What produces the most synergy in M&A? IT of course. Who is the red haired step child in M&A? IT of course!
Mergers and acquisitions (M&A) are one way of gaining competitive advantage in the marketplace and achieving in-organic growth. No matter the reason behind the decision, there has to be a strategy in order to increase bottom-line profit and achieve long-term goals.
In many organizations, the main focus tends to be either on day-to-day challenges or long-term planning. As we have seen in past M&A scenarios, business development makes IT integration difficult as a result of minimal due diligence. In general, most attention is typically given to commercial or operational issues, which fail to consider IT or system integration challenges. Companies have unique cultures, organizational policies and processes, methods of governance, and so on. If M&A is to be successful, corporate culture plays a vital role. It is therefore imperative to assess the M&A process in order to achieve the smooth integration of two firms.
M&A is rarely discussed with the IT department, but IT integration plans can either make or break the M&A process. The following challenges may be faced:
a) Identifying and resolving IT conflicts between organizations.
b) Assessing, analyzing and planning the integration of two different IT infrastructures without any operational loss or efficiency.
c) Improving operational efficiency by identifying the synergies to reduce the TCO.
d) Identifying all the touch points of information flow and the data source required for integration.
e) Maintaining the corporate security policies to protect the data and comply with all regulations.
Completing the M&A process is only half the battle. Much of senior management’s attention must be focused upon developing a post-transaction strategy and integration plan that will generate the revenue enhancements and cost savings that initially prompted the M&A. The important question that needs to be asked is “How much integration is necessary, and of what sort?” An important part of post-acquisition management is quickly creating value; therefore great opportunities that can be exploited with little organizational risk should have a high priority.
Appropriate IT integration is the key to capturing most functional and operational synergies and leveraging existing IT infrastructure. It is essential to effectively address the basics: managing the business and support processes, consolidating legal entities and functional structures, and handling the IT requirements within certain financial constraints.
Overall there are four different integration approaches, listed in order of increasing risk:
1. Parent Company Approach – In this soft approach the two merging entities will run their systems concurrently for a while and choose the best later.
2. Old Legacy Approach – In this approach the strategies, best practices, processes, systems, etc., of one of the entities are adopted by the new organization.
3. Best of the Breed Approach – In this approach the strategies, best practices, processes, systems, etc., of one of entities are adopted from the other.
4. Clean Slate Approach – In this approach, the merged business starts with a clean slate, using brand new systems.
In order to be successful with any of these approaches, business processes need to be well-defined across different functions. M&A places a lot of pressure on executives to capture the benefits sooner rather than later. However, integrating two different technological systems is a massive challenge. It requires extensive preparation, phased transitions, and intensive testing. In order to achieve significant post-merger benefits in IT, an integration plan that clearly defines the goal, process and approach is required, which should include the following:
1. Integration Blueprint – Principles, strategy, and a pragmatic approach with clear migration paths and workable operational model.
2. Milestone Plan – Predefined set of objectives, project controls and clear definitions of the governance process, in sync with corporate governance.
3. Portfolio Management – Clearly defined, value-driven project priorities and portfolios.
4. Contingency Plan – Clearly defined, with interdependencies and integration points.
5. Readiness Plan – Maps key strategies to make each stakeholder ready and able to deliver and benefit from the desired outcomes stated above.
6. Monitoring Framework – Provide accurate, detailed and adaptive monitoring of all of distributed computing components and data, including the network.
7. Communication Plan – Deals specifically with crisis communication, and will have to coincide with the corporation’s various safety and emergency plans. It should have a matrix of notification priorities covering all possible routine and emergency events related to IT services, support and planning, and list responsible parties, affected groups (stakeholders), and preferred communication methods.
8. Resource Plan – Should show the breakdown of the major resource types that are needed for the integration project.
Successful integration will create a single, well-organized and fully integrated entity able to achieve the objectives of the transaction. This involves a continuous stream of discovery, decision analysis, monitoring, and risk management throughout the engagement, at multiple levels of the organization.
In general, the financial markets usually like to see exceptional one-off transition costs in an account year for M&A. After that, even though integration activities continue, they will be delivered as part of the new business-as-usual operations and will be considered as day-to-day operations. Therefore, the amount of time left in the year will dictate what can reasonably be completed.
While the integration phases are underway, a separate team has to work with the business to update (or replace) the IT strategy in line with the new business strategy. This will set the stage for longer-term projects, which are generally more difficult and time-consuming.
About the Author:
Mr. Seetharaman is a Managing consultant with IBM. His work focuses on the financial services and distribution sector. His diverse background experience (14 years) spans planning and executing business strategies across multiple industries. Mr. Seetharaman's main area of expertise is analyzing business operations and recommending leading edge technology solutions for improving processes, enhancing productivity and reducing expenditure. He has earned a postgraduate degree in Information Sciences from the Kennedy Western University, specializing in Data management, Operations and Strategy that include Information Architecture, Usability Studies, System Design, and planning.�