The M&A Playbook for IT

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The M&A PlAybook for ITovercome the biggest IT integration challenges and drive business goals

InTroducTIon

It may or may not surprise you, but about 70% – 90% of M&As fail, for one reason or another. The integration of two companies into one functional unit inevitably involves great change. Culture, business strategies, and many other variables need to be adapted to fit new environments, people, and goals.

This change can create numerous problems that lead to unhappy employees, inefficiency, and abandoned projects. Unfortunately, the IT department is one of the areas in which these changes are most significantly felt. Given the intense pressure and uncertainty present during mergers and acquisitions, it is important to remember the end goal of IT: driving business goals.

By aligning technology integrations with core business objectives, enumerating priorities, and basing decisions on data, companies can have more successful integrations and emerge from the transitions stronger and better able to face new challenges. Companies need to have effective, tested strategies in place to reduce risks and lead to positive outcomes. And thorough planning with insight from M&A experts will be critical to success.

In this paper, we’ll discuss some of the major challenges faced by IT leaders during mergers and acquisitions (M&A), and present an effective framework to handle this change more effectively.

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Mergers and acquisitions fail for many reasons.

In some cases, the companies were not a good fit — business leaders just could not

decide on how best to take advantage of their

combined strengths. In others, it’s because

IT organizations became too bloated and

inefficient. But one thing is certain: too many M&A

failures are simply the result of a lack of

planning and foresight.

Some of the most common reasons M&As fail include:

Poorly defined goals

Many companies undertake a merger or acquisition without fully defining the goals of the process. Without pre-established metrics, there is no way to know what success looks like and no way to formulate actionable strategies to get there.

Ignoring cultural differences

Every company has a unique identity with unique ways of doing things. when another company is added to the equation, everything can change. new superiors, different rules, and shifted values can create culture shock for employees and lead to resignations, inefficiency, and other problems.

A lack of focus

The cIo has a particularly important role in ensuring that the transition is a success, but many cIos face an overwhelming number of projects and goals during a merger or acquisition. This can lead to a lack of focus that in turn leads to abandoned projects and inefficiency.

Why M&As Are A source

of so Much fAIlure

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Most complications around IT boil down to

the fact that companies often implement

technologies in vastly different ways.

For example, one company may rely on

third-party, cloud-based services to meet

their needs, while another may rely primarily

on an in-house, locally-hosted solution.

Software licenses, service agreements,

equipment, policies, and a wide range of

other factors must all be accounted for to

complete a successful merger or acquisition.

Usually, this means a number of projects have

to be undertaken to consolidate technologies

and form a cohesive foundation for the future.

Why Technology cAn be one of The MosT chAllengIng AsPecTs of InTegrATIon

To arrive at the right integration model, companies must have a solid understanding of how and to what extent they want to combine resources and efforts. Integration models run the gamut between holding and absorbing — where each company is left completely intact, or where the target company is integrated into the parent company. Deciding on an integration model will form the basis for how the integration will proceed and help cIos prioritize their efforts.

undersTAndIng InTegrATIon Models

holding

In this model, the target company is owned by the parent company but remains a separate entity. In many ways, this is the simplest of all integration models and will involve minimal transition effort on the part of either the parent or target company. It will be necessary to engage in efforts to assure workers that the merger or acquisition will not result in significant changes for them.

Preservation

The preservation model is similar to the holding model in that the target remains largely autonomous. however, this scenario does involve a certain amount of integration and requires greater planning on the part of the IT department. This model usually only involves the integration of back-office technologies. Examples of this include the parent company adopting the target company’s proprietary software, or some service contracts being merged to produce greater value.

symbiosis

Symbiosis is an intermediate model between full integration and full autonomy. In this scenario, companies will integrate wherever there is an advantage to doing so, but nowhere else. This can be best thought of as a partnership between two separate companies sharing resources and working closely together toward common goals. Technologies will likely be merged in many areas, and many processes and policies will be shared, but there will still be some degree of separation between the target and parent.

Absorption

This model represents full integration between the parent and target companies. It involves the greatest amount of work to ensure that all elements of the new company that can provide value are put to use and that all unnecessary elements are terminated. often creating significant turmoil and work for the IT department, this process must be carefully managed if it is to be successful. however, it also provides the opportunity to form a more robust IT organization that benefits from the strengths of both companies and potentially reduces the long-term friction that might occur in other integration models.

undersTAndIng

InTegrATIon

Models



deTerMInIng The rIghT level of IT

InTegrATIon

The first step in any m&A strategy is deciding on the right level of IT integration. The choice will largely determine the course of the acquisition and have great implications for the success of the IT organization.

Leaders should run a structured analysis of the situation and ask themselves the following questions before deciding:

What are the overarching goals of the merger or acquisition?

Ultimately, any merger or acquisition is undertaken to drive some larger business goal. IT leaders must consider these goals when choosing a target integration model. If the objective is to acquire people and technology to meet the core business needs of the parent company, substantial integration may be necessary. If the target company is profitable in its own right and can simply be another source of revenue, less integration may be the right move.



What value can integration add?

In many cases, technology integration may add significant value through synergy, lower costs, and improved time to market. It is important to carefully consider every potential impact of integration and evaluate based on models and data. one of the most important components of integration is identifying areas in which the target company’s technologies, people, processes, and service contracts can be combined with those of the parent company to reduce costs, increase efficiency, or drive innovation.

What are the downsides to integration?

Although there may be many benefits to integration, there can also be many pitfalls and downsides. Culture clashes, incompatible policies, and overlapping systems can all create problems and additional work for the IT team. In the case of a full absorption, there will inevitably be a major increase in the number of projects that the IT team must contend with, likely for a significant period. The added costs and the potential for risk that this brings must be considered when weighing the value of integration.

deTerMInIng

The rIghT

level of IT

InTegrATIon

one of the most common sources of failure in M&A is ineffective planning and execution. Many companies fail to understand or properly prepare for the immense change that the transition will bring. This inevitably leads to significant problems when the reality of the merger or acquisition demands action from business leaders.

Three keys To successful InTegrATIon PlAnnIng

proper planning is key to achieving the desired outcome. But how? here are three keys to remember:

IT and business leaders should work together

At the heart of successful M&A planning is a close collaboration between IT and business leaders. In many companies, IT is not treated as a core department and often does not align its goals with those of the business. This is an ineffective model during normal operations and can be disastrous during times of transition. For effective integration, IT and business leaders must work closely together.

IT should be involved from the beginning

Given the importance of IT to modern business, and the very real risk that technology integration can fail, it is critical that IT leaders be a major contributor to all m&A decisions. many business leaders are apt to ignore the real implications of systems integration and service contracts when the deal is being made, leading to potential problems in the aftermath. By considering how the merger or acquisition will impact IT from day one, plans can be made and the deal can be structured in such a way as to avoid issues.

IT must consider business goals

of course, this collaboration must go both ways. IT should align its approach to integration with the broader goals of the business in mind. Every decision should account for factors such as how it will affect the efficiency of employees, the company’s service, its ability to generate revenue, its effect on the company’s brand, its risks, and its costs. By examining each element using these metrics, technology executives can assess what will have a positive or negative impact on the business as a whole.

Three keys To

successful

InTegrATIon

PlAnnIng



four InTegrATIon eleMenTs To consIder

To form the foundations of an integration effort that builds on the strengths of both companies, these elements should be examined thoroughly:

synergy

The integration should combine pieces of each company to form a more complete, more effective whole. This involves the maximization of revenue streams by embedding key products from the target company into the parent company or vice versa. It also involves recognizing that some elements should be left segregated to achieve maximum cost effectiveness or efficiency. Elements that should be considered include people, operational elements, applications and services, and enabling technology.

Time to market

As a combined entity, a variety of factors will change the time to market for products and services. Leveraging skills and resources from both companies can help expedite development, testing, and production, allowing products to be created faster and cheaper. In some cases, this can also work in the opposite direction, as integration can cause inefficiency and other problems.

cost

The costs of any integration effort will be a major component in developing effective strategies. Companies must examine the expenses of a chosen integration roadmap, as well as the savings it will allow, to make better decisions about what to keep segregated and what to combine.

Innovation

Bringing together the varied talent and resources of two companies can lead to a dramatic increase in innovation. Companies may have the ability to develop new products faster, combine technologies to create more effective solutions, and benefit from an influx of ideas. However, it is also important to take steps to make sure that innovation is not stifled by incompatible culture changes or processes that aren’t effective in a new environment.

four

InTegrATIon

eleMenTs To

consIder

creATIng An InTegrATIon

PlAn

To decide on an integration model and

ensure that the IT organization is ready to carry out the necessary

changes demanded by the model, careful

evaluation and planning is necessary.

start with a baseline assessment

Designing an effective plan for technology integration that meets broader business goals should involve the careful assessment of both companies. This assessment should identify any redundancies in people, systems, infrastructure, applications, vendors, capabilities, and costs. It should also identify opportunities to add value through integration or collaboration and look for areas where there may be gaps that need to be addressed. This process should be broken down into the examination of several distinct components for each company:

People and organization

Assessments must evaluate the skills, capabilities, and overall organizational structure of both companies. Look for overlaps in employee capabilities, potential power structure problems, and any issues that could arise from cultural mismatches.

Processes

Each company has processes in place of particular maturity levels and other characteristics. Learning how to mesh the way both companies accomplish goals is a critical step in achieving a successful union.



Infrastructure and applications

A careful inventory of each company’s applications, systems, and infrastructure must be made to look for areas of overlap and to allocate resources most effectively. other issues to address include relative scalability of infrastructure, the suitability of adopting resources to new tasks, and adherence to industry best practices.

strategic alignment and governance

There should be mechanisms in place to ensure each company is aligned regarding its goals and accountability. This will help avoid conflicts of interest and problems in the power structure of the new organization.

financials

There should be a careful analysis of IT costs by function and activity for each company. This allows the company to identify items that do not provide value and a path to integrate most cost-effectively.

creATIng

An

InTegrATIon

PlAn

create a timeline and project portfolio

After making an assessment and deciding on an integration model, companies should begin creating a plan that includes a structured timeline with milestones and metrics to judge progress. This allows IT to prioritize projects according to the needs of the business and allows for a more organized approach to integration.

Address risk mitigation

Technology integration inherently involves risk. IT leaders should look at every decision in terms of the potential costs and pitfalls compared to its benefits. This allows for planning that is based on logical analysis of the facts and reduces the chances that the integration will fail due to unforeseen outcomes.

develop a structure for execution

planning is only half the battle. companies must also put solid structures in place to ensure follow-through on any projects that have been delegated. This involves ongoing dedication to the integration process and requires a substantial commitment on the part of IT management to ensure that early work is not undone by later mistakes or lack of will.

creATIng

An

InTegrATIon

PlAn

suMMAry

To ensure that both companies thrive after the transition, it is important to understand overarching business goals, what the best integration model is for the situation, and how to effectively implement the model. It will take thorough planning, assessment, and strong executive will to ensure a smooth transition.

key takeaways:

• IT integration is challenging, and most mergers and acquisitions fail

• Avoiding failure requires a commitment to creating a viable integration plan and the means to follow through on it

• IT transition efforts must be aligned with business goals. Business leaders should involve IT leaders in M&A decisions from the beginning

• The integration plan is dependent on the integration model. Every company must carefully choose what to integrate and what to keep separate

• Each IT organization must be thoroughly assessed before integration to look for opportunities, redundancies, and potential gaps

• companies must work across organizations and departments to drive productive change

Integrating IT after a merger or

acquisition is a delicate process

that must be handled with

great care.



About Wgroup

Founded in 2004, WGroup is a management consulting firm with a peer-to-peer approach to IT optimization and transformation. The team is composed of consultants who average more than two decades of experience as former c-suite executives and IT leaders, and the client roster includes many Fortune 1000 companies across a wide range of industries. WGroup is known for on outcome-driven, service provider-agnostic approach that optimizes IT operations and minimizes costs.

Visit us at thinkwgroup.com or give us a call at (610) 854-2700 to learn how we can help you.


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