Mergers: IT disaster or IT opportunity?

It has been nearly 15 years since the American Management Association first surveyed the impact of mergers and acquisitions on IT organizations. That report revealed that IT was the least studied of all corporate functions in premerger discussions. It also said that IT consolidation had the lowest priority in postmerger activities.

Unfortunately, that situation hasn’t changed.

Mergers or acquisitions affect thousands of companies every year, but CIOs find themselves excluded routinely from premerger planning. Corporate executives and M&A consultants tend to underestimate the effort required to achieve IT consolidation. IT organizations remain unprepared for consolidations.

Whether or not IT management is ready for a merger or acquisition, the CIO of the combined organization must deal with two or more IT departments that are in a state of transition. Premerger systems for the companies must be maintained and operated; users must continue to receive the same level of service as before the merger or acquisition. At the same time, many, if not all, of the major applications must be consolidated within a six- to 18-month window.

Managing a transition involves integrating staffs and systems to form a new IT organization and infrastructure. The first steps are to name an IT transition project manager and to charter a transition management team that addresses capacity, budgets, system and network compatibility, staffing, access and security, user service levels, and the risks associated with the IT consolidation. The management team develops a detailed IT transition plan, defines a transition management structure and secures the staff, expertise, technology and funding necessary to handle the transition.

The application portfolios of both companies serve as the starting point for determining which systems best satisfy postmerger business requirements. Systems incompatibility is the source of many problems, especially with systems that support corporate functions such as finance, human resources, purchasing, sales and distribution. Even where both premerger entities employ the same ERP or CRM systems, differences in business processes and rules, as well as systems customizations and release variance, can preclude a simple conversion of one company’s operations to the other’s systems.

Instant consolidation of all IT systems or operations is neither necessary nor desirable. The key is to establish transition priorities. One workable scheme gives the highest priority to systems and operations that must be merged or consolidated because of business or regulatory requirements, followed by those where consolidation is desirable but not necessary within the first 12 months. The next priority is for systems and operations that can remain unchanged because consolidation isn’t warranted or there’s no counterpart in one of the premerger organizations. Lowest priority goes to systems or operations that should be replaced or eliminated.

Maintaining user support is a priority unto itself. The transition management team should negotiate a service agreement with each business unit that specifies the level of development, maintenance and operational support that the unit requires. It should also address the systems capacity and availability that IT will deliver to the business unit.

Organizational and cultural issues are often the hardest to address because change breeds anxiety. Downsizing is an inevitable M&A result, and IT isn’t the only area affected by staff reductions. Lack of communication is the main cause of IT personnel problems within one year after a merger or acquisition, and explaining changes to IT staff can be a complicated process due to many initial unknowns.

CIOs of successful consolidations rely on a series of messages to inform managers and staff of developments. Each note is simple and informal, uses an objective and optimistic tone, and provides only relevant details. The CIO has to look to the human resources department as a partner to help deal with downsizing.

The IT organization in a typical company is more likely to face M&A activity than almost any other catastrophic event. Understanding what needs to be done, evaluating risks and opportunities, and planning and executing efficiently are essential. Effective IT transition management can ensure successful alignment with M&A objectives.