Author: Yogi Schulz
We’re all painfully aware that many corporate acquisitions do not achieve their stated goals. The recurring themes of unsuccessful acquisitions are the debilitating impact of jostling for power and the high cost of integrating the application portfolio. When these themes drag out the acquisitions process, benefits evaporate, synergies vanish, product development slows, and customers feel ignored.
How can a CIO help to avoid these problems and contribute to acquisition success?
CIO’s can provide leadership within the executive team to make quick choices, sometimes tough ones, about rationalizing the applications portfolio.
For example, which ERP solution should survive and which data centers will be needed to support the merged company? Interminable study will not improve the decision but will undermine the acquisition. CIO’s can coach project sponsors to consistently communicate key messages that sell the choices when the inevitable challenges arise.
CIO’s can push the resulting rationalization projects to execute as quickly as is prudent. Taking too long will drive up costs and provide no additional benefits.
IT Integration Costs
CIO’s can ensure that IT acquisition integration costs are recognized as merger costs. In many cases, such IT costs should be included into the proposed acquisition business case.
For example, in the oil & gas industry, the acquired exploration data is often an important asset. The value of this data asset can be materially impaired if it’s not catalogued and stored reasonably. Expect to spend money to preserve acquired assets.
In the absence of such cost recognition, these acquisition-related IT costs become much more painful IT capital or IT operating expenses that undermine CIO credibility in subsequent fiscal years.
While there may be IT staff that you, as CIO, will be happy if they disappear, there will be others who you will want to retain through the acquisition and perhaps beyond.
For example, the acquisition may provide a convenient excuse to terminate some marginal performers. Conversely, key application and infrastructure staff may be spooked by the uncertainties that every major acquisition generates and become susceptible to calls from headhunters.
Consider some retention mechanisms for key individuals.
No Application Projects
CIO’s will avoid initiating major application projects as part of the acquisition integration. Use the available applications. Trying to form a consensus on requirements for major new application projects while the business staff and the business processes are in flux will be difficult or impossible.
For example, replacing or upgrading the CRM system in the middle of the acquisition integration is more likely to lead to conflict about how to manage customers than to improvements in customer service.
Initiating major application projects is probably worse than accepting one of the existing applications even when it has significant warts.
Settle on an IT architecture quickly. Extending the elapsed time to complete the IT aspects of the acquisition, while significant IT architecture direction questions are pondered and studied in depth, does not enhance the reputation of the CIO.
For example, high-level IT architecture decisions about methodologies, development tools, DBMSs, application and web servers,content management and the role of software packages vs. custom development can all be made within a week. These decisions can then guide the acquisition integration rather than slow it down.
Significant outsourcing agreements are likely to be in place. CIO’s should revisit the outsourcing strategy in the context of the corporate strategy which may have undergone a revision through the introduction of acquisition goals.
Then the CIO can re-negotiate the outsourcing agreements in light of the agreed outsourcing strategy. Overall, the guiding principle is that excessive outsourcing leads to loss of control over the valuable role that IT can play as an enabler of the business plan.
No Decommissioning Projects
Do not initiate technology decommissioning projects as part of the acquisition integration except in dire circumstances. Accept the reality that IT will have to support multiple technologies that perform the same function for some years. Budget and staff accordingly. The related costs are an acquisition cost.
For example, one company may have a significant investment in mainframes and related applications. Even the weight that a CIO can apply will not produce quick decommissioning without significant business interruption.
CIO’s can spur agreement on what technology will be decommissioned in due course and what you will buy or license more of.
The all-too-frequent reality is that data quality in most applications is well below the general perception of data quality. This issue will pop up to add cost and complexity as multiple applications are rationalized.
For example, the merging companies are likely to have overlapping customer lists with different identifiers, inconsistent address and contact information. CIO’s can insist that effort, dollars and elapsed time be budgeted, as an acquisition cost, to improve data quality.
Risk of Knowledge Loss
Some staff downsizing is a common consequence of an acquisition. CIO’s can help the management team assess the risk of knowledge loss that will accompany downsizing. Do the people, you’re thinking of downsizing, hold experience and knowledge that is relevant to the goals that drove the acquisition or is their presence an impediment to achieving acquisition goals?
For example, some marketing staff typically manages key customer relationships at a very personal level. Some engineers are integral to the smooth operation of critical manufacturing processes.
Move expeditiously to remove staff that is prolonging the acquisition integration with energy-sapping distractions.
Acquisitions can be a terrific way to advance the business plan. CIO’s can guide the management team by promoting fast projects that will protect acquisition benefits.
With strong leadership, CIO’s can counter those who want to drag out the acquisition process to advance their personal agenda. CIO’s can guide the management team to avoid high risk integration projects that won’t deliver.
Information Technology Management in a Merger and Acquisition Strategy
M&A integration offers a rare opportunity for a business-minded CIO to deliver competitive advantage and quantify shareholder value.
This page links to an 8 page PDF that describes a high-level merger planning approach.
Technology and Systems Integration in Mergers & Acquisitions
Best Practices, LLC
IT Best Practices For Financial Services Mergers
Forrester December 23, 2003
Mergers and Consolidations Service Line
Sales pitch for merger-related consulting services