Managing differences in post-merger integration: The case of a professional service firm 1

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Nordiske Organisasjonsstudier© 2003 Fagbokforlaget

Managing differences in post-merger integration: The case of a professional service firm1

JAN LÖWSTEDT, ANNIKA SCHILLING, MARIE TOMICIC & ANDREAS WERR

This paper takes a process perspective on post-merger integration in professional ser-vice firms. Based on a longitudinal study of a merger between two consulting compa-nies, it is suggested that the management of differences plays an important role in sha-ping the post-merger integration process. Four different ways of managing differencesare identified in the four phases of the post-merger process. The interplay between theintegration process, the ideational context and the economic environment explain thetransition from one phase to another, suggesting that post-merger integration proces-ses in professional service firms are highly context-sensitive. It is also suggested thatpost-merger integration processes need to be understood as an emerging interplay bet-ween the internal dynamics of the integration process and the external dynamics of theeconomic and ideational environment of the merger.

INTRODUCTIONThe concept of differences has a central position in the vast existing researchon mergers and acquisitions. In what may be called the ‘strategic perspective’literature, there is a focus on the strategic choice (i.e. strategic- and organiza-tional fit) of merging partners (see e.g. Ramaswamy 1997; Lubatkin 1983).Strategic fit is commonly understood as the degree to which the merging firmscomplement or augment one another’s operations and strategies (Datta1991). Differences between merging companies are generally framed in termsof complementarities, whereas the lack of differences (i.e. similarities) isframed in terms of synergies. ‘Organizational fit’ refers to differences betweenthe administrative and cultural practices of merging firms as well as person-nel characteristics (see e.g. Datta 1991; Sales and Mirvis 1984). Paying atten-tion to strategic- and organizational fit in the early stages of the integrationprocess is considered crucial for the successful management of mergers.

Another school within the literature, often referred to as a ‘process per-spective’ on mergers (see e.g. Jemison & Sitkin 1986; Greenwood et al. 1994;Haspeslagh & Jemison 1991), suggests that there are impediments inherent in

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the merger process that prohibit a holistic and realistic identification of rele-vant strategic- and organizational differences, especially the latter. For exam-ple, Jemison & Sitkin (1986) point out that organizational differences (e.g.administrative, cultural, etc.) tend to be neglected as a result of activity seg-mentation and escalating momentum. Moreover, actions taken in earlyphases of merger processes (during negotiations) tend to influence the ease bywhich organizational differences are dealt with in post-merger integrationprocesses. While ambiguity may be beneficial for the successful completion ofthe negotiation phase, it may turn out to be an impediment to successfulpost-merger integration, as it obscures the early detection of organizationaldifferences. This means that a pre-merger analysis of strategic and organiza-tional fit indicates only the potential for value creation and anticipated diffi-culties in implementation (Haspeslagh & Jemison 1991). The realization ofthis value-creation potential and the avoidance of severe difficulties in imple-mentation depend on how the post-merger integration process is managed.

In this paper, the process perspective is further developed. Based on an em-pirical study of a merger between two professional service firms, the aim is tocontribute to a better understanding of post-merger integration processes byfocusing on the management of differences. The service sector in general, andprofessional service firms in particular, have recently experienced a rapid in-crease in merger activity (Jones et al. 1998). Although professional servicefirms tend to display important characteristics, which distinguish them fromtraditional industrial companies, they have largely been neglected by mergerresearch (Empson 2000). The importance of employees in realizing the valueof a merger is one such characteristic (Empson 2000; Greenwood et al. 1994).The way in which differences are managed is likely to affect the way employeesperceive a merger and their decision to stay and support the merger or to leavethe company, the latter being a great problem for professional service firms.

The interview-based study of the merging of an IT consulting firm and amanagement consulting firm reported here shows how the identification andmanagement of differences change over the 3-year integration process as themanagerial agenda changes. The integration process evolves in four phases,each phase following different integration logic. The nature of these phases,as well as the transitions from one phase to another, are discussed in the pa-per. This study contributes to previous studies that apply a process perspec-tive by pointing out how the internal dynamics of the integration process andchanges in the economic and ideational environment affect the nature andoutcome of the integration process. It also illustrates how and why initialideas of tight integration between two merging companies were successivelyabandoned as a result of both the internal dynamics of the integration processand changes to the environment in which the merger took place.

Managing differences in post-merger integration: The case of a professional service firm

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MANAGEMENT OF DIFFERENCES IN THE MERGER PROCESS The traditional, managerial-oriented literature on post-merger integrationprocesses argues that successful realization of potential synergies is related tothe choice of integration design and to careful planning of structural and pro-cess changes in the new organization (e.g. Kitching 1967; Pablo 1994; Larsson& Finkelstein 1999). Attention should be given foremost to the integration ofrules and procedures, physical assets, culture (Shrivastava 1986) and corpo-rate organization (Howell 1970). Cultural differences, for example, must bethoroughly mapped and managed (Nahavandi & Malekzadeh 1988; Cart-wright & Cooper 1993). The design of the integration process must also takeinto account the type of the merger, whether vertical, horizontal, concentricor conglomerate (Kitching 1967), or related or unrelated (Shrivastava 1986;Larsson & Finkelstein 1999). If management fails to take the above aspectsinto consideration, the integration process risks facing problems such as cul-tural clashes (Nahavandi & Malekzadeh 1988; Cartwright & Cooper 1993),resistance to change (Ashkanasy & Holms 1995), and high employee turnover(Schweiger & DeNisi 1991; Krug & Hegarty 2001).

Central to this managerial-oriented school of the post-merger integrationliterature is the assumption that integration problems are possible to predictand avoid by means of careful attention to differences in the planning phase.Similar ideas can be found in the ‘strategic perspective’ literature on post-merger integration. However, the process oriented school of the literaturequestions management’s ability to anticipate differences related to organiza-tional fit (e.g. cultural and managerial differences). Researchers such as Jem-ison & Sitkin (1986) and Greenwood et al. (1994) suggest that greater atten-tion should be given to emerging processes when studying diverse issues inmergers and acquisitions (see also Haspeslagh & Jemison 1991; Empson2000). Jamison & Sitkin (1986) recognize the merger process itself as an im-portant determinant of integration activities and the management of differ-ences. Several aspects of the merger process tend to impede in particular themanagement of differences related to organizational fit. High levels of com-plexity combined with a less developed tool kit for managing organizationalfit emphasize strategic fit. Forces of escalating momentum tend to lead to pre-mature closure of the merger process, neglecting issues of organizational fit.Furthermore, the purposeful use of ambiguity in negotiation phases of acqui-sitions or mergers tends create a backlash in the integration phase, as keyparts of the agreement are interpreted differently by the parties involved.Haspeslagh and Jemison (1991) have also found that the effort to justify themerger to a wide range of people tends to lead to a simplified view of motivesand means. Problems arise when the initial justification is not altered to ac-commodate changing circumstances, i.e., failure to modify this justification


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may lead to a false sense of security and frustration when plans no longer fitreality. When taking the context of a merger into account it has also been sug-gested that favorable external circumstances, such as a favorable turn in a bu-siness cycle, might provide actors with a false sense of security, which may inturn impede successful integration (Vaara 2001). These dynamics of the post-merger integration process have also been identified and studied in specificcontexts, such as that of merging professional service firms (Greenwood et al1994; Birkinshaw et al 2000).

As mentioned earlier, it has been argued that professional service firms dis-play characteristics that make mergers among them different from industrialorganizations (e.g. Greenwood et al. 1994; Empson 2000, 2001b). This is mainlydue to these firms being highly dependent on their professional staff. Becausethese professionals must apply “specialist technical knowledge to the creationof customized solutions to clients’ problems” (Empson 2000:209), knowledge/expertise and client relations are key assets (Winch & Schneider 1993; Empson2000). Here, knowledge is closely linked to the professionals themselves, whichis why their reaction to the merger process is critical. Although professional ser-vice firms do attempt to ‘depersonalize’ knowledge and hence reduce depend-ence, this is seldom a successful strategy since critical knowledge is often tacit(Werr 1999; Hansen et al. 1999). Moreover, professionals tend to resist effortsof formalization (Morris 2001; Empson 2001a). The success of complex profes-sional services in general, and (management) consulting services in particular,is to a large extent based on personal relations between consultant and client(Clark, 1995). Client relations are often more closely tied to the individual pro-fessional than to his or her company. When leaving an employer, professionalsoften take their clients with them (Maister 1993), something that further enfor-ces the importance of individual employees.

In professional service firms, which are often partnerships characterized bya diffuse authority structure (Greenwood et al. 1990), managerial power is usu-ally curtailed. As a result, post-merger integration between such firms has beenclaimed to be an undirected process in which the professional staff determine,through ad-hoc co-operative initiatives, the pace of integration (Empson 2000).Because of this, Greenwood et al. (1994) argue that managers of professionalservice firms should be specifically inclined to pay attention to organizationaldifferences in the integration process. In their study of two Canadian account-ing firms, it is however shown that, despite careful attention to both strategic-and organizational fit in the early phases of the merger, unpredicted difficultiesarose in the integration process, and it was particularly difficult to anticipatedifferences in culture and professional practices. At the outset, the two organi-zations seemed highly compatible, but as employees got to know each other,differences in professional standards triggered frustration and hostility.


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Although earlier studies of mergers between professional service firms paylittle attention to differences between the various types of professional servicefirms, they are by no means a homogeneous group. For example, the level ofstandardization between professional service firms’ operating logic differs,which in turn has implications for recruitment, leadership, knowledge mana-gement and competitive strategy (Hansen et al. 1999; Maister 1993). A morestandardized service generally allows for, as well as requires, directive mana-gement, bureaucratic procedures and a functionally differentiated organiza-tion, etc. In the case presented in this paper, the level of standardization ofservices varies substantially between the merging companies. Managementconsulting may encompass a large creative component, whereas IT consultingcan be highly standardized. Consequently, as is illustrated in coming sections,the operating logic of the merging firms differed.

RESEARCH DESIGNThe study was conducted as a part of the Mergers@Work research program,focusing on the dynamics of the post-merger integration process. The re-search program comprises the study of five mergers, the merger reported herebeing one of them. A case study method is used, based on the premise that athorough empirical understanding of a phenomenon is a suitable point of de-parture for theorizing. This is especially true when little is known about thephenomenon under study and when new perspectives are needed (Eisen-hardt, 1989). In the following, we focus on the description of the post-mergerintegration process between two professional service firms, namely ITCon,2

an IT consulting company, and ManCon, a management consulting com-pany. Although both companies are global actors, the study is limited to themerger between the Swedish subsidiaries. The merger was initiated in the fallof 1999, made public in spring 2000, and considered completed in the begin-ning of 2001. During the 12–20 month period following the merger, 10 semi-structured interviews were conducted with three business area managers andfour middle managers/senior partners in the newly merged Swedish subsi-diary. The middle managers/senior partners were located in the business areamost heavily affected by the merger. The HR Manager, CommunicationsManager and Vice President at the time of the merger were also interviewed.

The interviews were conducted in Swedish and were designed to elicit richdescriptions of the integration process. They ranged from 45–90 minutes andwere taped and transcribed in extenso. Secondary data such as internal reportsand a survey on how the merger was covered in the business press was addedto the interview data in an attempt to triangulate the material for a richer de-scription (cf. Stake 2000). Based on the case descriptions, an inductive analyti-cal procedure was applied (see e.g. Turner 1981; Richards & Richards 1991).


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The aim was to identify common patterns in the way differences were identi-fied and managed throughout the integration process.3

The post-merger integration process in the ITManCon merger will be de-scribed in the following as a process consisting of four phases – ‘getting toge-ther’, ‘getting acquainted’, ‘getting to work’ and ‘getting the work done’. Thesephases were defined based on differences in the managerial agenda observedin the case. In the getting-together phase, the main focus was communicatingthe rationale of the merger in order to create acceptance for it in the mergingorganizations. In the getting-acquainted phase, members of the merging or-ganizations were brought together to carry out activities of designing newstructures and processes. In the getting-to-work phase, the first common cli-ent projects were launched, involving members from both of the merging or-ganizations. And finally, in the getting-the-work-done phase, the focus shiftedfrom integration to business results and customer value. While the four phasesreflect the evolution of events in the ITManCon merger, similar phases havealso been observed in other mergers between professional services firms, indi-cating some level of generalizability. Examples include Empson (2000), whopresents phases of closure, acclimatization, transition and integration, whichto a large extent overlap with the four phases described above.

POST-MERGER INTEGRATION IN ITMANCON At the time of the merger, ITCon was a big public company with some 40 000employees worldwide, close to 3 000 of which were in Sweden. Since its start-up in the 1960s, ITCon had acquired numerous smaller firms, both globallyand locally, in order to gain business competence and expand geographically.A small management business firm (DoCon) acquired a few years before themerger with ManCon, was one of these.

ManCon was a partner-owned organization with half as many employeesworldwide as ITCon, and approximately 300 employees in Sweden. ManConwas founded in the beginning of the 1990s and had grown, mainly organi-cally, to become a successful player in the management consulting market atthe time of the initial negotiations in 1999. A variety of official motives weregiven concerning why the two companies merged. A major motive was com-plementarity of both businesses and geographical presence. With its IT-con-sulting business, ITCon had a strong European presence, whereas ManConhad a strong foothold on the US management consulting market. Businesscomplementarity made it possible to offer solutions that combined IT com-petence and competence in strategy and corporate change.

The idea of complementarity was strongly anchored in the spirit of thetime. At the end of the 1990s, when the decision to merge was made, the ‘NewEconomy’ was at its high, giving IT companies strong leverage. The demand


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for knowledge in software and website production and design was strong, andweb designers soon realized that their clients would benefit from business andstrategic advice combined with existing offers. At the same time, manage-ment consultants felt a need to offer technical implementation of the IT ser-vices they recommended. Together ITCon and ManCon would be able to takeon larger and more geographically diverse projects, covering a larger part ofthe value chain, and providing clients with a broader scope of services.

Getting togetherFollowing the decision to merge, the first phase of the merger process – thegetting-together phase – commenced. In this phase, the focus of integrationmanagement was on communicating the rationale of the merger in order togain the acceptance of the employees and partners. For this purpose, a largenumber of activities aimed first at management levels and later at lower orga-nizational levels were initiated. A global kick-off with managers from all overthe world was held in the spring of 2000. The merger was presented at thiskick-off and was, according to the HR Manager, well received:

People were talking very well about each other and their contributionsto the merger. I thought everybody had a very positive perception ofthe merger. I represent the old ITCon side, but people viewed this thingwith ManCon and their contribution very positively. (HR Manager)

Local information activities to communicate the rationale behind the merger,in terms of personal and company benefits were organized on a broad scale.The aim was not only to inform about the merger, but also to make sure eve-ryone realized its value. A series of evening presentations were held in a localtheater so that each consultant would have the opportunity to attend. The in-formation activities were considered to have had the envisioned effect, as anoverall positive anticipation was experienced. The impression was that themajority of consultants from both parties were looking forward to the mer-ger, as it would offer new, challenging business opportunities:

That was the first thing that came to mind when I met these ITConpeople, that it is probably a great strength – if you use it properly. Thewrong way to use it is to mix apples with oranges – then it will becomedifficult for sure. (ManCon consultant)

It’s great. Of course it’s going to be great. It’s what people are asking for.It’s those who have this kind of service who will gain market shares.Well, it brings down the competition. It is definitely a greater advantage


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for an IT consultant. For management consultants, I can’t say whetherthey have as much to gain from it as we have. (ITCon consultant)

As mentioned above, ITCon had acquired a management consulting com-pany (DoCon) only a few years before the merger with ManCon. This meantthat they had some experience of integrating management and IT consultingservices. This experience was mainly negative, however, as the IT consultantsfelt their new colleagues had treated them without respect. Despite this, theManCon consultants were described as both ‘nice’, and ‘competent’:

They [the ManCon consultants] were friendly and very easy to connectwith. Before, there had been this special jargon internally betweenDoCon and us. DoCon had the same line of services as ManCon andused a special jargon. They acted as if they didn’t want to hang aroundwith the IT people. (HR Manager)

The initial reactions of ManCon consultants towards their new colleaguesalso seemed generally positive. The technology hype at the time of the mergercreated a feeling that the business offered by ITCon provided an importantand valuable complement to the strategy business:

People thought it would be cool to see how this would work out andthere was also a certain degree of technology hype. As we had run themanagement consulting business without having any real technologyunit, we thought it would be good to gain access to that kind of com-petence. (Senior partner, ManCon)

Taken together, most of the consultants in both of the organizations lookedforward to meeting their colleagues to be. There were, however, some Man-Con consultants who expressed a rather reserved attitude towards ITCon:

I think most people thought it was a dull little IT company. And no onewas interested in IT-consultants like that... not anyone who workedhere at least. (ManCon consultant)

There were also ManCon consultants who feared being absorbed into a large,bureaucratic organization that they felt lacked an understanding of the speci-fic requirements and logic of management consulting. Still, ManCon consul-tants considered their unique competence and history of great success in themanagement consulting business as insurance against ITCon becoming tooeager to infringe on their freedom:


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From the beginning, there was a lot of skepticism and ambiguity, but ourattitude turned more to ‘we know this part of the market’. We know themarket much better than ITCon so we’ll be allowed to run it our way, andthen there won’t be any problems. And that was what happened, yousee…to a great extent that was what happened. (Senior partner, ManCon)

Getting acquaintedIn the getting-acquainted phase, the managerial agenda shifted from commu-nicating the rationale to planning the realization of the merger. Groups of IT-and ManCon consultants were brought together to design new structures andprocesses. These activities created the first opportunities to build deeper rela-tions between the members of the two firms.

Creating a new structureSoon after the first phase of the merger, i.e. communicating its rationale to theorganizations, preparations for integration began. Top managers of ITMan-Con had developed and communicated an integration concept labeled ‘inte-gration on the market’ described as client-driven integration. As the consul-tants belonged to different business areas (and hence competence areas), anew organization structure based on specialized business units was develo-ped. Consultants with complementary competencies were to meet and worktogether on ad hoc projects when their combined expertise was needed inclient projects. The idea of creating an integrated offer for the market, whileallowing for internal differences, was an important guiding principle in esta-blishing the structure for ITManCon:

You have to integrate towards the client. That’s why you have this mat-rix, where we orient our products in this direction, and where eachproduct has its own [profit & loss] responsibility and is allowed to haveits own culture. Then we have our sectors in the other side of the mat-rix, where we have a more long-term view of how we work with long-term relations with the clients. (HR Manager)

Everything doesn’t have to be forced together into one grey mass. In-stead, every unit has its own field of competence – which are then in-tegrated into client projects – aware of one another but with personalnetworks. (ITCon consultant)

The claim was that focusing on integration on the market was a way ofshifting people’s attention to the market rationale of the merger, rather thantoward internal processes, political battles and personal worries:


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We tried to move the focus from the ‘where will I end up in the new or-ganization?’ kind of thinking that immediately arose. Like: ‘What hap-pens to me? This is a big change. What job will I have in the future?’ Sowhen we communicated this, we said that it was about having to integrateon the market. We would deal with the other things later. (HR Manager)

The structure designed for the newly formed ITManCon was that of a matrixconsisting of two dimensions – one dividing the organization into different bu-siness units according to competencies, and a second that divided it into diffe-rent sectors focusing on clients in specific industries. The latter dimension wasmeant to coordinate the offers of different business units, including the mainresponsibility for sales. Being released from the sales responsibility would ena-ble the business units to concentrate solely on delivering the project. Althoughthe idea of a separate sales organization originally came from ITCon, it was anew solution for both companies. In ManCon, sales and delivery had traditio-nally not been separated. Instead, managers and consultants were supposed tofind their own projects and act as salesmen in all contacts with the customer.

The emerging business units coincided to a large extent with already exist-ing units in the two organizations. One unit consisted of only ManCon con-sultants whose focus was on management consulting specializing in strategicissues. Another unit focused on traditional IT consulting, and encompassedconsultants from the former ITCon. Only one unit had consultants from bothorganizations. Here the ambition was to build a team of ITCon and ManConmanagement consultants whose expertise lay in IT implementation andchange management, respectively. However, this unit was also divided intounits of competence, reflecting the ambition to avoid splitting up existingwork groups more than necessary.

Aligning processesA second important set of activities in the getting-acquainted phase was thealignment of internal policies, procedures and business processes. Despite theidea of using ad hoc projects as the main arena for integrating the two compa-nies, these preparations were mainly aimed at harmonizing central businessprocesses and support structures. For example, all systems and procedures fortime reports, sales efforts, recruitment and performance management were to behomogenized. A number of work groups were created with the assignment todesign the new structure and common procedures for the entire organization.

In this process, strengths and weaknesses of each organization’s existingmodels and systems were assessed. In some cases, like for the performancemanagement system, the ManCon model was chosen, and in others, such asfor time reporting, the ITCon model was chosen. In other situations, entirely


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new models were created. As reflected in the extensive efforts to create com-mon business processes and support systems, the ambition to integrate thetwo organizations was rather high. Still, as mentioned above, differences wereallowed to remain as a way of reducing the risk of misfit between the businesssystem and business logic early in the process.

Generally, the integration process was guided by the idea of not upsettingkey individuals more than necessary as they might otherwise leave the com-pany. This fear was especially evident in ManCon, as their consultants wereattractive on the labor market at the time of the merger. Several financial pre-cautions were also taken in order to retain key individuals, on both a partnerand manager level.

Getting to workIn the fall of 2000, work in the new organization started, marking the entryinto the third phase of the integration process – the getting-to-work phase.The potential embodied in the complementary competencies of the mergingorganizations would now be realized by creating client projects that exploitedthese complementarities. Because of changes in the environment and unex-pected differences in attitudes and ways of working, however, these projectswere harder to implement than expected. The positive outlook of the previ-ous phase was replaced by an awareness of the profound differences betweenthe merging companies. As a result, integration ambitions were lowered, andsome of the integrating structural changes introduced reversed.

As indicated above, the first contacts between the staff of the two organiza-tions were generally described as positive. However, despite the initial feelingof a good match and complementarity, differences in culture and business lo-gic between the ITCon and ManCon consultants soon became visible. Thegradual discovery of differing cultures and ways of working started to blur theinitial enthusiasm. One of the management consultants in ManCon describedthe differences as follows:

Huge differences in culture. Huge differences in reward systems – inhow you are raised, in how you sell projects. We experience large diffe-rences all the way down to the choice of words. If somebody says ‘risk’I see one thing and others see another – something fundamentally dif-ferent. And if we don’t understand that early on, which I don’t think wehave, it’s easy to think everything is all right – that we understand eachother. But we don’t. (ManCon consultant)


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The consultants realized they did business in very different ways, and viewedthe consulting role very differently. The differences became apparent whenthey worked together on a common project for the first time:

We have discovered that there are tremendous differences between anIT business and a management consulting business. We actually belie-ved after 4–5 months that we understood all this. The entire organiza-tion believed it. But then we got our first joint projects and we beganto realize the huge differences in experience. (ITCon consultant)

Other aspects related to ways of working also caused frustration. Consultantsfrom ManCon claimed that the ITCon consultants’ focus was too internal,and that they spent too much time in meetings when they should be concen-trating on external contact with clients. In addition, the sales process differed.ITCon consultants were accused of not being proactive enough in their wayof doing business. However, in their defense, ITCon consultants stressed thattheir way of doing business included thorough analysis and planning and ac-cused ManCon consultants of acting without thinking, the latter resulting intrial and error processes. ITCon consultants explained that they were forcedto plan and follow predefined methods, since the complexity of their projectswas high. ManCon, on the other hand, described their merger partner as abureaucratic organization with too many rules. The design of reward systemswas another source of frustration. The definition of a well-performed job andviews on how a compensation system should be designed varied betweenManCon and ITCon. As a part of the traditional consultant hierarchy in Man-Con, senior consultants and partners were accustomed to receiving high sa-laries and big bonuses. In ITCon, salaries were generally lower. The differen-ces were not only an effect of colliding views, but also an outcome of the biggap in the prices charged by IT services vs. management services.

The discovery of these and other related differences was a source of disap-pointment among the consultants as it had been assumed they could workwell together. The initial enthusiasm disappeared and the incentives for work-ing together were increasingly questioned:

I didn’t think that there were such big differences in our views of how todeliver a consulting service and the role of the consultant. I really didn’tthink so. I thought we would be able to work more together. I think they[ManCon consultants] probably see us as somewhat frightening as weare so much bigger and we have opinions. (ITCon consultant)


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In the course of a few months, the positive anticipation of a new, integratedand strong organization that would strengthen the market position turnedinto disappointment.

Letting go of the quest for homogenizationThe common administrative systems created in the preparations for the mer-ger were a recurring source of frustration among former ManCon consul-tants, who felt unnecessarily burdened and constrained by these systems.They found them badly adapted to their consulting logic:

The problems we have had concerned the central systems that existwithin ITCon and which we must live by. They are not designed to fit themanagement consulting business. They are designed to fit large-scaleproduction and IT consultants, which make them very time-consumingand demand a lot of specialized knowledge. (Senior partner, ManCon)

The quest for homogenization became increasingly problematic and was even-tually considered a threat to the survival of the strategy consulting business:

If we are not able to protect the strategy business, if the wage system,the bonus system, the reward system and the management system areharmonized too much, it will collide with the interests of the strategyunit. In such a situation, the strategy business would lose out andpeople would leave. (Senior partner, ManCon)

Consequently, with time came an increasing understanding of the differencesbetween different areas of business and their various requirements:

It’s different…we have different business models. There’s surely a dif-ference between strategy consulting and running an outsourcing busi-ness. It’s not the same wage system for sure. The wage structures arecompletely different, wage levels and reward systems are different. Wecall it different professions (competence areas). Every category of com-petence could be said to be autonomous. No one goes around thinkingit should be otherwise. (ITCon consultant)

Although there was some understanding of differences in business logic be-hind the initial preservation of business areas in the organizational structure,the idea of competence-overlap within Management Consulting was strong.However, despite apparent overlap, differences were perceived as unmanage-able. Both ITCon and ManCon said they were in the management consultingbusiness, but it seemed the business was looked at differently. The outcome


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was that the Management Consulting business area was divided into manage-ment consulting and business consulting. ManCon consultants were still ma-nagement consultants and ITCon’s consultants became ‘business consultants’.

Restructuring as sales go downThe decision to merge ManCon and ITCon was made at a time when theworld economy was at a high, strengthening the positive anticipations evenmore. Parallel to the growing insights about the nature of differences betweenthe merging organizations, the focus turned to the downturn of the economy,which caused a radical decrease in the IT consulting market in particular andextinguished the hope of growth. Decreased demand, overcapacity and failedacquisitions destroyed the year-end result for the IT-consultants on the stockexchange (Swedish daily business press: Dagens Industri, January 14, 2002).As a result, generating sales became the number one priority for ITManCon.The recently created organization structure was ill adapted to handle thechanging situation. The administrative burden put on the sales organizationresulted in inertia and decreasing sales. In addition, the difference betweenselling management consulting services as compared to selling IT services wasnow considered a serious problem:

The mistake they [management] made was … that they believed thesesectors [market dimension of ITManCon structure] would be able tosell the whole range of services, and that they would take responsibilityfor delivery by purchasing services from the different service lines. Thisis just plain bloody unworldly and has nothing to do with reality. (Se-nior partner, ManCon)

Due largely to sales problems, the initial structure of the merged organizationdid not last long. Only months after its introduction, the market dimensionof the organization was eliminated. Responsibility for both sales and deliverywas placed on the business units in order to put more pressure on sales. In or-der to co-ordinate business, key account managers were appointed, but theability to sell broad, combined offers was limited. This new organization wasfurther refined in the beginning of 2002, when the business units consistingof both former ITCon and ManCon employees were split into their originalparts. In this reorganization the different business logics of ITCon and Man-Con became a guiding organizational principle:

During this last year, we’ve tried to implement the same processes andthe same thinking in the different lines of business. We realize now thatthis doesn’t work, so we’ll change that for next year. We’ll have differentunits for these different lines of business. We’ve discovered during the


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year that there is in fact a big difference between a strategy business andan outsourcing business. (HR Manager)

In order to support the integrated offer, which was an important rationale forthe merger, a sales team consisting of senior consultants was created, whosetarget was to sell the integrated offer to top-level managers of key customers.

Getting the work doneThe getting-the-work-done phase, the final phase of the merger, was marked bya focus on short-term business results and survival in a difficult market. Theplans and ambitions for integration had been replaced by a pragmatic focus onbusiness results. To a large extent, this meant falling back on old and well-esta-blished ways of working from the respective consultants’ post-merger period.

For a majority of consultants, integration now meant getting to know eachother and establishing personal contact with people in the other organiza-tion. In the beginning of the merger process, the ambition had been to createarenas where people could meet and projects that they could work on togeher.Some of the ITCon consultants would have preferred an even stronger focuson integration:

[The ITCon consultants] think it’s too bad that we don’t push this in-tegration harder. But if we did, people would leave at the other end.(Senior partner, ManCon)

However, as the market began to fade, integration activities were cut back andthe focus shifted from integration to sales and delivery, and from long-termcreation of a new combined offer to the achievement of short-term results.Overall, the intensity of integration activities was described as fading overtime, and many perceived a lowering of the level of ambition in relation to in-tegration. For some, this was perceived as frustrating and led to a retreat intoold patterns of acting and thinking:

During the first quarter, there was a lot of enthusiasm and ‘let’s try it’,‘this is fun’. In the second half, or the end of the first half year, I believethere was a lot of – maybe not disappointment – but a kind of ‘why isn’tanything happening?’ And at that time, people started to go back andhuddle under their own benches where they felt at home. (ManConconsultant)

The restructuring described above gradually reduced the prerequisites for in-tegration as they counteracted the basic idea of the merger – namely to offer


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clients integrated services. Critics claimed instead that the strong focus on sa-les and the decentralized profit responsibility became a barrier to cooperationacross business units. As sales dropped, the organization fell back on estab-lished and well-tested routines originating from the pre-merger period. Theinitial efforts to integrate the structures of the two organizations were gradu-ally reversed.

INTERNAL AND EXTERNAL DYNAMICS OF THE ITCON-MANCON INTEGRATION PROCESSThe planning and execution of the ITManCon merger in part follows thebook. Communication aimed at creating positive expectations was extensive,and management took a firm grip on the process from the outset and mana-ged it actively throughout the integration period. Much effort was placed onthe homogenization of organizational policies, routines and procedures, andon the creation of a new organizational structure. The new structure partlyintegrated employees from the merging partners into joint divisions. Still, theintegration process successively ran into problems, and some organizationmembers suggested the actual state of integration was unchanged – with con-sultants originating in the two merging organizations as far from each otheras before the merger. In the following, the development is explained as the in-tersection of: 1) the internal dynamics of the merger process and the mana-gement of differences, and 2) the external dynamics of the ideational and eco-nomic environment.4

Internal dynamics and the management of differencesAs indicated in the case study, the integration process in ITManCon revealsan interesting change in focus over time. The phases and the chronology, aswell as the pace at which the post-merger integration process evolved, seemedto affect the management of differences. The merger process can be depictedin four phases, distinguished by different managerial agendas. The role andmanagement of differences, here expressed as the dominant logic of integra-tion, varied to a large extent throughout the four phases (see Table 1). In thefirst phase, the getting-together phase, the dominant logic of integration wascharacterized by a focus on differences. In order to communicate the ratio-nale of the merger and to gain the acceptance of the employees and partners,differences – in terms of competencies, customers, markets, etc. – were fre-quently referred to in the managerial rhetoric. These differences, which wereexperienced as positive by both managers and consultants, were talked aboutin terms of ‘complementarity’. Despite initial hesitation, mainly on the part ofManCon consultants, spirits were high. The differences, especially those re-garding competencies, were considered ‘challenging’ and ‘interesting’, and


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consultants expressed curiosity about one another’s expertise. The positiveattitudes may be attributed to the conscious and consistent communicationof the benefits the merger would bring. Against the background of the peak-ing IT hype, the combination of IT- and management consulting was an easysell. The initial tendency of ITManCon to stress differences as valuable andpositive may be considered both rational and functional from an action per-spective (cf. Brunsson 1982). The somewhat single-sided focus on differencesas valuable and positive in the getting-together phase could be interpreted asa way of creating the energy necessary for the realization of the merger.

Tab1e 1: The four phases of post-merger integration

In the getting-acquainted phase, the dominant logic of integration shiftedfrom differences to similarities as the planning process got underway. Newstructures and processes were designed and meetings were arranged to estab-lish contacts between consultants from the two companies. Apparently, diffe-rences were not regarded as much of an obstacle in the desire to create homo-geneous structures and processes in the merged company. The positive atti-tude towards the merger continued to spire and consultants were eager to meettheir new partners and ‘see how this would work out.’ In this, the secondphase, initial contacts were established and generally described as positive. Po-sitive feelings were, however, described as a result of similarities rather than ofdifferences. Consultants were surprised how similar, and nice, their new colle-agues were. Similarities were also stressed indirectly by the activities of the in-tegration process. A new structure with a common sales organization wascreated, and administrative processes like reward systems were homogenized.

Phases Managerial agendaDominant logic of integration

Value attached

Getting together – Create rationale for

merger– Gain acceptance

Differences (competence and geography)

Positive

Getting acquainted – Align structure and

processes– Create arenas

Similarities(common structures and processes)

Positive

Getting to work – Realize synergies Differences

(ways of working and values)

Negative

Getting the work done

– Survive– Deliver results

Differences and Similarities

Positive and Negative


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The initial enthusiasm that characterized the getting-together and getting-acquainted phases faded in the third phase, the getting-to-work phase. In aneffort to realize the value of the merger, joint projects that integrated diversecompetencies were initiated. However, experiences from these projects re-vealed unexpected and profound differences between the merging organiza-tions. Now, differences replaced similarities as the dominant logic of the inte-gration, and the value attached to the differences changed from being positiveand inspiring to being negative and frustrating. The frustration felt by con-sultants was further aggravated by the difficulties of establishing integratedprojects to thereby realize the synergies communicated in the getting-toget-her-phase. The downturn of the market, for IT in particular – but also mana-gement consulting services, triggered a transition to the fourth and finalphase, the getting-the-work-done phase.

The focus now shifted from company integration to delivery and survival.Because their expectations from earlier phases of the integration process hadnot been fulfilled, the consultants were disappointed. The reorganization,which re-established clear boundaries between ManCon and ITCon consult-ants, was a manifestation of this shift, and made it obvious to consultants thatclient projects and results, rather than integration, were the top priority. Ques-tions concerning the extent to which colleagues descended from the mergingpartner or represented different professional standards became less important,and the ability to deliver results was stressed. In this phase of the integrationprocess, differences were considered both positive (complementary compe-tencies) and negative (conflicting ways of working). The integration processesevolved in a post-merger state of affairs, where day-to-day activities were ‘bu-siness as usual’, and where differences and similarities between various parts ofthe organization became an accepted aspect of co-existence.

This conceptualization of the post-merger integration process indicatesthat the identification and management of differences has a central role in themerger process. The content of differences and similarities targeted in thefour phases varies and is associated with different values. The shift from dif-ferences to similarities and back to differences again may be seen as driven inpart by an internal logic of the merger process. As argued by Greenwood(1994), among others, there is a tendency in the early phases of a post-mergerintegration process to stress positive aspects. By creating positive expecta-tions, energy and commitment to the merger are created (see e.g. Brunsson1989), facilitating the success of the same. As the process proceeds, however,previously neglected differences appear, as people from the merging organi-zations begin to interact in day-to-day activities. Focusing on positive aspectsof differences, as well as positive similarities, in the early phases of the post-merger integration process, creates strong and positive expectations. As il-


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lustrated above, however, such expectations may become a liability in the la-ter phases of the process. The neglect of potentially problematic differences inthe early phases may reduce the organizations’ readiness to deal with negativedifferences as they arise later in the process. Rather than being natural aspectsof integration, the discovery of unexpected differences comes as a surprise,creating frustration and withdrawal, reactions that in the described case werefurther fueled by the development in the economic and ideational environ-ment of the merger.

External dynamics and the role of the environmentWhile drawing attention to the dynamics inherent in the merger process, theabove case also emphasizes the interplay between the merger process and itsenvironment, in terms of economic conditions and dominant ideas. The cur-rent literature on post-merger integration processes to a large extent descri-bes and analyses the post-merger integration process from an internal per-spective, with little attention devoted to the economic and ideational envi-ronment in which it takes place. Aspects related to characteristics of themerging organizations, such as organizational fit (Datta 1991), professionalstandards (Greenwood et al. 1994), prior experiences of mergers (Haleblian& Finkelstein 1999), organizational members’ resistance to the merger(Buono et al. 1985), etc. are repeatedly suggested as main predictors of thesuccess or failure of post-merger integration processes.

This study indicates that context shapes the evolution of post-merger in-tegration processes. Therefore, taking the context into account makes for abetter understanding of integration processes. The characteristics of a mergerprocess are not only determined by similarities and differences between thestrategies (strategic fit) or internal affairs of the merging firms, such as com-pany culture, structures or employees’ competencies (organizational fit), butalso by management’s interpretation of the economic realities in which themerger takes place.

The ITManCon merger was realized in the end of the 1990s, when the‘New Economy’ was at its peak. Soon after the merger, the new economy col-lapsed. The synergies between IT and strategy consulting services were thusno longer as evident, which was reflected in difficulties selling the kind of in-tegrated services that had provided the rationale for the merger. Conse-quently, the envisioned ‘pull’ strategy of the integration process (client-drivenintegration) became ineffective and organizational members lost their moti-vation to invest in the integration. The difficulties generating joint projectsimpeded the integration process in two ways. First, the getting-to-work phasewas delayed – hence the insight that there were major differences between thecompanies. Second, the rationale for the merger was undermined, which may


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have been the basis for constructive management of the unexpected differ-ences. The external delegimatization of one of the main merger motives couldexplain why ITManCon returned to old formulas rather than developing in-novative, new reactions, in response to the downturning market.

The study thus indicates the embeddedness of the ideas underpinning amerger process in a specific ideational context. What is regarded as ‘strategicfit’ depends on the dominant ideas about strategy at any one time and, con-sequently, management fashions play an important role in providing the ra-tionale for mergers (see e.g. Abrahamson 1996; Carson et al. 2000). One im-plication of this is that the rationale for a specific merger can change, resultingin a shift in the managerial agenda as well as in the integration strategies athand. Mergers driven by the ambition to explore new markets are probablymore vulnerable to their ideational context than mergers aimed at aspectssuch as production efficiency or market exploitation.

In addition to the effects of ideational climate, the above case also illus-trates the effects of market conditions on the integration process. As the mar-ket slowed the focus gradually shifted from integration activities to ‘ongoingbusiness’ and short-term results. This shift led to a revival of old recipes, i.e.to known and established structures and processes from the respective com-pany’s pre-merger days. Integrative activities aimed at promoting innovationand learning between the merging organizations were largely discontinued.This shows that not only a positive turn in the business cycle is able to divertattention from integration (Vaara 2001), but that a downturn may also havesimilar effects.

Although not as evident, the downturn of the market also had a numberof positive effects on the integration process in that it decreased the attractive-ness of the merged companies’ employees, thereby reducing the risk of mas-sive resignations following the merger. Unlike findings of Empson (2000),however, the reduced fear of losing key personnel did not appear to affect thedesign of integration processes much. Management of the process may havebecome more directive (see e.g. Shrivastava 1986; Pablo 1994), but whetherthis was a result of reduced fear of losing key personnel or increased economicpressure is difficult to say. In this case, the two aspects are interrelated – thedownturn of the market reduced the employment alternatives available. Still,the economic pressure seems to have had a greater impact on the develop-ment of the integration process than the changes in the market for professio-nal staff. Overall, this study suggests that a shrinking market, as well as chan-ges in the ideational environment delegitimizing the merger, may have a ne-gative effect on the ability of merging firms to create innovative, new offersand procedures that integrate the strengths of – and thus realize the potentialcomplementarity of – both partners.


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CONCLUSIONS Successful realization of potential synergies in post-merger integration is, ac-cording to the managerial-oriented perspective on mergers, dependent on thechoice of integration design and the careful planning of new and integratedstructures and processes (Kitching 1967; Larsson & Finkelstein 1999). At thecore of this literature is the assumption that integration problems can be pre-dicted and managed by means of careful attention to differences betweenmerging companies. It has recently also been pointed out that post-mergerintegration processes differ depending on the characteristics of the mergingfirms (Nahavandi & Malekzadeh 1988; Cartwright & Cooper 1993). Empson(2000), for example, shows how the integration process in professional ser-vice firms tends to be more undirected as the professional staff largely deter-mines the pace of integration.

In the ITManCon case reported here, the integration process between thetwo professional service firms was tightly managed from the outset. Manage-ment was active both in communicating the purpose of the merger, as well asin creating common procedures and structures for the new joint organiza-tion. However, in spite of considerable attention to organizational and hu-man issues, the integration process ran into mounting problems as consult-ants became aware of differences in ways of working, business logic, and cul-ture. These differences, as well as changes in the organizations’ environmentforced management to successively adopt new agendas in which integrationplayed an increasingly lesser role.

As the integration process was to a large extent managed according to thatprescribed by the process perspective, the development in ITManCon cannotbe solely understood as the outcome of characteristics inherent to mergerprocesses or of a highly influential professional staff. Although important,these factors need to be complemented with an understanding of the contextin which the merger takes place.

Contextual aspects, such as the downturn of the market, affected the tran-sition from one phase of the integration process to another and the way emerg-ing problems in the getting-to-work and getting-the-work-done phases weredealt with.

Changes in the environment made management redirect its focus from in-tegration to the creation of market opportunities and sales. The changes alsoreduced the market pull for integrated services, which management had en-visioned as a main driver of the merger process. As the focus shifted to sales,a return to older, proven procedures and structures could be observed in thegetting-the-work-done phase. This tension between short-term success andintegration work indicates the interplay between the internal and external dy-namics of post-merger integration processes. The ability to constructively


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manage negative differences as they appeared in the getting-to-work phasemay be strongly linked to the environmental conditions of the merger as well.For example, in a situation where the market conditions were better, the un-expected and negative differences that appeared in the getting-to-work phasemight have caused less frustration and retreat. Alternatively, the differencesmay not even have been noticed due to the seemingly good state of affairs (e.g.Vaara 2001). Yet, it is likely that the design of the integration process and theambition to create homogenous structures and processes aggravated the ef-fects of, and hence the reactions to, the downturn in the market. Apparently,the external dynamics of the merger (i.e. the merger in relation to the envi-ronment) seem to moderate the internal dynamics (i.e. the post-merger inte-gration process) and vice versa. Against the above background, this study sug-gests that post-merger integration processes must be understood as anemerging interplay between internal and external dynamics. As the above fin-dings to a large extent derive from a single case study, the question of gener-alizability deserves attention. Is the observed importance of the context in theITManCon merger unique? The tendency to draw attention to above all po-sitive aspects in the beginning of an integration process can be interpreted asa pro-active approach to the management of differences. Although similarmechanisms have been observed (Jemison & Sitkin 1986), this tendencymight, as a result of the fear of losing professional staff, be more pronouncedin mergers between professional service firms.

It could also be that the intangible and interactive nature of consulting ser-vices contributed to the observed development. Working patterns and values,which were the main source of unexpected and negative differences, were toa large extent taken for granted, making it difficult to assess and examinethem beforehand. Accordingly, mergers between companies with ‘tangible’technologies would run less of a risk of facing unexpected differences in thegetting-to-work phase (see e.g. Greenwood et al. 1994).

Further research into the internal logic of post-merger integration proc-esses, the management of differences, and the interplay between integrationprocesses and the ideational and economic environment, is needed in orderto verify and elaborate on the above findings. Questions that deserve furtherattention include: Are the dynamics of the integration process identifiedabove valid also in firms other than professional service firms? Are professio-nal service firms more sensitive to contextual changes than less knowledge-intensive firms? How do the dynamics of the managerial agenda and the do-minant logic of integration influence post-merger integration processes?


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NOTES1 We wish to acknowledge the editors of this special issue and two anonymous reviewers for

their helpful comments. 2 Pseudonyms have been used to protect the identity of the companies. 3 NVivo (a software tool for qualitative analysis) was used to structure and analyse the

empirical material. 4 For a review and discussion of the dual interplay between internal and external factors in

organizational change, see e.g. Löwstedt 2001.

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Jan Löwstedt is professor of Business Administration and Director of the Centrefor People and Organization (PMO) at the Economic Research Institute at theStockholm School of Economics and professor at Blekinge Institute of Technology.He has published books and articles on organizational change, technology andchange and managerial and organizational cognition. Together with Bo Hellgren,professor at Linköping University, he is leading Mergers@Work, a research pro-gram on organizational and knowledge transformations processes in mergers andacquisitions. Other current research projects concern the recruitment process, thereproduction of gender relations in management resourcing, the work and role ofthe HR department in companies and the role of school management in the trans-formation of state schools.

Annika Schilling, M.Sc. from Växjö University, is a Ph.D. student at the Centerfor People and Organization (PMO) at the Stockholm School of Economics anda member of the research program Mergers@Work. Her research focus is on issuesof integration, culture and power in mergers and acquisition.

Marie Tomicic is a researcher and a lecturer at Linköping University, Departmentof Business and Administration. She earned her PhD in 2001 when she defendedher thesis on decision-making in management teams from a social influence per-spective. She is currently involved in the research program Mergers@Work. Hermain research interest is the impact and development of cognition and social pro-cesses on strategizing and organizing.

Andreas Werr is assistant professor at the Stockholm School of Economics and apart of the Mergers@Work research program. He earned his PhD at the sameschool with a thesis focusing on the functions of methodologies in the work of ma-nagement consultants. His current research interests focus on the rhetoric of ma-nagement consulting, the use and consequences of management consultants inclient organizations as well as the management of consulting companies.

Managing differences in post-merger integration: The case of a professional service firm 1

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