) is a wholly owned subsidiary of N.V. Nederlandse Gasunie, but carries out its activities independently as required by law. GTS is responsible for the commercial management, operation and development of the national transport network. It ensures that there is sufficient transport capacity, is responsible for balancing the network and for connections to other networks.

Within a period of five years time the N.V. Nederlandse Gasunie has transformed itself from an integrated Dutch gas sale, trading and transport company to a European infrastructure company with newly built and acquainted assets, that participates in major infrastructure projects in Europe. Gasunie has become the first truly independent cross border gas infrastructure company in continental Europe, purely focussed on facilitating shippers and traders with transport of gas volumes, capacities and quality providing services with its infrastructure assets only.

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advantage, Gasunie’s strategic approach is to ensure high quality in its field maintenance activities and apply additional emphasis to the quality of the data collected in the field.

On 1 July 2008 Gasunie acquired the network of the former gas transport division of BEB and EMFG (now: Gasunie Deutschland) in Germany. Gasunie Deutschland is responsible for the management, the operation and the development of a long-distance pipeline grid in Northern Germany. Gasunie Deutschland is an affiliate of N.V. Nederlandse Gasunie with headquarters in Hannover as of 1. July 2008. It is now the first independent gas infrastructure company in Germany. Gasunie Deutschland operates an efficient pipeline network of around 3,100 kilometers. Because of its geographical location in the North of Germany, Gasunie's transport network takes on the function of a turntable in the European natural gas transit system, from North to South and from East to West. In developing its network and services Gasunie Deutschland seeks close dialogue with its customers.

3.3 Merger objectives

One of the strategic objectives of Gasunie is to maintain and expand their existing network. This includes the specific responsibilities of the subsidiaries, Gas Transport Services and GUD, as operators of the regulated gas transmission grids in the Netherlands and Germany. In response to specific market demand, Gasunie will extend the network where necessary. Gasunie wants to make an active contribution to the international interconnection of networks based on customers’ needs and to offer more integrated gas infrastructure services.

Gasunie’s expanding gas transport network allows a broad range of customers to enter into new purchase and sales contracts, to supply new power stations with gas, and to bring liquefied natural gas (LNG) to the Netherlands. The expansion would also allow the Gasunie system to offer better possibilities to transport additional gas to the Netherlands and to either sell or re-export it. All these would significantly add to the company’s revenue growth. The long-term goal is to develop an integrated service to enable shippers to combine entry and exit-capacities in the Netherlands and Germany within one portfolio. This requires single contracts and harmonised balancing rules for both systems. To accomplish this portfolio, IS integration is necessary to offer one contract to customers instead of many contracts at every border.

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the integration of similar business functions. This strategy thus requires complete integration of the operations, IS, organization and culture.

3.4 Growth strategies

In the previous paragraph the merger objective of Gasunie is described. This has a relation with the growth strategy. The acquisition of GUD was a widening of a business at the same level of the value chain. The kind of business acquired is the same and GUD has almost the same resources as Gasunie Netherlands. After the acquisition Gasunie continued to operate BEB transport and the transferred technical operations and ensured compliance with existing BEB transportation agreements and also retained the current staff. The agreement is subject to the approval by the relevant authorities. BEB's exploration and production and storage activities remained unaffected by this transaction. ExxonMobil Production continued to handle exploration and production activities for BEB on the basis of service agreements. The network of GUD is directly connected to the Gasunie network in the Netherlands and connects Berlin in Germany via the Gasunie gas roundabout and the BBL pipeline with London in the United Kingdom. This acquisition has significantly strengthened Gasunie’s position as an owner and operator of an important gas hub for Europe.

Gasunie’s goal was and is to become a leading gas infrastructure and services player in Europe: with a clear focus on developing activities that contribute to long term safe and reliable delivery of gas in the European market, with leading transmission assets Europe. As a new stand alone infrastructure company it was clear that a growth strategy in Europe could only be successful if it reflected the needs of the customers and was sufficiently rooted in the business. All recent activities and investments initiated by Gasunie exemplify the goal of Gasunie and all have in common that they offer services on a non-discriminatory basis to all different customers under equivalent contractual terms and conditions, using harmonised transportation contracts in order to serve the market.

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distribution centre for Northwest Europe. This would also enhance the domestic market, as increases in the number of market players expands the range of choice for end users (Government report, 2009).

The growth strategy of this acquisition can be seen as a horizontal integration because the merging organizations operate on a similar level. Horizontal integration involves the merger of companies producing the same kinds of goods, operating at the same stage of the supply chain or performs similar tasks.

3.5 Situation variables

In the following paragraphs the situation variables are discussed to obtain a clear view of the moderators which have an influence on the relation between merger objectives/growth strategies and the appropriate integration strategy.

3.5.1 Geographical distance

The Netherlands and Germany are neighbouring countries. The two countries enjoy a multiplicity of close and friendly relations at government and non-governmental level. Germany is a major political and economic partner of the Netherlands, which relies on its advice and expertise and accords it a key role in safeguarding European interests within the Alliance and advancing the cause of European unity. Experts regard only US-Canadian economic relations as more intensive than those between Germany and the Netherlands (website: Auswärtiges Ambt).

GUD headquarters is located in Hannover, Germany, 300 kilometres away from Groningen, where the headquarters of Gasunie Netherlands is located. The communication director of Gasunie argues that there is not just one Gasunie culture but that there are several subcultures at the several departments within the organization. Clear policies and cooperation are important requirements for the development of one organizational culture. There are not a lot organizational differences between the two companies. However, the Dutch people are more informal and the communication is more open. In Germany, the employees are more efficient but the meetings are very formal. In December 2008 Gasunie conducted a culture research within the organization and 40% of the employees participated in the research. One of the most important outcomes is the similarity between the Netherlands and Germany.

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Geographical distance is a moderator and the result corresponds with the previous findings about the preference to execute the complete integration strategy.

3.5.2 Relative size of the companies

In 2008, Gasunie Netherlands employed approximately 1570 people. At the same time, GUD had a total staff complement of approximately 200 people. This means that Gasunie Netherlands is a significant larger organization than GUD. GUD should be more willing to accept the influences of Gasunie Netherlands because they have relative more power. When there are significant differences in the size of the merging companies it becomes easier to execute the complete integration strategy because the authority is in the hands of the larger firm. The result of this moderator also corresponds with the previous findings about the preference to choose for the complete integration strategy.

3.6 The integration objectives of the IS

In the previous paragraphs the merger objective and the growth strategy are determined. Now it is important for Gasunie to look at the integration objectives of the IS. In the theory three main categories of synergy value sources were distinguished:

• Strengthening or levering core businesses • Reducing costs

• Benefits from technology or skill transfer

Gasunie want to achieve the synergy benefits mainly through the first two categories. They can strengthen the core business with accessing new customers by entering new geographic markets and strengthen the LNG position. Also they can reduce costs by the principle of economies of scale.

For Gasunie it is important to have a reliable and future proof MIS because it facilitates the implementation of business processes and procedures along the lines of business scenarios. It can be used as a blueprint for configuration and implementation of business applications. The exploration of new business opportunities requires simple and transparent processes and organizational setups. Gasunie had no clear integration objectives and therefore no clear integration ambition.

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3.7 The partnering or integrating approach?

If Gasunie has a high integration ambition and wants to execute the complete integration strategy, the integration approach seems more appropriate than the partnering approach because complete integration of the IS fits with the integrating approach. With this approach GUD is absorbed by Gasunie Netherlands and the core activities and supporting activities are integrated. GUD loses their autonomy to Gasunie Netherlands.

It can be concluded that according the theory the integration approach is the most appropriate approach for Gasunie. This approach fits with the ambitions of the IS integration strategy complete integration.

3.8 The IT integration method

Gasunie Netherlands and GUD had been using different IS and different ways of operating prior to the acquisition. Gasunie Netherlands was organized on a functional basis. They operated with an integrated, tailor-made IS that imposed a great deal of control on the process. The IS is complex and very expensive. GUD used flexible software tailor-made to its needs, with a high degree of standardization. The business development manager explained that the requirements of the system were simple, sober and standard. He hired an IT company who offered an open source content management system. Commercial applications are expensive; however ‘open-source software’ is free for adjustments and therefore remains cheap, with this method Gasunie saved a lot of money.

The design of the Dutch systems and processes is more than 10 years old and does not fit anymore with the current situation. Gasunie has now a lot of participations and small projects which have to be processed in the systems, but the systems can not handle all the different allocation bases. The IS of GUD is efficient but in this system there is no proper cost control available and they are not ready to facilitate large projects.

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3.9 Fit of the IS integration in practice with the theoretical model

In this paragraph the theory of chapter two is compared with the findings at Gasunie. The model about the IS integration decision is applied to Gasunie and in this paragraph the possible differences are discussed and explained. The sub-paragraphs are used to explain each variable of the model.

3.9.1 Merger objectives

According to the theory an absorption merger objective seems for Gasunie the most appropriate because the aim of this merger is achieving benefits of scale and increasing market share. The main synergy benefit is cost reduction. The benefits of this absorption can be achieved through resource rationalization by combining redundant processes, deploying one standardized IS, resource sharing and the integration of similar business functions. At this moment the acquisition of GUD can be classified as preservation because the capabilities of GUD are maintained in order to allow them to further exploit and develop them in the future. The reason for the difference between the theory and practice is that Gasunie did not want to create a chaos within both organizations with an announcement of a reorganization because the motivation of the employees was important in this crucial situation. Therefore GUD was promised to remain a stand alone business for the first two years. Until now, there are no plans developed to integrate the several departments, neither the IS.

3.9.2 Growth strategies

The growth strategy of Gasunie, horizontal integration, fits with a high integration ambition and complete integration as IS integration objective. It allows the Gasunie to increase the production capacity, where the both companies have similar businesses producing and marketing at the same stage of the value chain. It provides access to new markets and eliminates competitors. To align with the primary business goal to either gain economies of scale or competitive advantage, the IT function has to support this with integrated IS.

According the theory the growth strategy should be horizontal integration and in the Gasunie situation it turned out to be also a horizontal integration. There is full alignment between the theory and practice concerning the growth strategies.

3.9.3 IS integration ambitions and integration objectives of IS

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plants are going to be fully integrated into a single new combination. This will afford the potential for positioning for significant long-term benefit through creating synergies and reducing duplications. This high integration ambition fits with complete integration of the IS. However, it turns out that in practice the merger objective is preservation and the growth strategy horizontal integration. This does not lead to the most appropriate IS integration strategy. There is no clear vision and strategy about the IS integration and implementation communicated from the Executive Board. The integration is not stimulated within the organization. At Gasunie there are several managers with different opinions about the IS integration ambitions. Most of the managers want to spend their time on keeping their department running and they see the integration as something extra what requires a lot of time they do not have. They feel like they are saddled up with the integration plans without a clear vision and a plan. These problems have to be resolved before the organization can integrate or at least can change. The Business Development manager argues that there is no need to integrate the IS of Gasunie Netherlands and GUD. Instead of integrating the systems, he states that it is important to develop a standardized reporting system and a standardized governance documents.

3.9.4 Situation variables

Concerning the situation variables Gasunie has appropriate conditions to execute the complete integration strategy. The geographical distance is only 300 kilometres and there are no significant cultural differences between the Netherlands and Germany. This means that this geographical distance makes it easier to execute the complete integration strategy. Gasunie Netherlands is a significant larger company than the acquired GUD. According the theory, when there are significant differences in the relative sizes of the merging companies it becomes easier to execute the complete integration strategy.

3.9.5 The partnering or integrating approach?

If Gasunie has a high integration ambition and wants to execute the complete integration strategy, the integration approach seems more appropriate than the partnering approach. Kale et al. (2009) argue if the acquired organization has the same or similar resources as the acquiring organization the integration approach is more appropriate. With this approach GUD is absorbed by Gasunie Netherlands and the core activities and supporting activities are integrated. GUD loses their autonomy to Gasunie Netherlands.

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The Gasunie situation is not in line with the theory. GUD and Gasunie have the same or similar resources and the integration approach fits best with a hierarchical company, with a low tolerance for ambiguity, a desire to teach and an emphasis on getting results. These points should be important for Gasunie. Gasunie chose as merger objective the preservation, not absorption. This leads to the partnering approach because both companies are kept separate. They can change to the integration approach if both organizations are going to integrate with each other.

3.9.6 Integration methods

The theory discussed before states that with an absorption type of merger, complete integration is desired. According the theory complete integration fits with three possible integration methods; renewal, take-over and standardization. At Gasunie several analyses about the IS of both organizations are conducted and the result was that the current Dutch system is complex and inefficient and does not allow efficient and transparent cost tracking. The German system is simple and more efficient but not capable to handle a lot of projects. The managers are still in discussion about the best integration method concerning the IS. At this moment it seems that Gasunie will choose for a take-over method because there can be made some improvements to the Dutch system; to make this IS work for both companies. The improvements in the IS can be based on the best practices of GUD because standardization and efficiency is important and they have a system that runs on those concepts. The renewal method is too complex and requires too much time and money. The take-over method is an appropriate strategy for avoiding the cost of IS redundancy, when aiming at high synergies. The IS of Gasunie Netherlands is needed to deal with the participations, allocation bases and the large number of cost centres. The IS of Gasunie Netherlands keeps intact and replaces the German IS. If GUD has a strong preference for their own IS there can arise a conflicting situation. The take-over method is consistent with the ambition of complete integration. However, if GUD stays a stand alone company, the take-over method is not appropriate and in that case they should apply the standardization method or even the synchronisation method.

3.10 Main findings

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One of the biggest challenges in this company is that there is no clear vision about the IS integration and how to implement this strategy. The Executive Board states that one of the general key principles is to follow an integrated business approach in line with the European gas market development. However, there is no clear plan how to accomplish these objectives and after two years GUD still remains a stand alone company. Gasunie is a professional bureaucratic organization. When Gasunie wants to integrate several parts or departments with GUD, it turns out that the Dutch processes are not efficient. In the organization the feeling exists that these processes first have to be improved. It is not a good plan to put on the less efficient processes on an efficient organization like GUD. Nobody really pushes the organization in the direction of improving the processes. At the time of the acquisition in 2008 there was no concrete vision of the synergies obtainable, and no integration plan was crafted. The tone at the top is essential, and if there is no consensus at the top of the organization it would be hard to communicate a clear vision and a clear IS integration strategy. According to the strategic objectives and theoretical findings they should execute the complete integration strategy but the opposite happens.

The acquisition fits perfectly with the strategic objectives to extend the market and become a leading gas infrastructure and services player in Europe. However, the organizational processes how to integrate and what to integrate were unclear, and they still are. Both organizations are not far enough to integrate. The next chapter discusses the several factors which influence the implementation of the integration.

Table 6 summarizes the main findings of this chapter. The theory and practice are compared and the explanation for the difference is given.

Variables Theory Practice Explanation for difference

Merger objective Absorption Preservation Gasunie did not want to create a chaos within both organizations with the

announcement of a

reorganization and therefore GUD remained a stand-alone company

Growth strategy Horizontal

integration

Horizontal integration

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Situation variable:

Geographical distance + + Same

Situation variable: Relative size of the companies

+ + Same

Integration ambition High No explicit

ambition

No clear vision and plan for the implementation process

IS strategy Complete

integration

At this moment: no integration

Difference is the result of variables mentioned above Integration approach Integration

approach

Partnering approach

Gasunie choose to keep organizations separate, therefore the partnering approach is more appropriate

Integration method Renewal,

take-over or

standardization

Take-over Take-over most appropriate strategy for avoiding the cost of IS redundancy, when aiming at high synergies

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IV Factors that influence the implementation of the integration of the IS

The previous chapters discussed the model which explained the influence of several variables on the information systems integration decision and the model was applied to the Gasunie situation. This chapter contains the academic literature about the implementation process. The sub-question of this chapter is; which factors influence the implementation of the integration of the IS?

This chapter starts with an explanation of the implementation and the optimization phase. These phases begin after the deal of the acquisition is signed. Bakker et al. (2004) argue that an organization has to accomplish these phases first in order to develop to an integrated business. The integration of the IS is a dynamic process with a lot factors which influence the implementation of the integration of the IS. Literature is reviewed to determine the most important factors which influence this process. These factors are; the time dimension (Robbins & Stylianou, 1999; Ashkenas et al., 1998; Haspeslagh & Jemison, 1991; Brown et al., 2003; Jonk & Ungerath, 2006), positive support by executive managers (Alaranta, 2006; Robbins & Stylianou, 1999; Bakker et al., 2004; Papadakis, 2005), communication (Robbins & Stylianou, 1999; Weber & Pliskin, 1996) and employee commitment and resistance (Papadakis, 2005; Schweiger & DeNisi, 1991; Brown et al., 2003; Vikesland, 2001; Ashkenas et al., 1998). These factors are discussed in the following paragraphs.

4.2. Main phases of implementation and optimization

The process of value creation starts after the deals is made. It can take several months or years to fully implement the partnership’s intended joint business model, for instance, when a new integrated management information system needs to be developed and implemented. However, when the deal is closed partners usually start operating as a part of a joint company, requiring specific changes in the business model of one or both companies such as reporting lines and client contracts (Bakker et al., 2004).

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Figure 5 Value creation through implementation and optimization (Bakker et al., 2004)

The implementation phase is not only about a good deal. When new partnerships are initiated or when certain parts of the company are divested, it is important to ensure that this change in the organization is the starting point of creating value. Implementation is about building a base for further profitable growth and according to Bakker et al. (2004) there are four key elements in establishing such a platform:

1. Establishing a joint business model

When an organization wants to reap the benefits of the merger they need to ensure that the people and legal entities involved are willing and able to cooperate. During the implementation phase, the question of where and how the partners work together must be answered, with the necessary processes and structures put in place.

2. Stabilizing the business

When new partnerships are initiated, significant amounts of energy and attention are absorbed from the people involved. This can affect the performance of the organizations involved in the deal, so it is important to ensure that business performance stays on track.

3. Retaining customers and employees

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essential assets of a company and they are much easier to lose than to find or retain. So, when acquisitions are started it is important to pay specific attention to these key assets.

4. Realizing and communicating quick wins

Achieving the full benefits of mergers and acquisitions will take time, especially when this requires people to act differently. At the same time, there are usually several areas where cooperation between partners can pay off quickly. For instance, cost reductions can be achieved by leveraging the increased buying power of the joint company. Quick wins are very important both to create value for the company and to be able to communicate positive news concerning the acquisition to both companies (Bakker et al., 2004).

After the first 100 days, the stage is set for continuing the integration and development process over the next six months or more on the basis of a shared understanding of cultural differences and a concrete plan for bridging the gaps (Ashkenas et al., 1998).

When the implementation phases has finished, the optimization phase starts. The goal of optimization is to maximize value creation in the company as a whole. This can only be achieved when external and internal cooperation are aligned with the vision of the company and when the processes are consolidated. From here there arises the need for common values and one culture. The organization has also take care of the changes in markets, they are entering new markets and this plays a role in revising targets or looking for effective ways to improve the results of implementation. This can result in a need for revenue growth. When all the phases are completed, the organization can work to become an integrated business (Bakker et al., 2004).

4.3 Time dimension

Robbins and Stylianou (1999) named several factors for achieving a positive outcome in poster-merger integration of the IS. One of the factors was the IS integration planning, the time dimension. A trade-off in an IS integration project in M&A is the speed of the entire integration project (Ashkenas et al. 1998). Managers can choose a fast and tough integration or a slower and more careful integration. Both approaches have advantages and disadvantages. This is a decision which has to be made in the implementation phase.

4.3.1 Rapid integration

The post-merger integration and implementation of management information systems