Don’t Let A Technology ‘Bake Off’ Slow Your M&A Integration
- Posted by metre22
- On October 8, 2019
- 0 Comments
“Eeny, meeny, miny, moe, Catch a tiger by the toe.
If he hollers, let him go, Eeny, meeny, miny, moe.
My mother says to pick the very best one and you are not it”
– Classic Children’s Counting Rhyme
In my early elementary school days, we often used this classic children’s rhyme to make decisions. Whether it was choosing between two kinds of candy or deciding who would be on which stick-ball team, the rhyme became a way to make a quick choice and get on with our childhood.
If you have been through a merger or acquisition, you likely know that one of the keys to success is rapid, clear decision making. We’ve heard this theme echoed from hundreds of executives: Allow the post-deal integration work to get bogged down in slow decision making and you’re dead.
The logic here is straightforward. Immediately following the consummation of a strategic transaction, two things are typically true:
1) Combined Revenue is lower than it should be (because everyone’s distracted).
2) Combined Expenses are higher than they should be (because of duplication and overlap).
The result of these two truths is compressed profit margins. Navigating through this period of sub-optimal performance with lighting speed is therefore critical to success. It requires swift and decisive decision making to keep integration on track.
One area where decision making often slows to a grinding halt is in choosing which technologies will be leveraged in the combined organization. Even a stand-alone enterprise typically has some level of application and infrastructure overlap. After a merger or acquisition, the redundancy feels exponentially more pronounced.
Too often, organizations embark on a seemingly logical approach to sorting out which technologies are going to support the combined organization going forward. They dive deep into a business requirements exercise and begin objectively evaluating software and other technologies from each organization and what they will look like after the merger. Countless demos are scheduled between the IT and business teams to evaluate functionality in what typically ends up being a politically-charged “bake off.”
Some years ago, we were listening to a CEO lament about a recent “merger of equals” situation. He described two firms – both of significant size – that could not make a decision on which ERP platform would be the foundation for the combined firm. One firm was operating on System A, the other System B.
One of the companies engaged a consulting firm to do an analysis, which recommended a migration to System A. Not surprisingly, the organization operating on System B wasn’t quite sure this was the right answer. So, they engaged a second consulting firm to do an evaluation. Thirty days later that recommendation came back — migrate to System B.
So how did they resolve the stale mate? The combined executive team agreed to hire a third consulting firm to evaluate the recommendations of the original two firms! A whopping six months later, the combined firm was finally able to choose a direction and begin the transition. It seems a quick round of ‘Eeny meeny miny moe” may have better served the organization.
What is the right answer when it comes to making technology decisions in the middle of a merger integration storm? We suggest the following guidelines:
1) Make sure leadership recognizes that technology decisions are people decisions. Choosing one application, system or even data center location can impact peoples’ job security, how they work, and maybe even core beliefs regarding which technologies are superior. The people involved in the technology decisions are keenly aware of this dynamic.
2) Adopt a guiding principle to help expedite the decision-making process. For example, in a merger where ACME, Inc. is merging with BETA Corp. a guiding principle might look something like this: During integration we will migrate to ACME’s technology systems and infrastructure unless there is a compelling business case to adopt BETA Corporation’s systems.
3) Consider the cost and change management investment required to transition employees and/or customers to a new system. In one professional services acquisition we managed, the acquired company clearly had a superior time and billing system for their 150 employees. The only problem: the acquiring company had 3,500 employees on a different system. While a move to the acquired company’s system made sense on the surface, the cost of the transition was not worth the benefit.
4) Focus first on systems that matter most. Mapping out hundreds of IT applications and data flows can create a complicated diagram more tangled than a plate of spaghetti. The key in a merger is to identify which applications in that diagram are the most critical enablers of competitive differentiation for the business or drive profitability (and therefore shareholder value). These are the systems to focus on first. Systems integration can be a tough task. But with these guidelines — along with a well-defined integration planning process and structure involving both business and IT resources — can ensure you move fast in navigating the hundreds of technology decisions required on the heels of a merger or acquisition.