Company mergers and acquisitions (or M & A’s) have been happening more frequently in recent years. This increase in M & A’s is being driven by multiple factors including AI and technology advancements, growth in the US economy outperforming other G7 economies, post-pandemic performance gaps, and activist investors. These factors have contributed to a rebound in M&A activity.
When a company acquires or merges with another company but fails to fully or properly integrate its tools and processes siloization occurs. Poor communication and decision-making during these integration efforts often lead to increased business risks and inefficiencies from what is called siloization. Siloization is often the outcome of poorly executed or incomplete integrations of companies that have been acquired or merged with.
This article aims to explain the various types and characteristics of business siloization, the risks and inefficiencies that result when there is siloization, and to summarize how companies can address these issues. (Another more humorous title considered for this article was ‘Corporate Heartburn, the Risks & Inefficiencies of Poorly Ingested Acquired or Merged Companies’!).
Definition of Siloization
Siloization refers to the splitting of personnel, data, or other organizational elements within a company into isolated units with poor communication. It is the process of creating organizational divisions that operate independently and with limited interaction. Siloization within businesses often leads to decreased interactions between teams, duplicative work, and resistance to change. (Note: In business siloization and compartmentalization are related concepts but differ in their implementation and effects. Siloization refers to the isolation of departments, teams, or individuals within an organization. Compartmentalization involves organizing tasks, responsibilities, or information into distinct categories or “compartments”).
M&A Activity Has Shown Significant Growth
Businesses conducted approximately 50,000 mergers and acquisitions (M&A) deals globally in 2024.
- United States M&A activity has shown significant growth, with deal volumes in 2024 increasing by 13% compared to 2023 and a further 10% rise anticipated in 2025.
- The technology sector consistently leads in M&A activity, with over 11,000 deals globally in 2022 alone.
Application & Data Silos Are Common
Mulesoft and Deloitte research, based on feedback from 1,050 CIOs, reveals that data is trapped across siloed enterprise applications. The average enterprise uses 897 apps, with 45% using 1,000 applications or more — hindering IT teams’ ability to build a unified experience.
- Only 29% of enterprise apps are integrated and share information across the business. Disconnected data remains an overwhelming blocker to legacy modernization for organizations. 83% of enterprises report that integration challenges are a significant barrier to their legacy modernization efforts.
- 97% of IT leaders acknowledge that their organizations struggle with integrating end-user experiences. Only 10% of respondents report experiencing no challenges due to data silos.
Integration Challenges with Mergers & Acquisitions Differ But Overlap
The integration challenges with acquisitions and mergers are different. Each brings its own set of issues and associated decisions involving minimizing business risks and inefficiencies. There are also a lot of issues that overlap and are common to both.
- With acquisitions, a lot needs to be learned about the company being purchased before informed changes can be planned or made. In addition, the acquiring company gets to dictate (pretty much, usually) how the purchased company’s processes and structure may be changed.
- With mergers, a lot also needs to be learned about the company being merged before informed changes can be planned or made. But with mergers often neither company has the upper hand, nor gets to dictate (pretty much, usually) how the purchased company’s processes and structure may be changed.
Common Categories of Silos that Exist in Businesses
Understanding these categories of silos is crucial for leaders aiming to foster a culture of collaboration and improve organizational efficiency and outcomes:
- Structural silos: These arise from the organizational structure, where departments or divisions run independently with limited collaboration. Structural silos can manifest as department silos, where different business units have their own systems for sharing information and do not communicate effectively outside these systems.
- Cultural silos: These develop when a company’s culture emphasizes departmental interests over organizational goals. Employees may identify more strongly with their team than with the company as a whole, leading to a lack of cooperation and resistance to change.
- Technological silos: These occur when different departments use disparate tools, software, or systems that are not integrated. This lack of interoperability can result in data inconsistencies and difficulties in sharing critical information.
- Data silos: These form when information is isolated within specific departments or systems, preventing its sharing across the organization. These can hinder data-driven decision-making and strategic planning.
- Channel silos: These arise when there’s a disconnect between teams and technologies supporting different customer channels, such as phone, chat, and social media.
Core Problems & Risks When Tools & Processes Are Not Fully Integrated
Operational Inefficiencies: Aligning processes, systems, and workflows between the two companies can be challenging and time-consuming. Redundant systems and processes can lead to inefficiencies, higher costs, and reduced productivity. For example, maintaining separate IT systems can create complexity and hinder data sharing, leading to operational delays. Poorly integrated processes may disrupt day-to-day operations, as employees struggle to navigate between different workflows.
Missed Synergies: The failure to align tools and processes often prevents the realization of anticipated synergies, such as cost savings or improved market reach. This can diminish the return on investment (ROI) from the acquisition. Inadequate integration planning can lead to wasted resources and conflicting priorities between teams.
Employee Challenges: Merging IT cultures, policies, and processes can lead to conflicts or inconsistencies. Resistance to change from employees further worsens the issue, impacting productivity and morale. Employees may face confusion and frustration due to inconsistent tools and processes, lowering morale and productivity. Poorly executed integrations can negatively impact the digital experience for employees with tool usage, leading to frustration and reduced productivity. This is particularly problematic when systems are not seamlessly aligned. Merging companies with different company cultures can lead to conflicts, decreased productivity, and employee retention problems. Lack of integration can exacerbate cultural clashes between the two organizations, further alienating employees and increasing turnover rates.
Customer Dissatisfaction: Disruptions in service or product delivery caused by fragmented systems can negatively affect customer satisfaction and loyalty. Maintaining customer relationships and engagement during the integration process can be challenging. Mismanagement of customer data or service processes during integration can lead to reputational damage.
Increased Costs and Risks: Aligning accounting systems, managing cash flows, and handling debt can be complex. Failing to achieve expected cost savings, revenue growth, or operational efficiencies is a significant risk. Maintaining multiple systems increases operational costs over time. Additionally, inadequate integration of IT systems poses risks such as data breaches or compliance failures. Delayed integration amplifies complexity, making it harder to align the acquired company with strategic goals.
Leadership and Communication Gaps: Ensuring clear and consistent communication throughout the integration process is often difficult but is crucial to achieving successful outcomes. Poor communication during integration efforts often leads to information silos, misaligned goals, and inefficiencies in decision-making. Leadership struggles in aligning priorities across both companies can further slow down integration efforts.
Common Technology Integration Challenges With M & A’s
Lack of Visibility: IT teams often lack a comprehensive understanding of the technology ecosystem in both companies, leading to uninformed decisions during integration. This includes limited insight into performance, usage, and employee experience across systems, which can result in failed integrations.
Data Integration Issues: Disparate data formats, low-quality data, and data silos create significant challenges during integration. Reconciling these inconsistencies requires time and cost investment, which can delay the process and reduce efficiency.
System and Infrastructure Mismatches: Combining disparate IT systems and processes can be complex and disruptive to operations. Differences in IT systems, architecture, or security standards between the companies can complicate integration. For example, incompatible tools or networks may require extensive rework to achieve connectivity and alignment. Standardizing hardware across the merged organization is often overlooked but critical. Without proper monitoring tools, issues such as performance irregularities with the applications used by employees can disrupt employee productivity.
Compliance and Regulatory Risks: Merging IT systems often introduces compliance challenges due to differing regulatory requirements or governance practices. Navigating various legal and regulatory requirements across different jurisdictions can be difficult. But not addressing these risks can lead to legal and operational setbacks.
Delayed Planning and Execution: Starting the integration process too late or without a clear roadmap often results in rushed decisions, missed deadlines, and increased costs. A lack of dedicated teams or leadership for IT integration can further hinder progress.
Conclusion
To avoid the core issues involved with mergers and acquisitions (M & A’s), companies should prioritize early planning for integration, establish clear KPIs for tracking progress, and involve cross-functional teams in the integration process from the outset. To mitigate the common technology integration challenges with M & A’s, companies should conduct thorough IT due diligence, establish dedicated integration teams, create detailed implementation roadmaps, and communicate proactively with stakeholders throughout the process.
Companies should do as much as possible to not create process silos or data silos. i.e. avoid having application data, governance efforts, compliance efforts, and data management efforts that are not fully integrated with those used by the rest of the company.
When integrating acquired companies or merging with other companies businesses should:
- Conduct thorough due diligence
- Develop comprehensive integration plans
- Measure the status and progress of the integration efforts
- Prioritize clear communication
- Focus on maintaining business continuity throughout the integration process
References
- ‘M&A outlook signals firming US deal market activity in 2025’ (Ernst & Young) – Link Here
- ‘Looking Back at M&A in 2024: Dealmakers Adapt as the Market Idles’ (Bain & Company) – Link Here
- ‘What Industry Has the Most M&A?’ – Link Here
- ‘Knowledge management takes center stage in the AI journey’ – Link Here
- ‘Organizational Renaissance: From Silos to Holons’ – Link Here
- ‘Get the Technology Side of Mergers and Acquisitions Right’ – Link Here
- ‘Don’t Make This Common M&A Mistake’ – Link Here
- ‘The five pitfalls of M&A integrations’ – Link Here
- ‘Why do mergers and acquisitions fail? Top 11 reasons’ – Link Here
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