“Great news!” reads the corporate memo. “Our company just got acquired!”
Interestingly, to what degree this is actually great news depends a lot on you. Studies have shown that success in integrating the companies’ IT systems helps determine the success of the merger overall.
“Because technology has become so pervasive, IT touches virtually all aspects of a company’s operations, and many of these functions are mission-critical,” writes Booz & Allen in its report, The Role of IT in Successful Merger Integration. “IT is the common denominator among all corporate departments, and insufficient technology support in the wake of a merger virtually guarantees that potential synergies within affected departments will fail to materialize.”
But even though IT is so important, it isn’t always considered during a merger. “50 to 60 percent of the initiatives intended to capture synergies are strongly related to IT, but most IT issues are not fully addressed during due diligence or the early stages of post-merger planning,” agree Hugo Sarrazin and Andy West of McKinsey & Co. “Too often, forecasts are driven by financial formulas or rules of thumb provided by the merger’s advisers. In practice, however, many of these calculations depend on a company’s ability to integrate IT operations—not just IT itself, but the functions that IT enables, including finance, HR, logistics, and customer relationship management.”
So what steps should you take to integrate IT systems in the event of an acquisition?
Before you do anything, look at the business processes. “While it may be tempting to jump into the ‘Which software are we going to keep for the combined entity?’ discussion right away, it is important not to put the cart before the horse,” writes Eric Kimberling for Panorama Consulting Solutions. “To determine which systems will best support the merged organization going forward, it is important to understand how the business is going to run going forward. Otherwise, the decision of which systems to keep and which to retire will become driven more by internal politics and less by tangible business requirements and needs.”
In fact, in an ideal world, make sure a business process analysis is done in your own company because it starts on the mergers and acquisition trail, by implementing flexible systems and eliminating redundancy, Sarrazin and West write. “CEOs and CFOs should be wary of embarking on an M&A growth strategy that will require a lot of back-end integration if their corporate IT architectures are still fragmented: the risk of failure is too high.” Companies that are planning to acquire other companies should follow these steps, they write:
- Adopt advanced, service-oriented architectures (SOA) that are generally more flexible and adaptive, as well as designed to provide a platform that accommodates a wide range of business applications
- Reduce the number of systems (for example, one ERP system rather than multiple instances) and develop a model that considers not only the current company but also new data that may be gained in acquisitions or in moving into new businesses
Once an acquisition target is settled on, IT needs to be included from the beginning. “Make sure that IT leaders have a seat at the due-diligence table to get their perspective on the difficulty of systems integration,” advise Sarrazin and West.
The CIOs of both companies as part of the due-diligence process can look for signs of trouble before the companies pull the trigger on the acquisition, writes Ben Worthen in CIO. “The diligence phase is realistically the last chance to call off the M&A before both sides commit, and as such, a CIO should be looking for red and yellow flags that suggest the integration will be harder than expected (and budgeted for),” he writes. “Conversely, the CIO of the acquiring company can also be looking for positive reinforcement: systems or processes from the other company that reminds everyone why the merger or acquisition seemed like a good idea in the first place.”
It may seem like a lot of work, especially when everyone is excited to get the merger underway, but the more planning that is done ahead of time, the smoother the eventual integration is likely to be, Worthen writes. “75 percent of an integration effort during a merger or acquisition is determining which systems to keep, what data is important and how much integration is actually needed before the companies are technically joined,” he writes. “Once that kind of planning is complete, the actual hands-on work should be just like any other IT project—only a little more exciting.”
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