Chapter III. SUCCESS FACTORS OF MERGING ENTERPRISES
4. Course of research process
The research process consists of a number of elements that should be carefully planned based on continuous choices made for the sake of reliability and credibility of the research findings180.
According to M. Kostera, the research process becomes a coherent sequence of choices that allow for credibility and reliability of the research181.
The utilitarian layer should be accompanied by a theoretical layer, constituting a basis for solutions and recommendations for practice, and which is the basis and inspiration to seek new and better solutions.
The subject of this study covers variables determining knowledge transfer in mergers and acquisitions of metallurgical companies. The scope of the study includes the determinants of knowledge transfer and the time it takes to master it in the merger and acquisition process.
Basic research consists of three stages: stage I, stage II and stage III, preceded by pilot analyses (Figure 37).
The first stage study uses the survey methodology – stage I.A and stage I.B.
Stage I.A aims at identifying the important determinants of knowledge transfer in mergers and acquisitions, while stage I.B aims at determining the validity of factors that influence the success of mergers and acquisitions in relation to knowledge transfer.
In the second stage of the study, semi-structured interviews were applied, using a group experts’ assessment.
Firstly, criteria for selecting experts (criteria of respondent’s knowledge on the issue, argumentation and competence) were established, and finally a group of experts was selected.
Stage II was divided into 2 parts. The aim of stage II.A is experts’ ordering important determinants of knowledge transfer to the four groups of knowledge factors. In turn, stage II.B aims at establishing specialized research methods suitable for analysis of knowledge transfer between the consolidated enterprises.
In the third stage of the research, a group expert’s assessment is also applied, using the survey methodology. For stage III of the research experts’ opinion from the second stage was used.
Stage III was divided into 5 parts (stage III.A, stage III.B, stage III.C, stage III.D, and stage III.E).
180 E. Babbie, Badania społeczne w praktyce, PWN, Warszawa 2005, p. 127.
181 M. Kostera, Antropologia organizacji…, op. cit., p. 18.
Figure 37. Course of research process
MODEL OF KNOWLEDGE TRANSFER IN THE PROCESS OF MERGERS AND ACQUISITIONS
Basic research to the transfer of knowledge I.B using expert's group assessment
Determination of specialized study methods suitable for the analysis of knowledge
transfer between and tacit knowledge in the process of knowledge transfer
Source: own study.
The aim of stage III.A survey is to determine the type of knowledge acquired among the four groups of knowledge factors. The second objective of the survey (stage III.B) consists in indicating the time of learning the acquired knowledge from the four groups of knowledge factors. Stage III.C consists of determining the importance (weight) of four groups of knowledge factors. The goal of stage III.D group experts’ assessment is to assess the explicit and tacit knowledge in the knowledge transfer process. The final phase of the group experts’ assessment aims to identify the relations between knowledge transfer and mergers and acquisitions.
Pilot studies
The pilot study directs the research process, giving the field to use the research methods provided for the core research.
Pilot studies programme disqualifies certain statistical methods, such as correlation and regression, therefore statistical studies cover only structure indicators, average, and deviations from them in the analysed group. In addition to statistical analysis, is anticipated that the set knowledge transfer model will be confronted with the possibility of using several variants of knowledge transfer. The last step is to verify elements involved in the taxonomic grouping of the examined group of metallurgical enterprises. Within pilot study, it is possible to make a limited assessment of the similarity of the enterprises. The list of variables necessary for multi-criteria grouping of objects has been established.
Firstly, four groups of knowledge factors (x1, x2, x3 and x4) were separated.
The procedure for identifying and dividing knowledge factors related to the set aim of research has been based on critical analysis of the literature on the subject, the author’s experience and suggestions of people directly related to the researched subject.
The analysis within pilot study covered 2 companies: the acquiring one – Company 1 (F1) and the acquired one – Company 2 (F2) with 31 variables (features) characterising the studied enterprises.
Pilot studies consist of two stages (stages a and b)182.
The aim of stage a is to characterize the 15 general variables (characteristics) of the studied enterprises (Table 26).
182 Full text of the pilot studies survey is contained in annexe 6.
Table 26. General variables (characteristics) of the studied enterprises – pilot studies stage a No. General variables (features) Company 1 (acquiring) Company 2 (acquired)
1. Company assets ... (million EUR) ... (million EUR) 2. Average pay ... (PLN) ... (PLN) 3. Total number of employees
4. Percentage of employees with higher education (%)
5. Departments (production, electromechanical, technical-implementation)
6. Revenues from sale ...(PLN million) ...(PLN million)
7.
General assessment of company financial condition (1 – the lowest grade, 4 – the highest grade)
1 1
2 2
3 3
4 4
8. Whether transition team was established in the company?
YES YES
NO NO
9. Whether representatives of the acquired company take part in works of the team?
YES YES
NO NO
10. Average staff qualification level
low low
average average
high high
very high very high
11. Type of organizational structure
centralised centralised
incentive wage system incentive wage system
daily pay daily pay
daily-task daily-task
other ... other ...
13.
Cultural differences in relation to consolidated company (0 – lack, 2 – small, 3 – average, 4
Number of employees having access to a computer compared to the total number of employees (in %)
...% ...%
15.
Number of employees having access to data base compared to the total number of employees
(in %)
...% ...%
Source: own study.
Stage b is aimed at characteristics of 16 variables (features) of knowledge of the studied enterprises, considering:
• determination of the type of knowledge acquired from the four groups of knowledge factors,
• indication of the time to master the acquired knowledge from the four groups of knowledge factors,
• determination of the importance factors of the four groups of knowledge factors,
• assessment of the explicit knowledge share within the four groups of knowledge factors in the knowledge transfer process.
The variables (features) from stage b of the pilot studies are shown in Table 27.
Table 27. Knowledge variables (characteristics) of the studied enterprises – pilot studies stage b
No. Type of knowledge taken over Acquiring company Acquired company 1.
x1 – knowledge that is an individual motive for acquisition (patents, inventions, important technologies etc.)
YES NO YES NO
2.
x2 – knowledge, including tacit knowledge that is relevant to the acquiring entity (e.g.
particular competences of management staff, unique skills of contractors, etc.)
YES NO YES NO
3.
x3 – knowledge, including explicit knowledge, of relevance (relations, experience, etc.)
YES NO YES NO
4.
x4 – organisational knowledge characteristic of certain enterprises (pay system rules, reports, important legal documents, etc.)
YES NO YES NO
Type of knowledge taken over Knowledge learning time
Acquiring company Acquired company 5.
x1 – knowledge that is an individual motive for acquisition (patents, inventions, important technologies etc.)
... (months) ... (months)
6.
x2 – knowledge, including tacit knowledge that is relevant to the acquiring entity (e.g.
particular competences of management staff, unique skills of contractors, etc.)
... (months) ... (months)
7.
x3 – knowledge, including explicit knowledge, of relevance (relations, experience, etc.)
... (months) ... (months)
8.
x4 – organisational knowledge characteristic of certain enterprises (pay system rules, reports, important legal documents, etc.)
... (months) ... (months)
Type of knowledge taken over Significance (weight) of knowledge Acquiring company Acquired company 9.
x1 – knowledge that is an individual motive for acquisition (patents, inventions, important technologies etc.)
... (scale 4–6) ... (scale 4–6)
10.
x2 – knowledge, including tacit knowledge that is relevant to the acquiring entity (e.g.
particular competences of management staff, unique skills of contractors, etc.)
... (scale 2–4) ... (scale 2–4)
11.
x3 – knowledge, including explicit knowledge, of relevance (relations, experience, etc.)
... (scale 1–2) ... (scale 1–2)
12.
x4 – organisational knowledge characteristic of certain enterprises (pay system
rules, reports, important legal documents, etc.)
... (scale 0,5–-1) ... (scale
Type of knowledge taken over Knowledge of bigger importance Acquiring company Acquired company 13.
x1 – knowledge that is an individual motive for acquisition (patents, inventions, important technologies etc.)
...% ...%
14.
x2 – knowledge, including tacit knowledge that is relevant to the acquiring entity (e.g.
particular competences of management staff, unique skills of contractors, etc.)
...% ...%
15.
x3 – knowledge, including explicit knowledge, of relevance (relations, experience, etc.)
...% ...%
16.
x4 – organisational knowledge characteristic of certain enterprises (pay system
rules, reports, important legal documents, etc.)
...% ...%
Source: own study.
Stage I studies (survey of managers)
The survey method for managers consists of two stages (stage I.A and I.B) and was applied for the purpose of examining the knowledge transfer determinants in the processes of mergers and acquisitions.
Stage I.A
In stage I.A, a set of 57 factors183 that determine the transfer of knowledge in merger and acquisition processes has been identified. Such a considerable number induces an attempt to reduce them and aggregate them to a smaller number of factors’ groups.
183 A collection of 57 knowledge factors was developed on the basis of study on the subject matter literature.
To this end, it is necessary to classify each factor on the basis of their relevance to allow the experts to group them at a later stage. This entails the need to leverage the knowledge and experience of managers, employed as senior and middle managers in enterprises directly involved in the consolidation processes that have performed mergers and acquisitions.
Respondents were asked to evaluate in terms of relevance, on a 5-point scale (1 – the lowest rating, 5 – the highest rating), each of the knowledge factors.
These factors included:
• complaints analysis,
• analyses, calculations and synthesis,
• current R&D works within the company,
• intangible goods protection period of which has expired,
• personal experience in occupational safety and health, fire, sanitary and epidemiological fields,
• planning experience,
• product documentation,
• documentation and unofficial information on quality,
• operating records of machinery and equipment,
• record of inspections, periodic and capital repairs,
• information and analysis of competition quality,
• customer information on quality, features and prices of the products,
• emergency procedures,
• information and analysis of product characteristics,
• configuration of organizational units,
• materials for analysis, calculation and cost synthesis,
• standards and regulations,
• standards for emissions of gases, land contamination and water pollution,
• technical descriptions and operating instructions,
• portfolio of orders and skills of its shaping,
• forecasts of research cells,
• R&D works on enterprise development,
• ideas, patents, innovations,
• employees with valuable skills and competencies,
• computer programs, utility models, trademarks,
• practical experience of employees in the sphere of sales,
• health and safety regulations, inspection and accident reports,
• fire protection regulations,
• sanitary and epidemiological reports,
• external and internal regulations on the protection of the air, land and water,
• projects,
• practical experience of supervisory staff,
• relations with debtors and creditors,
• relations with customers and sales representatives,
• personal relations with suppliers and buyers
• product, technology and organizational standards,
• specialization of divisions and organizational units
• production technology,
• ability to regulate financial flows,
• skills and competences in cooperation with the environment,
• ability to optimize inventory,
• explicit knowledge of competitors and markets,
• knowledge of R&D by the competition (inventions, innovations, quality, patents),
• marketing knowledge of customers,
• knowledge in the scope of foresight,
• personal knowledge of specialized employees,
• knowledge of costing,
• knowledge of production possibilities and delivery dates,
• knowledge of optimum stock shaping,
• tacit knowledge of financial employees,
• knowledge of quality regulations,
• tacit knowledge of executive employees,
• principles and organization of autonomous units,
• knowledge of laws and regulations and internal instructions,
• knowledge of production technology,
• knowledge of statistical and econometric tools,
• knowledge of suppliers’ market.
The procedure for identifying and evaluating the knowledge factors has been developed for their identification and systematization.
Stage I.B
The purpose of stage I.B study is having managers to evaluate the factors that influence the success of mergers and acquisitions, in terms of knowledge transfer, on a five-point scale (1 – the lowest rating, 5 – the highest rating).
These factors included184:
• precisely designed integration program,
• clearly defined goals of the acquisition,
• cultural similarity of the enterprise organization (including the organization learning culture),
• properly built and managed transition team185,
• preparation or recognition of an existing knowledge map,
• degree of knowledge verbalisation,
• level of knowledge articulation,
• knowledge distance (understood as the difference in knowledge level between transferor and receiver).
The full text of the first stage survey is contained in Annexe 7.
Stage II studies (semi-structured interviews using expert’s group assessment) Stage II.A
In stage II.A 32 factors that determine the transfer of knowledge in the merger and acquisition processes that were identified by managers as significant in stage I.A were presented.
Important factors determining the knowledge transfer in the merger and acquisition process include:
• current R&D works within the company,
• documentation and unofficial information on quality,
• information and analysis of competition quality,
• customer information on quality, features and prices of the products,
• information and analysis of product characteristics,
• technical descriptions and operating instructions,
• portfolio of orders and skills of its shaping,
• forecasts of research cells,
• R&D works on enterprise development,
• ideas, patents, innovations,
• employees with valuable skills and competencies,
• computer programs, utility models, trademarks,
• practical experience of employees in the sphere of sales,
184 Selection of factors was developed on the basis of study on the subject matter literature.
185 As the transition team in the study any type of team established within or outside the organization to transfer knowledge should be understood.
• projects,
• practical experience of supervisory staff,
• personal relations with suppliers and buyers,
• product, technology and organizational standards
• production technology,
• ability to regulate financial flows,
• skills and competences in cooperation with the environment,
• ability to optimize inventory,
• explicit knowledge of competitors and markets,
• knowledge of R&D by the competition (inventions, innovations, quality, patents),
• marketing knowledge of customers,
• knowledge in the scope of foresight,
• personal knowledge of specialized employees,
• knowledge of costing,
• knowledge of optimum stock shaping,
• tacit knowledge of financial employees,
• tacit knowledge of executive employees,
• knowledge of production technology,
• knowledge of suppliers’ market.
The task of experts is to assign factors that determine the knowledge transfer to one of the four groups of knowledge factors (x1, x2, x3, x4).
Stage II.B
The aim of stage II.B of the group expert’s assessment is to select specialised research methods appropriate for the analysis of knowledge transfer between the consolidated companies.
Below the research methods186 are placed in the form presented to the experts (Table 28).
186 Research methods were developed on the basis of: R. Decker, H.J. Lenz, Advances in Data Analysis, Springer, Berlin–Heidelberg–New York 2007; K. Florek, J. Łukaszewicz, J. Perkal, H. Steinhaus, S. Zubrzycki, Taksonomia Wrocławska, „Przegląd Antropologiczny” 1951, v. XVIII;
Z. Hellwig, Taksonometria ekonomiczna, jej osiągnięcia, zadania i cele, in: J. Pociecha (ed.), Taksonomia – teoria i jej zastosowania, Akademia Ekonomiczna w Krakowie, Kraków 1990.
Table 28. Research methods for knowledge transfer analysis
No. Research methods for knowledge transfer analysis YES/NO 1. Nearest neighbour method (Johnson’s method)
2. Outermost neighbourhood method (Johnston’s method) 3. Czekanowski Method
4. On-line Method
5. Wrocław taxonomy method (shortest dendrite method) 6. Berry Method
7. Gravity centre method 8. Median method 9. Group average method
10. Spearman’s rank correlation coefficients: Kendal coefficient
11. Scattering measures: entropy and Taylor’s development as a Gini coefficient 12. Proximity measures – Kullback-Leiber distance
13. Dependency measures – Goodman-Kruskal coefficient 14. other (what?) ...
Source: own study.
A full scenario of semi-structured interviews of stage II is included in Annexe 2.
Stage III studies (surveys using expert’s group assessment)
In the third stage studies, using group expert assessment, a survey questionnaire was applied, consisting of five main components: stage III.A, III.B, III.C, III.D and III.E (Annexe 8).
The questionnaire was addressed to the same group of experts, who were covered by semi-structured interviews in stage II, based on an indicator of competence level (Kk coefficient).
The task of experts is to diagnose variables that determine the transfer of knowledge in 22 metallurgical enterprises that consolidated in the merger and acquisition processes, forming 11 pairs.
In stages III.A, III.B and III.C, four groups of knowledge factors were subjected to the study, after assigning by experts in stage II the individual knowledge factors to four groups (x1, x2, x3, x4).
Stage III.A
The task of experts is to identify factors of knowledge acquired in the merger or acquisition process.
Table 29 contains data in the form in which they were presented to the examined experts.
Table 29. Type of knowledge acquired as a result of a merger or acquisition Type of knowledge taken over Acquiring company Acquired company x1 – knowledge that is an individual motive for acquisition
(patents, inventions, important technologies etc.) YES NO YES NO
x2 – knowledge, including tacit knowledge that is relevant to the acquiring entity (e.g. particular competences of management, unique skills of contractors, etc.)
YES NO YES NO
x3 – knowledge, including explicit knowledge, of relevance
(relations, experience, etc.) YES NO YES NO
x4 – organisational knowledge characteristic of certain enterprises (pay system rules, reports, important legal documents, etc.)
YES NO YES NO
Source: own study.
Stage III.B
Stage III.B objective is to indicate the time of learning the acquired knowledge from the four groups of knowledge factors.
Experts have the task of giving time (in months) that was needed to master the acquired knowledge.
Table 30 shows the types of knowledge, along with periods, in t he form presented to the experts.
Table 30. Type of acquired knowledge in a time unit
Type of knowledge taken over Knowledge learning time Acquiring company Acquired company x1 – knowledge that is an individual motive for acquisition
(patents, inventions, important technologies etc.)
...
(months)
...
(months) x2 – knowledge, including tacit knowledge that is relevant
to the acquiring entity (e.g. particular competences of management, unique skills of contractors, etc.)
...
(months)
...
(months) x3 – knowledge, including explicit knowledge, of relevance
(relations, experience, etc.)
...
(months)
...
(months) x4 – organisational knowledge characteristic of certain
enterprises (pay system rules, reports, important legal documents, etc.)
The aim of stage III.C is to determine the importance (weight) of the four knowledge factor groups in the merger and acquisition processes.
It is the task of the experts to allocate a sufficient number of points on a four-point scale, where the importance of the transferred knowledge means respectively:
1 – trace, small,
2 – limited, 3 – significant,
4 – important, decisive.
Experts have the task of addressing each of the listed groups of knowledge factors (Table 31).
Table 31. Significance (weight) of knowledge
Type of knowledge taken over
Significance (weight) of knowledge on the scale 1-4
Acquiring company Acquired company x1 – knowledge that is an individual motive for acquisition
(patents, inventions, important technologies etc.) x2 – knowledge, including tacit knowledge that is relevant to the acquiring entity (e.g. particular competences of management, unique skills of contractors, etc.)
x3 – knowledge, including explicit knowledge, of relevance (relations, experience, etc.)
x4 – organisational knowledge characteristic of certain enterprises (pay system rules, reports, important legal documents, etc.)
Source: own study.
Stage III.D
Stage III.D aims at assessing tacit and explicit knowledge in the knowledge transfer process.
The investigated experts were asked to indicate which type of knowledge (explicit or tacit) is more important in the context of its transfer in the merger or acquisition process (Table 32).
Experts were asked to comment on each of the listed four groups (x1, x2, x3, x4).
Table 32. Explicit and tacit knowledge transfer process
Type of knowledge taken over Knowledge of bigger importance Acquiring company Acquired company x1 – knowledge that is an individual motive for acquisition
(patents, inventions, important technologies etc.) explicit tacit explicit tacit x2 – knowledge, including tacit knowledge that is relevant
to the acquiring entity (e.g. particular competences of management, unique skills of contractors, etc.)
explicit tacit explicit tacit x3 – knowledge, including explicit knowledge, of relevance
(relations, experience, etc.) explicit tacit explicit tacit
x4 – organisational knowledge characteristic of certain enterprises (pay system rules, reports, important legal documents, etc.)
explicit tacit explicit tacit
Source: own study.
Stage III.E
The aim of stage III.E is to identify the relations between knowledge transfer and mergers and acquisitions. Experts were asked to comment on 11 general indicators concerning knowledge transfer (Table 33).
Table 33. General indicators concerning knowledge transfer
No. Indicators Company 1 (acquiring) Company 2 (acquired)
1. Company assets ... (million EUR) ... (million EUR)
2. Average pay ... (EUR) ... (EUR)
3. Total number of employees
4. Revenues from sale ... (million EUR) ... (million EUR)
5.
General assessment of company financial condition (1 – the lowest grade, 4 – the highest grade)
1 1
2 2
3 3
4 4
6. Whether transition team was established in the company?
YES YES
NO NO
7. Whether representatives of the acquired
7. Whether representatives of the acquired