CXO

The IT operations side of acquisitions: Look to the cloud for ERP alternatives

During an acquisition, all eyes are on IT. One solution to migration issues is to cede control of mission-critical systems to the cloud.

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The foremost task enterprises undertake when they acquire or merge with a new company is devising an effective means of melding disparate systems and business operations. From an IT standpoint, managing this transformation is never easy, but today's cloud-based solutions are offering fresh alternatives.

The initial business decision to acquire an outside company begins in the CEO's office. From there, it can travel a significant distance before it finally reaches the CIO. Once a business decision is made to acquire a new company, a checklist that vets the operational difficulties of the acquisition is quickly circulated to see how easy it will be to incorporate the target company's operations and systems with those of the enterprise.

IT must evaluate the various systems in the target company and how well they match up with enterprise systems. Usually, IT uncovers major integration and systems migration issues. These issues can bleed into the benefits that the enterprise hopes to realize with the acquisition, because if system and operations workflows aren't reconciled easily or rapidly, more effort and dollars must be poured into them.

The plot thickens when you are talking about disharmony in major systems that engage every level of a company, such as enterprise resources planning (ERP). ERP is a corporate "drive chain" system starting with the planning of product requirements in sales and engineering, which in turn dictate the activities of purchasing and manufacturing, which are then linked back into corporate financial and service functions. When two organizations operate two different ERP systems, achieving a "smooth operational landing" in a merger can quickly turn into a nightmare.

How do you preclude this?

"Management targeted a company for acquisition, but we estimated that migrating the target company to our ERP systems could take 18 to 24 months," said one CIO at a major U.S. equipment manufacturer. "From both cost and competitive standpoints, we just couldn't afford this, so we looked for another way to solve our systems issues."

The solution the manufacturer took was to migrate the company it was acquiring to a generic version of the enterprise's ERP system that was hosted by a third-party cloud provider. The cloud-based solution didn't have all of the customization that the enterprise's ERP system had, but the fact that the cloud ERP version was generic enabled the ERP migration to be relatively painless and straightforward. In the migration process, IT was able to take advantage of pre-defined application programming interfaces (APIs) in the cloud that could easily port over the ERP system that the acquired company had been using.

"There were other benefits as well," said the enterprise CIO. "The cloud-based ERP was actually a software as a service (SaaS)-based operation that had expert ERP consultants and trainers on staff. Resources at the SaaS company assisted us in getting the new company on board with a generic version of our ERP system."

Getting over a major system incompatibility challenge for an acquisition wasn't the only lesson learned.

For years, the enterprise had struggled with ways to escape its own entrapment in custom ERP code that was hard to maintain. By moving a company it had acquired to a cloud-based, generic, and upgradable version of the ERP system it had been using, the enterprise as a first step could train personnel at the acquired company in cloud-based ERP, and then plan to train various enterprise facilities in the cloud-based ERP before also migrating them to the cloud.

"It was actually our acquisition strategy that led us to an overall plan to migrate a mission-critical system to the cloud," said the CIO.

Will this become a trend?

A majority of enterprises resist ceding control of their mission-critical systems to the cloud. Nevertheless, the idea could gain traction as more enterprises see complications and rising costs in maintaining years of customized code that has been built around their ERP.

Is this something your company would consider, or has it already done so? Let us know in the discussion.

About

Mary E. Shacklett is president of Transworld Data, a technology research and market development firm. Prior to founding the company, Mary was Senior Vice President of Marketing and Technology at TCCU, Inc., a financial services firm; Vice President o...

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