The Potential for improving intra-organizational communication

in the Process of Mergers and Acquisitions via Accounting

Systems
Hassan Yazdifar, S. Reza Golestani, Saeed Askary, Davood Askarany
Sheffield University Management School
9 Mappin Street
Sheffield S1 4DT, UK

Abstract
As the number of mergers and acquisitions (M&A) continues to increase on a
global basis, more managers are called upon to develop their M&A transition
skills. While, undoubtedly, organizations realise the importance of good
communications for successful implementation of change programs throughout
the entire M&A process, they often find it hard to make this communication both
constant and lucid. The article argues that accounting systems display the
potential for improving intra-organizational communication by infusing
managers and non-accountants with a common financial vocabulary for
communication and reading the state of the business.
Introduction
Mergers and acquisitions (M&A) have become a fact of life for worldwide
business (Brousseau, 1989; Cartwright and Cooper, 1996) and are frequent
events in organizations today (Marks, 1997). Despite their popularity, however,
the outcomes generated by these alliances are often disappointing (Shearer,
2001). In fact, they often fail (Sirower, 1997; Porter, 1987; Shearer, 2001).
Importantly, while the contexts in which combinations occur may have changed,
the results of M&A are no better today than they were a decade ago (Marks,
1997). In fact, now like then, fewer than 20 percent of corporate combinations
achieve their desired financial or strategic results (Zweig, 1995; Davidson,
1991; Elsass and Veiga, 1994; Marks, 1997). It is acknowledged that factors
such as paying the wrong price, buying for the wrong reason, selecting the
wrong partner or buying at the wrong time might account for this disappointing
track record (Cartwright and Cooper, 1996). However, another contributing
factor to the high failure rate is lack of appropriate communication in the postM&A integrating process (Marks, 1997; Noerreklit and Schoenfeld, 2000).
This paper reviews, briefly, the literature on the role of communication in the
processes of major organizational change such as mergers and acquisitions

and attempts to draw managers, change champions and academics attention

to the role of accounting as a potential means of communication in the
processes of change.
The remainder of the paper is organized as follows. First, the role of
communication in the processes of mergers and acquisitions is discussed. This
is followed by the discussion of accounting as a powerful means of
communication. Next, some evidence from empirical studies and, finally,
concluding remarks are presented.
The role of communication
The literature indicates that communication is the most important variable for
management throughout the entire M&A process (Appelbaum et al., 2000) and
is the key to successful integration of two potentially clashing organizational
cultures (Balmer and Dinnie, 1999; DeVoge and Spreier, 1999; Appelbaum et
al., 2000). This includes integrating their different goals, values, beliefs, ideas,
systems, leadership styles, management practices, and processes (Shearer, et
al., 2001). Indeed, the problems, often, arise from a lack of understanding
between working groups in merging companies or between headquarters and
subsidiaries that decreases the effectiveness of cooperation (Noerreklit and
Schoenfeld, 2000). Thus, as Henry (2002) states, communication is necessary
for forming a strong commitment to blending business cultures and operations
which is required for achieving successful M&A.
Similarly, Richardson and Denton (1996) emphasise the importance of
communication in the processes of organizational change and transformation,
especially in times of global competition and intense environmental change
such as M&A. Moreover, they argue that change requires not only that good
decisions be made about how the change will affect profits, productivity, or
quality, but also that these points be well communicated (see also Appelbaum
et al., 2000). Effective communication will inform employees that it is not what is
done (or is going to be done), but rather why and how it is done (or will be done)
which really matters (Appelbaum et al., 2000; Yazdifar, 2005). Emphasising the
importance of communication, Cartwright and Cooper suggest:
Avoid ambiguous language and jargon specific to your own
organization. This is important both at the time of the
announcement and throughout the integration period in order to
dispel rumours, reduce uncertainty and overcome the fear-theworst syndrome. Employees in acquisitions and mergers have
tendency to attend to information which reinforces their worst fears
regardless of the validity of the source. Clearly communicate the
terms of the marriage contract, and the extent to which these are
open to negotiations, by creating a climate conductive to shared
learning. [] Communicate on a regular basis, even if the content
of the message is only to reaffirm that at the current time, there is
little or no information to communicate (1996, p.122-3).

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Therefore, during the M&A stage, appropriate communications, in addition to

other requirements such as training, will equip employees with knowledge and
tools to help them deal productively with the concept of constant change, to
develop new relationships, and to engender the support of new managers
(Sherer, 1994; Appelbaum et al., 2000). To that end, true business
transformation means equipping employees with actionable knowledge and
skills to achieve business results (Henry, 2002).
However, all forms of communication do not have the same effect and true
communication is difficult to achieve since the communication process faces
numerous potential obstacles (Appelbaum et al., 2000) and may lead confusion
or distortion (Cartwright and Cooper, 1996, p.123), misunderstanding or
different interpretations (Noerreklit and Schoenfeld, 2000, p.418). Furthermore,
appropriate communication is necessary for change in behaviours and
operations required for the successful execution of strategy (Henry, 2002)1. The
literature of organizational change has mentioned various forms of
communication and information flow such as: memos and written statements, email, posters, videos, face-to-face contact or meetings (Appelbaum et al., 2000;
Cartwright and Cooper, 1996). However, interestingly, there is a lack of
understanding of the potential role of accounting for improving communication
in times of major organizational changes such as M&A. Arguable, systems of
measurement and accountability display the potential for improving intraorganizational communication by infusing managers and non-accountants with
a common financial vocabulary for communication and reading the state of the
business (Roberts and Scapens, 1985; Busco, 2001).
Accounting as a powerful means of communication
With the nature of M&A explained as an experience of loss by organizational
members (Appelbaum et al., 2000, P.654), it could be argued that when
organizations and organizational members face the need for a rapid change,
accounting practices, along with other organizational systems, are likely to play
an important role in helping them to cope with this loss, give direction, in order
to be able to move on with the new entity. Organizations can be proactive
towards processes of change by promoting their members knowledge and
searching for better ways of doing work, as well as, questioning the existing
knowledge and cultural assumptions (Hopwood, 1987; Dent, 1990; Noerreklit
and Schoenfeld, 2000). In this situation, the role of accounting is not limited to
traditional budgeting and accounting systems; rather, it takes a broad view and
communicates this to facilitate organizational learning in response to change
(Kloot, 1997; Nixon, 1998) at both macro (economy, market, M&A,) and micro
(organizational) level. It contributes establishing a shared or joint
understanding of common objectives and strategy (Cartwright and Cooper,
1996, p.6) and gives direction in order that values and beliefs can be translated
into clear behavioural practice (Cartwright and Cooper, 1996, p.146). This said,
however, the outcomes are dependent upon both the characteristics and use of
the organizations accounting systems (Noerreklit and Schoenfeld, 2000).

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Accounting is a fluid and emergent craft, its techniques have been implicated in
a number of different ways during organizational transformations (Hopwood,
1987). To this end, rather than seeing accounting as a technical reflection of the
pregiven economic imperatives facing organizational administration, it could be
considered as actively contributing to the construction of organizational order,
and a powerful means for positively enabling the governance and control of the
organization as an economic entity (Clawson, 1980; Hopwood, 1987). From this
perspective accounting could also be conceived of as creating new paths of
action (Hopwood, 1990; Busco, 2001), especially when there is a loss, for
organizational members.
The constructive role of accounting has been debated within the literature
(Hopwood, 1987, 1990; Macintosh and Scapens, 1990; Noerreklit and
Schoenfeld, 2000). Accounting serves many purposes; one of the roles that it
plays is creating a quite particular visibility in the organization, making things
visible that otherwise would not be (Hopwood, 1990, p.8). Depicted as playing
a powerful role in organizational and social affairs, accounting practices have
been described as powerful communication means which have the ability to
influence perceptions, change language and infuse dialogue, thereby
permeating the way in which priorities, concerns and worries, and new
possibilities for action are expressed (Hopwood, 1990, p. 9). Moreover,
accounting is seen as being able to play a positive role in both shifting the preconditions for organizational change and in influencing its outcomes, even
including the possibilities for its own transformation (Hopwood, 1987, p.228).
Therefore, accounting is a strong mechanism through which information can be
communicated to organizational members. Arguable, it can equip them with
knowledge to help them deal productively with the concept of constant change
and the successful development of new relationships arisen as a result of
changes such as M&A. Thus, it could be argued accounting as a means of
communication plays an important role in the facilitation of organizational
learning. The link between accounting (with emphasis on management control
practices) and organizational learning has been pointed out by Kloot (1997). He
sustains that management control systems affect the understanding of what
those changes mean, how and what solutions might be generated, and a
perception of whether the time has come to uncouple the organization from old
structures and operating paradigms to move to new structures and paradigms.
Therefore, communication through accounting systems is a powerful means of
both streamlining and improving intra-organizational processes. Furthermore, it
can enhance organizational learning following any change at macro (e.g.,
economy, market, M&A) and micro (intra-organizational) levels. In so doing,
accounting may be interpreted as a system of rules, roles and routines, drawn
upon by specific organizational actors within the day-to-day process of creation,
diffusion, maintenance and change of those taken-for-granted assumptions,
values, philosophies which represent the ultimate source of organizational
behaviour and patterns of interaction (Busco et al., 2002).
In fact, by interpreting operational, financial and strategic information,
accounting systems are able to behave as repositories and carriers of a

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common organizational language/knowledge informed by shared metrics of

accountability (see Busco, 2000). Within such a scenario, accounting
(management accounting and control) systems seem to play a key role in
binding the dimension of change. In effect, accounting systems should not be
regarded as objective and value-neutral tools, rather by carrying, defusing,
validating, and institutionalising the taken-for-granted assumptions that
constitute organizational learning, values and culture, they can be seen as
communication technologies deeply implicated in the production and
reproduction of shared organizational knowledge and values (Busco et al.,
2002).
Noerreklit and Schoenfeld (2000) argue that management accounting system in
multinational companies can be regarded as a useful management tool when it
permits to deal with issues such as distortion in performance measurement and
therefore prevents misinterpretations of actual performance. The system can be
used as a tool for building a bridge connecting different understanding and to
develop concepts into common area of understanding for both headquarter and
subsidiary companies. This, consequently, makes it possible for subsidiary and
headquarters managers to reach consensus by means of a common language
(Noerreklit and Schoenfeld, 2000, p.424). The common language, accounting,
help develop an understanding that assures cooperation. The same authors,
then, suggest a model2 to develop the intra-organizational thinking between
parent and subsidiary organizations in which there is a potential pivotal role for
accounting. The effect of their model is shown in Figure 1 and Figure 2.
Some evidence from empirical studies
There are several studies which contribute to an understanding of the role of
accounting in organizations and organizational change. For example, the study
undertaken by Busco et al., (2002) in an Italian company taken over by an
American company (GE) reports how an accounting system was used by its
new owner (GE), to improve communication and integration by giving engineers
and other nonfinancial personnel a common language of accountability based
on financial and nonfinancial metrics. Furthermore, the study highlighted how
this shared vocabulary (the accounting language) overcame the
communication, cultural, and operational boundaries between the acquiring and
acquired companies located in different parts of the world.
Several studies based on Japanese companies have also highlighted the role of
accounting systems, even in simple forms, in communicating organizational
information and contributing to a more thorough understanding of organizational
objectives and strategy by organizational members (Howell and Sakurai, 1992).
This understanding, leads to better direction of their actions in contributing to
the overall achievement of objectives (Howell and Sakurai, 1992). Tanaka
(1989), for example, explains how product designers are given both cost and
functionality objectives and how this information results in better designs.
Furthermore, using accounting language and working through accounting
systems provided the companies with a more formal, but open two-way

5 5

channel of communication in which both sides were open to learning from one
another (Martin et al., 1992). In addition, Hiromoto (1988) states that, known as
an effective tool for information exchange, accounting systems in the Japanese
organization are designed in a way which aligns employee and corporate
objectives and provide influence and motivation of behaviour toward these ends
(see also Monden, 1989a; Morgan and Weerakoon, 1989; Hariman, 1990;
Martin et al., 1992; Jones et al., 1993). Similarly, McMann and Nanni (1995)
conclude that communicating through accounting language has resulted in all
levels of management in Japanese companies (studied by them) appearing to
have an understanding of how the production processes and organization
creates value. Thus, as Lavoie (1987, p.600) emphasized accounting should be
understood as a language that enables communication to take place throughout
the whole organization, with a far greater number of communicative partners
than anyone could feasibly talk to.
Conclusion
The need to understand, manage and, possibly, drive the enhanced
organizational complexity (especially following mergers and acquisitions) is
undoubtedly one of the main challenges for current corporate leaders. Within
this scenario, organizations leaders, in conjunction with other tools and
techniques, can rely on the well-known capabilities of accounting systems to
visualise, and measure the daily business activities and events, to justify new
paths of action (Hopwood, 1990; Ezzamel et al, 1999) and communicate them
across the organization. By translating organizational strategies into a specific
set of internal financial and non-financial target linked to specific production
processes and business practices, these systems enables organizational
leaders to transform abstract broad strategies into visible (quantifiable and
measurable) individual tasks which are communicable even to the lowest
operational levels (see also Busco et al., 2002, p.37).
Albeit briefly, this article has drawn managers, employees, consultants and
other decision makers to the role which accounting plays in organizations and
its potential role as a facilitator of organizational change such as M&A and
successful
implementation
of
organizational
strategies.
1

This is to remove non-congruent understanding of problems at hand, see Noerreklit and Schoenfeld,
2000, p.418).
2
The discussion of their model and how it should be implemented and used are venues for further
research.

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Biographies
Hassan Yazdifar (PhD, MA, MRS, BA) is a lecturer in accounting at Sheffield
University Management School. Prior to joining Sheffield in 2001, he has taught
at several universities in the UK (i.e., the universities of Manchester and
UMIST) and also overseas. He has facilitated several seminars (e.g., ISS 2000
and ISS 2001). Hassan has taught on a wide range of undergraduate and
postgraduate courses. He is currently module leader for one of the compulsory
accounting modules on the full-time postgraduate course (Leisure Management
Programme), one MBA module and a joint leader of an undergraduate. In
addition he is a member of Information Strategy Committee of the School.
S. Reza Golestani (MA, BA) is a researcher and an auditing manager in Iran.

Saeed Askary (PhD, G.Dip, MA, BA) is a lecturer in accounting at Deakin

University in Australia.
Davood Askarany (PhD, MA, BA) is a lecturer in accounting at Business School,
The University of Auckland (New Zealand).

10

Intra-organizational model of
thinking Parent Company

Intra-organizational model of
thinking Subsidiary Company

Common area of understanding Interorganizational model of thinking

Adopted: Noerreklit and Schoenfeld, 2000, p.423.

Figure 1. Intra-organizational Model of Thinking

New Intra-organizational model

of thinking Parent Company

New Intra-organizational model of

thinking Subsidiary Company

Increased common area of understanding Interorganizational model of thinking

Adopted: Noerreklit and Schoenfeld, 2000, p.423.

Figure 2. Developing an Inter-organizational Model of Thinking

11