How do you decide what level of IT integration is appropriate after
a company merger?
Catherine Doran is European CIO of online financial services
company Capital One. She has worked in IT for more than 20 years
and has been involved in a number of high profile mergers and
acquisitions, writes Ross Bentley.
She says that the main IT considerations in a take-over revolve
around what level of integration is planned for the IT systems.
"The cost of the technology integration should always be taken into
account when looking at the feasibility of a merger or acquisition,
although it should not be the determining factor," says Doran.
"Companies merge for a whole raft of reasons and if the margins are
so tight that you cannot incorporate the appropriate technology
integration - I would tend to think that the deal is not suitable
anyway."
But once the decision has been made to merge two or more companies
there are several types of integration models to choose from.
One is to bring the target company in as part of the group but
maintain it as a stand-alone business in its own right. Here the
level of integration involved is quite small.
But, says Doran, "If the plan is to acquire a company and to bring
it in as part of your stable then there could be different levels
of integration involved."
For instance the back-ends can be kept separate but have an
integrated, customer-facing front-end.
"I tend to think this is not really a long-term strategy," says
Doran. "It is more of a phase one integration stage that makes the
customer feel that he or she is talking to a combined entity
because the customer-facing front-end is consistent, while under
the covers there are two separate back-ends."
However in the long term the costs involved in maintaining two
systems make this model impractical.
"One reason that companies merge is to reduce costs through
economies of scale. Running two systems will incur more cost. If,
for example, you wanted to launch a product you have to update two
systems," says Doran.
Another option is to go for total integration at the back-end. One
way of achieving this is to take what Doran calls a "pick-and-mix"
approach. "For example, one side may have the best ordering system
and the other the best complaints system. You develop one system by
combining the best of each."
While it may sound appealing to take the best from both worlds, it
is complicated because there will inevitably be lots of interfaces
to be developed between systems. Doran says that in this situation,
it is usual to find that different data fields purporting to hold
the same data will have defined things differently and will have
stored them in different fields. Trying to integrate disparate
systems can be a technical nightmare.
Another model for back-end integration is to choose one whole
system to apply across the whole new company. But how do you decide
which one to choose?
Doran says, "Looking at the technology you must ask yourself how
old is it? How costly will it be to maintain? How clean is the
data? Is the system future-proof? Will the system scale?
"Take, for example, a scenario where a small and a large company
merge. It could be that the system belonging to the smaller company
has cleaner technology but the larger system is more scalable. When
faced with these dilemmas, you must base your decision on what is
the best system for the business."
Once a merger has been agreed the next step is to decide how to
allocate work to your IT team and to set down a timetable for the
integration work.
"When you merge two companies you have two lots of IT, two IT
departments," she says. "Within each of these you will have people
who tend the day-to-day IT and those who work on business
development projects.
"After a merger some projects will not be relevant and you can use
this slack in the system to redirect people towards integration
work."
Doran is quick to emphasise that managing the people issues is an
important part of spearheading any merger. "It is an uncertain
factor in the whole process and you must prepare for these issues,"
she says. "You can rest assured that IT people in general take a
pride in the systems they have developed and that there will be an
emotional attachment as well as an intellectual one."
But, she says, at the same time people can be enormously pragmatic
and they will put their shoulder, to the wheel if asked to do so.
"My philosophy is that 'people are all grown up' and it is best to
be honest and up front with them, obviously taking into account
commercial and other confidential considerations."
Post-merger integration options
- Stand alone: if the newly-acquired business retains its
identity as a separate company within the group the amount of
technical integration required will be minimal
- Front-end integration: a first phase integration that
makes the customer feel that he/she is dealing with one merged
entity. With two back-end systems maintenance costs will be
high
- "Pick and mix": take the best applications from each
system and integrate them. Because of the many interfaces that will
have to be developed this can be complicated and expensive
- Wholesale adoption of one system over another: before
you decide which systems to go with you will have to conduct some
in-depth evaluation based on the business needs of the newly-formed
company.