Murphy, Marianne

Platt, Marjorie

English

AIS Electronic Library (AISeL)

Association for Information SystemsAIS Electronic Library (AISeL)AMCIS 2002 Proceedings Americas Conference on Information Systems(AMCIS)December 2002PERCEPTIONS OF SYSTEM INTEGRATIONSUCCESS IN BANK MERGERS: IS BEST OFBREED BEST?Marianne MurphyNortheastern UniversityMarjorie PlattNortheastern UniversityFollow this and additional works at: http://aisel.aisnet.org/amcis2002This material is brought to you by the Americas Conference on Information Systems (AMCIS) at AIS Electronic Library (AISeL). It has been acceptedfor inclusion in AMCIS 2002 Proceedings by an authorized administrator of AIS Electronic Library (AISeL). For more information, please contactelibrary@aisnet.org.Recommended CitationMurphy, Marianne and Platt, Marjorie, "PERCEPTIONS OF SYSTEM INTEGRATION SUCCESS IN BANK MERGERS: IS BESTOF BREED BEST?" (2002). AMCIS 2002 Proceedings. 138.http://aisel.aisnet.org/amcis2002/1382002  Eighth Americas Conference on Information Systems 975PERCEPTIONS OF SYSTEM INTEGRATION SUCCESSIN BANK MERGERS:  IS BEST OF BREED BEST?Marianne Murphy and Marjorie PlattNortheastern Universityma.murphy@neu.edu m.platt@neu.eduAbstractOrganizing data, maintaining legacy systems, integrating data from disparate systems and gaining competitiveedge have long been major issues in organizations.  These issues become even more important as organizationsexpand and eat up their competition through mergers and acquisitions.  In this research, we investigate thepolicy decisions surrounding integration of systems during major bank mergers. In particular, we examine therelationship between the system integrations and overall perceptions of merger success.IntroductionA typical merger will require integration at many levels.  At the system level, integration generally means adoption of somesystems, conversions of other systems and abandoning still other systems.  Additionally, the underlying databases of theorganizations are greatly affected.  Our research examines how the decisions surrounding these integration processes affect theoverall perception of merger success.The main motivation for database integration research is the need for organizations, as a result of technology, internal restructuringand/or merger activities, to combine data, technologies and systems in order to get a consolidated view of organizationalinformation [Larson et al (1989), Spaccapietra and Parent (1994)]. One common practice in such situations is to convert onesystem(s) to another and then abandon the old system(s).  The cost of conversion is generally high and user satisfaction is lowbecause of the time it takes to convert to the new system and the training issues involved.  In addition, organizations generallyinvest large sums of money in their information systems and abandoning these systems is costly.  This database integration streamof research looks for alternatives to conversions and attempts to address the issues of common knowledge and systems by schemaintegration rather than the conversion process described above.  The cost of this integration is purportedly much lower and theuser satisfaction much higher when compared to conversion processes.  Schema integration uses methodologies that integrate systems on a conceptual level.  In other words, the users have access to avirtual view of the data and the underlying databases and software remain unchanged.  The integration is transparent to the userand the integrity of the data is maintained because it is not changed.  The conversion process, on the other hand, physically takesthe data and components of one system and transfers it to another system. Therefore, the likelihood of changed and/or lost datais higher. There is substantial research to support the benefits of integration over conversion [Batini and Lenzerini (1984), Batiniet al (1986), Bertino et al (1989), Buneman et al (1992) Larson et al (1989), Spaccapietra and Parent (1994)].  This research hasprogressed significantly in the past twenty years. However, the integration methodologies have not progressed beyond thetheoretical realm.  The main area that has yet to be developed is a practical tool to develop corresponding data elements of onesystem to another.  There is thus far no empirical research to support any cost savings in the information systems that would begained by schema integration.   Technological changes as well as growth of an organization necessitate the need to either integrate or convert systems within anorganization.  These changes increase the need to share information among business units as well as convert legacy systems tonewer, more efficient models.  Within an organization these changes are evolutionary.  Mergers and acquisitions have the sameeffects on the information systems of an organization but they do not have the evolutionary process to lessen the impact on theorganization.  In order for the two organizations to function as one, the data and systems of the two organizations must be mergedStrategic Information Systems in the Digital Economy1Statistics were gathered from Mergers and Acquisitions by Commercial Banks, 1960-83, Board of Governors of the Federal Reserve System,Staff Study No. 142 (January 1985) and  U. S. Mergers and Acquisitions, McLean, VA (1985-1999).2The GartnerGroup is a Stamford, CT consulting group that is a comprehensive resource for information on the trends of the IT industry.  Theyhave been widely cited for their research in the area of payback for investment in IT.976 2002  Eighth Americas Conference on Information Systemsin a timely fashion.  Our research investigates the management of the systems integration to relate the effects of such a mergeron the management of the information systems.Bank MergersMergers and acquisitions are an increasingly important issue facing many industries in the information age (Kraft, 1998) and thebanking industry is no exception. Over a twenty-year period between 1960 and 1979, there were 3,404 U. S. bank mergers andacquisitions. From 1980 to the 2000 the number jumped to more than 8,000 mergers and acquisitions in the United States.  Theprimary reason for the increase is bank deregulation that allowed bank holding companies to begin to acquire out-of-state banksin the 1980s. In addition, although there is a significant peak in the number of bank mergers in the mid 1980s, there has been acontinual, upward trend in the number since 1989.  While some of these mergers are relatively small, the overall average acquiredassets in these mergers are steadily increasing.1  In fact, some of the major banks have merger and acquisition teams that arepermanent business units. Bank mergers and acquisitions are different than mergers and acquisitions of other organizations for a variety of reasons.  First,all bank mergers must be approved by federal bank regulators and regulations prohibit banks from operating as a joint unit untilthe merger application is reviewed and approved.  Second, regulatory requirements such as depository insurance (FDIC) andFederal Reserve transactions mandate that banks be open; they cannot shut their doors in order for a merger to convene or correctadverse effects as a result of failed information systems.  Third, the financial risk is great and the customer impact must beminimized.  Financial institution mergers must be accurate.  Therefore, addressing the impact of bank mergers is an appropriateavenue for this type of research. As important as mergers and acquisitions are in the banking industry, very little empirical research exists to support the connectionbetween a successful merger and the management of the information system integration process and/or infrastructure.  Theeconomic impacts and benefits from mergers have been the subject of research for many years [Amel and Rhoades (1989),Benston et al (1995), Calomiris (1998), Gregor and Mara (1992), Hawawini (1990), Haynes and Thompson (1999), Houston andRyngaert (1994), Linder and Crane (1993), OSullivan (1991), Porth (1992), Rhoades (1998)]. Research in this area has focusedon the overall economies of scale realized by the merger and not specifically what the contributing factors of the informationsystems have on the overall, long-term success of the merger.  Often the long-term effects on the IT infrastructure are overlookedbecause of the economic savings of the combined organization.Research QuestionsThe overall research question addresses the relationship between the overall system integration of the merging entities and theoverall perception of success of the merger.  We have conducted two preliminary interviews with three executive officers of majorbanks.  Without exception, all feel that the information system infrastructure of the two merging banks is a primary indicator ofthe degree to which a merger is successful.  Although, none could precisely assess their information systems infrastructure inquantitative terms, all stated that the strength of both the acquiring and acquired banks management of their information systemsdirectly affected the results of the merger. Consultants such as the GartnerGroup2 have long professed a best of breed approach.  In this approach, an organizationsinvestment in IT has a direct effect on profitability. The more an organization invests in the better or best information systems,the more profitable the organization will be. Interestingly enough, however, the executives we talked to, based on their collectiveexperience, said this approach does not work.  Prior to the merger, a due diligent procedure is performed.  One thing that is lookedat during this process is an evaluation of the information systems.  When decisions were made to proceed with the better systemof the acquired bank, other problems reduced the benefit of the better system.  Therefore, one of the banks we spoke with adoptedMurphy & Platt/Perceptions of System Integration Success in Bank Mergers2002  Eighth Americas Conference on Information Systems 977a policy to maintain the acquiring bank systems except in rare circumstances.  Usually, unless a unique product is identified, theinformation systems of the acquiring bank endure.The underlying question this research will address is how the adoption of policies both budget and procedural affects theperception of success. In addition, is the perception of success affected by cooperation and planning? It is expected that theperception of success may be directed linked to philosophy of system selection.Research MethodThis research is exploratory and involves a new direction.  Therefore, we initially conducted on site interviews to determine whatkinds of questions can be asked and what the perception of success means to the managers.  Secondly, we prepared a short survey.According to the U. S. Mergers and Acquisitions publication there were nearly 300 bank mergers in 1998.  For the purpose ofthis research, we are looking only at commercial and State Banks that are members of the FDIC.  There were 177 bank mergersin 1998 that fell into this category.  We have conducted initial phone interviews to identify the CIO or CFO responsible for themerger and to solicit cooperation.  An email will be sent to the person identified in the phone interviews with a link to our site with a web enabled submission form.The survey can be viewed at http://www.coe.neu.edu/~naveen/mis/survey1/index.htm.  This site is for information purposesonly.  The live site is secured to control submissions and to ensure that each bank only submit one survey.ConclusionWithout a doubt, mergers and acquisitions will continue to be part of the bank model for many years to come.  The systemintegration is a vital and important aspect of these processes.  Successful mergers will depend upon the success of this integrationprocess.As banks continue to look for increased profit margins the economies of scale will not be enough.  In addition, customer serviceinterruptions due to poor system integration will not be tolerated. Identification of policies and practices that lead to successfulintegration is vital.The correlation between policy and practice and the perception of success identified in this research provides a fundamentalbuilding block for identifying true success. The results of this survey will be compared to other measures of success such asfinancial statements and customer impact.  In addition, this research will aid in comparing financial growth of the newly mergedorganization in the years following the merger. Future research will look at the claim of success.  Was it accurate?  Has the merger increased or decreased the information systeminfrastructure?  Is the information system management of the merged organization stronger or weaker?  How does this assessmentimpact the future financial statements of the bank?Selected ReferencesAmel, D. and Rhoades, S., Empirical Evidence on Motives for Bank Mergers, Eastern Economic Journal, January 1989, v15(1):17.Batini, C., and Lenzerini, M. (1984). "A Methodology for Data Schema Integration" IEEE Transactions on Software Engineeringv10(6): 650-664.Batini, C., Lenzerini, M., and Navathe, S. B. (1986). "A Comparative Analysis of Methodologies for Schema Integration." ACMComputing Surveys v18(4): 323-364.Benston, G. et al, Motivations of Bank Mergers and Acquisitions, Journal of Money, Credit and Banking, August 1995, v27(3):777-792.Berger, A. and Humphrey, D., Bank scale economies, mergers, concentration and efficiency: the U. S. experience, Finance andEconomics Discussion Series, 1994, pp. 94-23.Strategic Information Systems in the Digital Economy978 2002  Eighth Americas Conference on Information SystemsBertino, E., M. Negri, et al. (1989). "Integration of heterogeneous database applications through an object-oriented interface."Information Systems v14(5): 407.Bertino, E. (1991). "Integration of Heterogeneous Data Repositories by using Object-Oriented Views." Proceedings of IMS'91-The First International Workshop on Interoperability in Multidatabase Systems: 22-39.Buneman, P., Davidson, S., and Kosky, A. (1992). Theoretical Aspects of Schema Merging. Advances in Database Technology -EDBT '92, Berlin, Springer-Verlag.Calomiris, C., Is the bank merger wave of the 1990s efficient? AEI studies on financial markets, 1998, v117:109-115.Chen, J., O. Bukhres, et al. (1991). "The Implementation of Cooperative Mechanisms among System Components in aHeterogeneous Multidatabase Environment." Computing systems:  the journal of the USENIX A, v6(3): 207.Gregor, W. and Mara, J., Mergers that make it, Bankers Monthly, November 1992 v109(11): 38.Hawawini, G., Mergers and acquisitions in the U. S. banking industry, Science Pub. C., New York, N. Y., 1990.Haynes, M. and Thompson, S., The productivity effects of bank mergers, Journal of Banking and Finance, May 1999, v23(5):825-837.Houston, J. and Ryngaert, M., The overall gains from large bank mergers, Journal of Banking and Finance, December 1994,v18(6): 1155.Hunter, W. and Wall, L., Bank merger motivations: a review of the evidence and an examination of the key target bankcharacteristics, Economic Review, September 1989, pp. 2-19.Hunter, W. and Srinivasan, A., Determinants of de novo bank performance, Economic Review, March 1990, pp. 2-13.Kraft, John D. and Quick, James C., The new organizational reality:  downsizing, restructuring, and revitalization, AmericanPsychological Association, 1998, v278: 26.Larson, J. A., S. B. Navathe, et al. (1989). "A Theory of Attribute Equivalence in Databases with Application to SchemaIntegration." IEEE Transaction on Software Engineering v15(4): 449-463.Linder, J., Bank Mergers: Integration and Profitability, Journal of Financial Services Research, January 1993, v7(1): 35.OSullivan, B., Realizing I/S Savings in Consolidating DP and Operations Centers, Chief Information Officer Journal, Winter1991, v3(3): 5-10.Parker, Marilyn M., Trainor, H. E., and Benson, R., Information Economics: Linking Business Performance to InformationTechnology, Prentice Hall, 1988.Porth, S., Horizontal mergers and Bank Profitability: A Matched-Pair Analysis, American Business Review, January 1992,v10(1): 36.Rhoades, S., The efficiency effects of bank mergers: An overview of case studies of nine mergers. Journal of banking andfinance, March 1998, v22(3): 273-281.Spaccapietra, S., Parent, C., and Dupont, Y. (1992). "Model Independent Assertions for Integration of Heterogeneous Schemas."Very Large Database Journal, v1(1): 81-126.Spaccapietra, S., and Parent, C. (1994). "View Integration:  A Step Forward in Solving Structural Conflicts." IEEE Transactionson Knowledge and Data Engineering, v6(2): 258-274.Srinivasan, A., Are there cost savings from bank mergers? Economic Review, March 1992, pp. 17-28.

PERCEPTIONS OF SYSTEM INTEGRATION SUCCESS
IN BANK MERGERS: IS BEST OF BREED BEST?

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PERCEPTIONS OF SYSTEM INTEGRATION SUCCESS IN BANK MERGERS: IS BEST OF BREED BEST?

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