Merger and acquisition (M&A) activity is back on the agenda to rise again – particularly strategic M&As where a company buys and integrates another – and CIOs are playing an increasingly crucial role in integration success.
According to Gartner’s executive program analysts, CIOs in both the public and private sectors must develop world-class M&A integration capabilities.
M&As are among the biggest challenges for enterprises and their IT organisations to navigate and that conventional leadership and management techniques often are not enough, said vice-president, Dave Aron.
“Reaping the benefits of a merger or acquisition is a notoriously tricky business. There is no established governance body spanning the whole enterprise, there are normally aggressive goals and time frames, and there are often many surprises along the way, as each side learns about the other,” he said Dave Aron.
“On top of all this, the business must continue to serve clients, run operations and execute in the face of major, often disruptive, integration activity, making IT’s role in M&As critical.”
Aron said IT plays a key role, along with other parts of the business, in five critical M&A integration phases:
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. Gartner said the idea that integrations must be conducted quickly is a myth; planning and communication should be conducted as quickly as possible but 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 everybody harmonised e-mail addresses, phone accounts and security badges, and moving key people to different physical locations. 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. Urgent outcomes will vary depending on the nature and goals of the integration but 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, said Gartner, as it involves a high level of personal uncertainty, along with transitional governance and project management.
4. The main Integration phase during which most of the big process and system changes are executed. Pieces of the post integration landscape are put in place over time. 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 which addresses the remaining benefits such as cost synergies or market share. The phase can also help capture lessons for subsequent M&A activities and other major transformations.
Each phase of integration breaks down into workstreams — with IT representing one workstream, while functional areas and business units represent others. IT traditionally has strong project and service management skills and therefore also has an opportunity to play a larger role in the integration.
Gartner research director, Mary Mesaglio, said a good rule of thumb is that roughly 25 per cent of a typical M&A integration effort will come from IT, but the time and effort that each phase requires from IT will vary significantly.
“For example, a large amount of IT resources is typically needed for a relatively short time in the initial/commercial phase, whereas a smaller, but still substantial, IT effort is needed over a longer period in the main integration and reap-the-benefits phases,” she said.
It is by no means an easy path ; M&A integrations are both challenging and fraught with risks, said Aron.
“However, they also present a powerful opportunity to demonstrate the capabilities and business value of IT, and to stretch the performance of IT team members,” said Mr. Aron. “While successful M&A integration does not rely exclusively on the CIO and IT, they bear a large part of the burden, since integrating people, operations, information and processes requires significant technology investments.”