News Analysis

Brush up on business skills for new round of mergers

CIOs have been urged to brush up on their business skills and prepare for a new round of mergers and acquisitions as the economy emerges from the downturn.

Knowledge and experience of mergers and acquisitions is increasingly becoming an essential qualification for CIOs, analyst firm Gartner said.

"Headhunters are saying get mergers and acquisitions on your CV if you want to grow," said Dave Aron vice-president at Gartner. "They are saying increasingly it is part of a CIO's armoury."

IT represents a quarter of the effort in a typical merger, said Gartner, and can make the difference between a merger adding to or destroying the value of an organisation.

"In a lot of the most successful mergers and acquisitions, IT played a greater role than just integration. The IT department has the best service management and best problem management. And businesses can use those skills more widely," he said.

One organisation, for example, set up regional control rooms led by its IT department to troubleshoot a range of problems aside from IT, including HR and management issues as the merger progressed.

Agile management

IT departments need to develop agility to manage mergers and acquisitions, said Aron. The most successful put their star IT players on the merger team and bring in temps to do the day job. The worst put the temps on the merger team.

"You have a lot of people who are uncertain and nervous, there is very little slack in the system, and you have people trying to come up to speed on different entities and cultures and systems. Having people who at least know half the story is a good starting point," he said.

Where projects go wrong, it is often because IT was not involved early enough, said Aron. According to Gartner's research, only 15% of CIOs get involved in mergers and acquisitions early enough.

About 1% or 2% of CIOs have a veto over the decision to merge. In one example, the CIO of a financial services company vetoed a project because the complexity of the IT was likely to destroy the value of the deal.

"It may be necessary to bring in people with experience in mergers and acquisitions both to have them on your team and to disseminate knowledge," said Aron.

Another tactic is to build an "M&A playbook" which will identify what the IT team will do on the first day and the first week of a merger.

"Adopt an 80/20 rule, assuming that 80% will work and 20% will be customised. If you don't have the experience, it is a mistake to think that you can muddle through," he said

Garter has identified three different scenarios which require different responses from IT.

In standalone mergers the merging company is left to continue to operate as it is. In best of breed mergers, companies mix and match business processes from both organisations, and in absorption plays, organisations transfer their own systems to the new company

"For standalone, its about having agility in your management information. The thing you need quickly is internal financial performance and other management information, so management can have a single view. For a best of breed you need agile architecture that can accept business processes and applications from other companies. For absorption you need agility in your applications," said Aron.


The role of IT in critical phases of a merger

1. The due diligence/planning phase, in which a basic plan of action is sketched out. In the most successful integrations, integration planning happens concurrently with due diligence and data gathering, with an initial hypothesis that is refined as information becomes available. That integrations must be conducted quickly is a myth. Rather, planning and communication should be conducted as quickly as possible. The speed of integration depends on the context and goals.

2. The welcome/signaling phase, in which a limited number of visible changes are instituted to signal the new reality that the merged organisation brings. Tactics include giving everyone harmonized e-mail addresses, phone accounts and security badges, and moving key people to different physical locations. Important outcomes centre on setting expectations, reducing uncertainty and motivating key staff.

3. The initial/commercial phase, in which the most urgent practical changes are instituted. This initial phase of the integration addresses urgently needed outcomes, which vary depending on the nature and goals of the integration. Common activities include addressing legal and regulatory issues and achieving transparency through integration of financial and management information. Other goals may include presenting one face to the customer and addressing human capital management disparities. Execution risk is highest during this phase, as a high level of personal uncertainty, along with transitional governance and project management, normally exist.

4. The main integration phase, in which most of the big process and system changes are executed. In this main phase of integration, the pieces of the post integration landscape are put in place over time, in a series of waves. For absorption-style integrations, it means bringing everything in the target organisation onto the parent platform. For best-of-breed-style integrations, it means putting the integration architecture in place.

5. The reap-the-benefits phase, in which the remaining benefits such as cost synergies or increased market share are harvested and monitored. This phase can also help capture lessons for subsequent M&A activities and other major transformations.


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