Resistance to knowledge transfer in mergers between professional service firms
Why do individuals resist knowledge transfer in the context of mergers between professional service firms? Professor Laura Empson provides an executive summary of her recent paper on this topic.
Why do individuals resist knowledge transfer in the context of mergers between professional service firms (PSFs)?
We know that the announcement of a merger creates a highly stressful environment of uncertainty, fear and distrust. Even if redundancies are not planned, individuals in both the acquired and the acquiring firms may fear loss of status and changes to their established work norms. They may react by resisting senior management's initiatives to encourage co-operation between the combining firms and may ultimately resign.
We know too that there can be problems in knowledge transfer that are largely due to the characteristics of knowledge itself. Tacit knowledge, for example, is inherently difficult to transfer because it cannot be fully articulated through written and verbal communication but must be learned through experience. There can also be other impediments which are inherent in the organisation, such as the lack of an appropriate knowledge management infrastructure.
A study by Professor Laura Empson, looking in depth at three cases featuring mergers or acquisitions between professional service firms (two accounting firms and four management consulting firms), aimed to develop a deeper and more subtle understanding of the process of knowledge transfer in the context of merging PSFs.
In the two accounting firms, given the code names Sun and Moon, interviewees reported that knowledge transfer was relatively unproblematic. This may have been partly because accountancy is a profession that requires all members to be trained in an extensive and codified common body of technical knowledge. Within each firm too, knowledge already existed in a codified form: it had been articulated and depersonalised, and individuals therefore did not feel so strongly that they had personal 'ownership' of it. Each firm had established internal procedures for knowledge sharing and dissemination, and these served to facilitate inter-firm knowledge transfer as well.
But in the merging consulting firms (Sea/Land and Hill/Valley) consultants were highly resistant to attempts to transfer knowledge. Unlike the accounting firms they did not share a common body of industry-standard knowledge, and both the form and the content of the knowledge bases of the combining firms differed substantially. Interviewees in Sea and Valley emphasised the inherently tacit nature of their knowledge, while interviewees in Land and Hill described their knowledge as more routinised and codified. Problems arose because consultants in Sea and Valley assumed that the codified knowledge of their new colleagues in Land and Hill was simplistic and unsophisticated. Meanwhile the consultants from Land and Hill appeared not to have recognised the legitimacy of the tacit knowledge of their new colleagues in Sea and Valley, dismissing it as insubstantial.
Essentially, neither side was prepared to trade their own knowledge for something that they perceived to be less valuable. In the highly charged and stressful atmosphere of a merger, they feared that they were being 'exploited'.
What was clearly an uncomfortable situation then became considerably more complex once clients were introduced into the mix. While resistance to sharing technical knowledge focused on differing perceptions about the value of each other's knowledge base, resistance to sharing client knowledge focused on differences in the perceived corporate images of the combining firms.
Corporate image is based on a complex set of factors, including deliberate marketing efforts, cumulative 'word of mouth', and the personal images of the individuals within the firm. In each of the two consulting firm mergers, staff in one of the firms perceived their firm's image to be superior - 'upmarket', 'classy' or 'innovative' - to that of their merger partner.
Commercially perhaps this is understandable: association with a 'downmarket' colleague and the consequent 'image contamination' may have a direct impact on the fee rate a professional is able to command. However, in both Sea/Land and Hill/Valley the fee rates of the combining firms and the salaries paid to the professionals were broadly similar. As the frankly insulting nature of the comments ("these labourers"; "naff", "brassy", "unimaginative, uncreative") suggests, this time it was personal.
There can be a very close relationship between organisational identity and an individual's self-concept. Changes to that organisational identity, for example as a result of a merger, can prove highly threatening at an individual level. The problem may be particularly acute in PSFs because the images of the firm and the individual professional are so closely associated with the client's perception of the quality of the service. Consequently, while professionals may claim to be worrying about clients' perceptions, their concerns may also derive from a more fundamental anxiety about their own sense of self worth.
These twin fears, of exploitation and contamination, result from the subjective and very personal manner in which individuals evaluate each other's claims to knowledge, and from the way in which a firm's image is intricately bound up with the self-image of the individual professionals within it.
Managers of merging PSFs need to be cautious about the opportunities to create value from transferring technical and client knowledge between combining firms. The study shows the importance of understanding differences in both the form and content of the firm's knowledge bases, as well as the pre-existing mechanisms for sharing knowledge within firms. It also emphasises the need to look beyond differences in the client bases to understand the differences in how clients perceive the merging firms and how the professionals within the firms wish to perceive themselves. Analysing the extent of these differences requires considerable introspection on the part of both firms, as well as considerable insight into the potential merger partner.
The findings of this study were first published in the article "Fear of exploitation and fear of contamination: Impediments to knowledge transfer in mergers between professional service firms" by Laura Empson in Human Relations, Volume 54(7): 839-862 (2001). It has recently been selected as a 'classic' article on consulting firms and has been published in Management Consulting (Stephanos Avakian and Timothy Clark), an edited volume of some of the most widely cited articles in this field.