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The delivery metrics across your large-scale transformation program look strong. The closure report is signed off. The steering committee congratulates the team. And then, quietly, the organization continues doing things the old way...
“Done” is one of the most powerful words in agile. It brings closure. It marks progress. It gives us the satisfaction of checking a box and moving on. But what happens when “done” becomes hollow, and the value is nowhere in sight?
The world is getting smaller, and I don’t mean only in terms of distance. The businesses are vanishing. Well…not really. The correct term for that these days is business consolidation. More and more companies are pursuing merger and acquisition strategies to become bigger and make the competition smaller.
In 2005, the worldwide aggregate M&A deal volume rose by 4.5 percent to 20,585, from 28,302 in 2004. The United States accounts for over 36 percent of M&A deals with an aggregate value of $1 trillion. The average deal size has grown from $200 in 2004 to $259 in 2005. Naturally, in today’s business and regulatory environment, the change management before, during and after M&A is becoming complex. It is affecting all aspects of the businesses involved.
One of the main driving forces behind M&A is the cost synergies expected from the consolidation of the operations of two companies. Increasingly, IT is playing a very critical role in realizing the advantages due to those cost synergies. However, achieving those advantages is not becoming any easier. The obstacles are increasing so much so that a former CIO of a major software company, which acquired or merged with more than 25 companies since 1999, called it the CIO “perfect storm.” According to him, this storm develops due to the convergence of compliance issues, day-to-day operations, security threats and new technologies with the demands of M&A activities.
In a speech to an IDC conference in Boston, former U.S. Labor Secretary Robert Reich said, “Many of you in the IT field are change agents. If you are not change agents you are not actually doing your job, because IT is all about change and the management of change.”
There can not be a more appropriate event than M&A that brings change within the affected companies with absolute certainty. If managing the change wrought by M&A is challenging for sales, operations and customer relations aspects of a business, than it is literally walking through a minefield to manage change in the IT departments.
Integration Challenges Software and hardware systems continuously evolve and get upgraded. These changes keep making corporate systems obsolete and create the need for integration of old and new systems. Hence the integration of internal systems has become a way of life for IT departments across all industries. However, M&A calls for the integration of external systems, making it quite a different type of animal.
The objectives of integration of systems in an M&A are bigger and part of larger business goals. Such integrations also involve systems developed by culturally different teams using different types of methodologies. The IT departments of companies merging usually have different software and hardware selection processes. Not all of their systems and infrastructures are compatible. Throw in the politics and human factor in this equation and you have a recipe for a perfect storm.
Improper handling of the impact of changes in the IT systems and infrastructure would create serious problems for the companies involved, questioning the justification for the merger or acquisition. No doubt, IT change management is crucial, but it need not become the deal breaker.
Lay the Groundwork Before a company starts its quest to acquire or merge with another firm, it conducts a detail analysis of its own strengths, weaknesses and operations to figure out the type of businesses it should pursue for M&A. IT also needs to undertake similar exercises. It needs to thoroughly understand its systems, infrastructure, processes and culture. It needs to identify and document important systems, requirements, scalability and other vital aspects unique to the business. The management may have to take remedial actions including people, systems and processes to make the IT ready for M&A.
During the due-diligence period, tremendous amount of time, effort and money are spent. IT’s role during this phase should not only be big, but also critical. This phase is the final chance to re-evaluate the M&A decision. Any red flags suggesting that the integration of IT systems and infrastructures may be harder than expected or not prudent must be seriously considered. The cultural differences may be difficult to bridge and prove to be a ticking time-bomb. The software systems may be too incompatible. IT represents significant intellectual assets closely linked with people who may not continue after the deal. If issues like these are unearthed during the due-diligence phase, than life during the planning and execution phases becomes easier.
Plan Well The detailed planning begins after the due-diligence phase and after the decision to go ahead with the deal. The overall scope of the integration would depend upon the size of the companies involved. One of the first tasks would be to break the full task into smaller projects.
While that may make the planning manageable, it would not make it easier. Even though the companies have decided to merge, a clear hierarchy may not have been established. Management without a decision-making hierarchy is not too effective. Sometimes the complications could be because the mergers are equal. In that case, both parties may want to call the shots, which would consume lot of time to reach consensus and resolve philosophical and other differences.
Nevertheless, the planning phase is more crucial in an M&A deal than in any other IT project because of the merging of systems from two different companies, which not only increases the complexities but also unknowns. Here it may be necessary to heed to the advice of Dwight D. Eisenhower, who once said, “In preparing for battle I have always found that plans are useless, but planning is indispensable.”
Time is of the Essence: Execution Without exception, IT veterans of M&A say that the speed of execution is very critical in the successful integration of systems of the two companies. M&A deals go though a warped speed after the merger. Not only is the management is under pressure to show results, but also the customers need to be kept satisfied, operations need to be maintained and the competition needs to be kept at bay. The physical offices may be moved and the staff may be reassigned to different tasks. On top of this, many people start to leave the combined company along with all the retained knowledge. If this is not addressed in a short period of time, then the second chance may not come.
Dos and Don’ts A piece of advice by an industry expert--“Depending on how well a business case is made, the CIO must be able to do three things--to do it by the book, to get off the hook and to know where to look”--seems to be a good one for CIOs and IT departments.
The integration of disparate systems of companies involved in an M&A deal is not easy. Fortunately, enough veterans have gone through this process that the lessons learned and dos and don’ts are quite well documented. Most of these are common to the IT integration projects of internal systems. However, some of them are due to the unique environment created by the M&A.
For example, Symantec, from its merger with Veritas, learned that rapid decision making in mergers of equals is critical. It found that the process becomes easier by clearly defining the organization, setting up the program office, setting up an executive steering committee and effectively monitoring the progress.
An important part of mergers is the blending of the cultures, including people issues. Lessons learned at Symantec emphasize that the development of an overall profile of personnel, integration of multiple project management teams and prompt establishment of direct communication help alleviate the HR and culture related problems.
Another company, Shell Oil Products Europe, employed the change management tactics like providing training in new technology being used at the combined company, career development and promotion within the group, as well as personal coaching. After the due-diligence, Shell agreed upon a clear IT integration strategy and established key objectives to achieve as soon as possible. This included getting connected and providing a basic IT infrastructure for the combined organization.
It also pays to focus on architecture and scalability, as EDF Energy found out that a lack of robust systems at an acquired company would have soured the deal, which was saved due to the scalability of systems at EDF, the acquirer. Even the vendor contracts could throw a spanner in the works, which also happened to EDF when it encountered an outsourcing contract at the acquired company, which would have prevented a speedy integration--thus negating the benefits of early economics of scale and savings.
Mergers and acquisitions have become a fact of life in today’s business environment. M&A also bring in an enormous amount of change within the affected companies. IT is increasingly becoming the back-bone of a number of industries because of their reliance on communication, operational systems and infrastructure. Together they create challenges that only a holistic approach to IT integration would be able to solve. Such an approach should address the needs and concerns of people, technology and processes.
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