Successful mergers rely on taming the systems

Successful mergers rely on taming the systems
By Alan Cane

Published: May 18 2010 16:39 | Last updated: May 18 2010 16:39

As any business school student knows, the classic motives for a merger or acquisition are economies of scale or scope, synergies and market share.

But information technology is simultaneously the biggest enabler of those aims and the biggest constraint for most large businesses. As Vimi Grewel-Carr of Deloitte, the consultancy, points out: “Successfully merging the technology systems of two organisations is an imperative for the delivery of the benefits.”

Too few companies, however, take this into account when carrying out due diligence: it means the merger process can limp on for longer than is commercially acceptable while incompatible systems are persuaded to talk to each other – with the risk that they might even collapse entirely.

Accenture, the consultancy, reports that almost half the top executives involved in M&A point to a weakness in combining IT operations as the main reason for integration failure.

Andrew Morlet, head of IT strategy and M&A at Accenture, argues that bringing IT into the planning process at an early stage is critical.

Neil Louw, European chief technology officer for the IT services group Dimension Data, points out that as IT is now the production engine for most organisations, a thorough understanding is required – how it works, what its limitations are and where the differences lie between the two organisations. Without this “the acquisition could easily fall flat on its face”.

But he says that in the majority of cases, the IT team is only brought in at the planning or even post-acquisition stage: “Having chief information officers and their teams involved from the due diligence stage of any acquisition is more important than having a tight timetable during the merger process.

“Involvement from the IT department at this stage enables a focus on the right technical questions that other members of the M&A team ignore.”

Giles Nelson, chief technology strategist for the computer services group Progress Software, says companies are increasingly hampered by a lack of an M&A process, over-integration, loss of IT staff and a failure to realise assets and economies of scale.

“Working to specific timetables and quick decisions are of paramount importance. IT people are good at vacillating,” he says.

“Leadership and objectives are vital to ensure that things move forward apace. Quickly identify the top three areas of integration – for example, giving customer service access to all customer information systems – and get something done quickly.”

Success depends on a clear vision and a determined management. One battle-scarred veteran of the very public merger of two UK companies recalls the difficulties: “We would arrange a meeting between the two IT teams. We would go through the plans for integration, making sure everybody understood and agreed what they were being asked to do. Then they would go off and carry on just as before.”

Hugely frustrated, he left to pursue other objectives – and still prefers to remain anonymous.

Mark Nutt, general manager for computing services company Morse, warns that too many companies have too little knowledge of what IT assets they possess and how they work together: a first step, therefore, is a full IT audit before settling on a platform.

He recommends an agile and scalable architecture, with software development taking place in short phases with continuous feedback and modification.

“The problem is that this is still relatively rare,” he says. “Often, organisations have a diverse range of legacy platforms that have been in place for a number of years, resulting in an overly complex environment. In the event of a great upheaval such as a merger, the complexity and potential for increased downtime present a significant challenge.”

Lack of knowledge of the software assets – that is, the software licences – each party holds can also spell trouble.

Martin Mutch, chief executive of the Rocela consultancy, which specialises in Oracle software, says most companies fail to understand or even consider the implications of M&A on their licensing of enterprise software. Yet it constitutes a large part of the IT budget, he says.

A number of technology options are available to companies seeking to integrate incompatible systems.

There are, for example, commercially available architectures such as Avaya’s “Aura”.

Michael Bayer, president of field operation for the company in the EMEA region, describes it as “an open-systems based architecture designed to integrate applications and devices across multi-vendor, multi-location and multi-modal businesses”.

“By taking an open-standards approach,” he says, “existing systems can be left in place and will interoperate easily with the new partner systems, meaning that systems do not clash and there is no need for a complete IT overhaul.”

David Davies of Corizon, which describes itself as the “enterprise mashup company”, not surprisingly advocates this technology, which unites two or more external sets of data or functionality to create a new, web-based service.

It “allows companies quickly and simply to combine different systems into a single, virtual desktop that makes it easy for employees to carry out their tasks”, he says.

Cloud computing – internet-based, on-demand computing – offers yet another approach.

Ewen Anderson, managing director of Centralis, the computing services group, says: “If neither organisation has a clear best of breed advantage (in IT), moving to a shared service or externally hosted cloud solution may well be a better option than trying to co-habit or merge.”

Mike Altendorf, European director for EMC Consulting, agrees, saying a private cloud can be the perfect bridge: “It facilitates the secure movement of information both between and within organisations.

“It centralises and consolidates the infrastructure from both companies in a time-frame the merger requires. We have even seen the cloud acting as a holding function to enable companies to migrate their systems.”

But even if one party’s systems are clearly superior, there can be dangers. Philip Keown, partner at Grant Thornton, the chartered accountant, warns that each head of IT will champion their own systems, “just as every parent will say their baby is beautiful”.

“In any merger situation, the integration into a single culture is key and this is as important for IT people as it is for the rest of the firm.

“Businesses need to look at the resources, technical and managerial skills needed in the merged organisation and then decide which people best fit the roles.”

Yet another approach is advocated by Colin Rowland of OpTier, the computing services group.

He argues that management should see IT from a business transaction perspective, which, he says, enables managers to see the impact of every action the business takes and gain early warning of problems.

“Rather than stumbling around in the dark, you are creating operational intelligence to get the job done right and ensure IT is underpinning the success of the M&A, not undermining it.”

But returning to the initial question: how important is IT in the merger process?

Mr Keown of Grant Thornton says it depends on how important IT is to the business as a whole. For some companies, IT is the business; for others, getting it wrong might be an irritant rather than a calamity.

He adds: “If a business reached a position, say three years down the line, in which two supposedly merged companies are both still using their legacy systems, then you have to question why they merged in the first place.”

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