Despite their current popularity, mergers and acquisitions (M&As) can be controversial and risky. While the rewards for those who succeed can be great, the statistics are grim: Only one-fourth to one-third of all M&As actually deliver the promised increase in shareholder value.
This article focuses on the integration (and sometimes the replacement) of disparate IT systems following a merger or acquisition. Keep in mind that making the blended IT operation function efficiently falls on you—the CIO—and that with this mission comes a serious risk of going down in flames. Ideally, as CIOs should be, you’re involved in strategic discussions from the formative stages of the transition so that you will be able to raise some of the potential issues presented here and offer some possible solutions before the situation gets out of hand. I’ll discuss the common informational issues that arise during an M&A IT systems integration, and I’ll talk about how a business intelligence solution could just save the day.
The information challenge
M&A activity almost inevitably creates a major conundrum for the CIO. On the one hand, the new enterprise’s data is fragmented across company boundaries. On the other, management is experiencing a heightened (even frenzied) demand for accurate, consolidated information. Basically, you’re asked to make a silk purse from a sow’s ear.
So who are the key information customers in an M&A environment? Obviously, managers at all levels need information as they wrestle with the needs of the new enterprise. Parent companies and skittish directors also want assurance that things are going as planned. Add to that the information demands from government—in areas such as taxes, securities, and regulatory compliance—and from the financial institutions that have committed dollars to the deal.
Conventional wisdom can be costly
When consolidation is an issue, conventional wisdom dictates moving everyone to the same enterprise system. This system may be one that’s currently in use or it may be a shiny, new enterprise resource planning (ERP) product.
Keep in mind that when you replace enterprise systems, you’re frequently replacing business processes as well. This can create a cultural affront and raise unwelcome issues at particularly sensitive times. Some analysts believe these cultural issues contribute to the poor success rate of mergers and acquisitions in strengthening shareholder value.
Thinking “out of the box” can buy you time
Thinking “out of the box” means challenging the conventional wisdom. Focus on meeting the information requirements presented by the M&A scenario. Is it really necessary to get everyone on the same enterprise IT system to meet those requirements?
In many cases, treating the M&A event as a business intelligence (BI) problem can produce an information solution that is less painful, more flexible, faster, safer, and cheaper. BI tools and technologies enable you to respond to information requirements quickly while lengthening the transition and integration window. And time is a particularly nice resource to have while the merged enterprise works out a consolidated strategy and best practices—and while things in general just settle down a bit.
Data marts to the rescue!
The data mart is one BI tool that can play a key role in the M&A environment. Data marts can be quickly implemented to support newly expanded reporting requirements.
To get the most functionality from your data marts:
- Build marts at appropriate divisions and functional areas. Merge them into a consolidated enterprise view by way of a data warehouse at the company headquarters.
- Concentrate first on the key drivers of success. Twenty percent of your enterprise’s data marts will deliver 80 percent of the value, so identify which ones comprise that 20 percent and build them first.
- Don’t neglect data marts that help you keep an eye on nonfinancial metrics, which can be particularly important during transition periods. Employee satisfaction metrics, for example, may help retain key people during turbulent times.
With some careful planning and by using proven design principles, you can implement a state-of-the-art BI system that will not only ease your information issues in the short term but will also function as a solid base for your combined company’s long-range information requirements.
Dan Pratte examines data-mart architecture in more detail in his article, "Conform facts and dimensions to evolve your data warehouse over time." Click on the links below to read the other articles in Pratte’s BI series:"The intelligent organization: An introduction to BI""Use this architecture to structure your business intelligence solutions""Building the business intelligence solution: Back-room issues""Business intelligence: Finding the best format for your end users""Thinking dimensionally aids business intelligence design and use""Data marts deliver fast results, but proceed with caution"
A real-world example
Having served as CIO of a multinational health care company, Rich Johnson wears the battle scars he acquired while presiding over IT during his company’s acquisition of another health care giant. His experience is a cautionary tale for CIOs caught in the headlights of an approaching merger or acquisition.
“There was a massive push to consolidate systems—a push certainly driven by financial and management reporting requirements,” Johnson said, “and the board certainly wanted to know that the things they were told would happen were actually happening.”
While Johnson admits that he found the idea of supporting a single IT system seductive, he now views the attempt to transform the acquired company’s system as a serious mistake. “No one ever analyzed or properly considered what it would take to merge our systems—or the effect that might have on operations. We were just told one day it would happen and to make it work.
“Forcing our system on them [was] like shoving the square peg into the round hole,” Johnson said. “That friction ignited a powder keg of issues as long-established business rules and processes were challenged.” Attempting to move too quickly to a single IT system created a series of time-consuming crises, Johnson recalls. A better strategy, he argues, might have been to “lengthen the window of consolidation where both sides [could have] examined issues and determined best practices.” He would have preferred a three- to five-year window.
In retrospect, Johnson said, he’d definitely consider meeting his information and reporting requirements by way of BI technologies—leveraging multiple data marts, perhaps consolidating them into an enterprise data warehouse to support essential information requirements.
In the heat of the moment, no one wants to hear that there’s a likelihood that your M&A activity will fail to deliver anticipated shareholder value. While there are lots of reasons why this may be so, you may wish to consider eliminating one of them—the chaos, rancor, and inefficiency that results from the forced attempt to move everyone to the same enterprise system. If the reason for doing so is to facilitate consolidated information and reporting requirements, BI methods and technologies can often meet these needs without creating serious cultural conflict.
BI tools and technologies, particularly properly designed data marts, may buy time by supporting information and reporting requirements while you resolve the countless other issues in more rational, less chaotic ways. By increasing the window available to your integration and transition efforts, you can plan more effectively—and odds are, you’ll find that economies and synergies come sooner than if you rush to change out deeply-rooted systems.
What’s your experience running IT for a blended company? Post a comment below and share your thoughts.