Mergers and Acquisition: How to manage IT systems integration
Schneider Electric (NSE: SCHNEIDER), headquartered in France, with Indian head office in Gurgaon, Haryana, is a provider of services for energy management and automation with a market cap of INR 3,585 crores. The company provides solutions for Power Management, Security Management, Industrial software design, simulation and optimization.
Mergers and acquisitions (M&A) are prominent in today’s economy and the recent merger of EMC with Dell shows that size does not matter. There are various strategies in place to create value by M&A like improving performance of the acquired company, acquiring skills/technology, removing access capacity from an industry etc. Integration is the last step in an M&A process which includes strategic planning, financial analysis, negotiations, legal and regulatory approvals etc. Any errors made earlier stages impacts the complexity of integration. Once the company is acquired, integrating merging companies requires lot of effort from teams of both acquiring and acquired company. In this article, I will focus on companies which were acquired to enhance the value of acquiring company by integrating them.
IT Integration Strategy:
IT integration strategy should be defined as per the value creation plan of the acquisition deal. Once a company is acquired, it is recommended to quickly integrate the HR and communication systems like email. The enterprise IT integration strategy should be created with the key focus to invest money where it makes sense i.e. to replace obsolete IT systems, implement parent company systems where integration of data will bring lot of strategic value, financial reporting and consolidation. In many cases I have seen companies start with integrating financial consolidation system, followed by CRM system and then focus on the ERP system.
IT Integration Executive Sponsorship and Budget:
Executive sponsorship is paramount to the success of IT integration project. In many cases, companies find it difficult to align the business processes of the two companies. Senior executives support is required to bring the two entities together by sharing the common vision and highlighting the advantages of adopting best practices of the new entity. The process of alignment of business process should be done before IT integration starts otherwise it delays the project.
Once the integration strategy is finalized, funding should be secured. In some cases, IT integration budget is available in the M&A budget. Unless the budget is sorted out, no further action should be taken. It is very important to secure the budget with executive sponsorship. In one of the IT integration project, the acquiring entity sponsored the project to implement its “Core” designs and the acquired entity had to bear the cost of any deviations required from the “Core” design to run its business.
IT Integration Execution:
In the execution phase, identifying a capable project manager, having good access to Executive Sponsors and key decision makers is important. Ability to manage the complexity of change management and coming up with a win-win solution for both the acquiring and acquired entity is important. One of my learning is not to have a very long integration project. If the integration work is substantial, then it is better to break it in six to nine months (max) projects. Seeing success or failure early helps in taking remedial actions quickly and reduces the integration cost. Periodic steering committee reviews are must and any key function not attending should be flagged to discuss the reasons. If a particular function does not see the value of integration then the business case should be re-discussed. If necessary, stop the integration project. It is better not to waste money than do an integration which does not provide business benefits.
M&A is all about people. IT systems, processes etc are there to help them align to a common goal. The role of project team members, IT experts (functional and technical), change managers, training and communication teams are all important. During the project, the high energy level displayed by the team helps in preparing rest of the organization in adopting the change. Periodic communication from top management on the progress of project and benefits of integration keeps the momentum on. Town halls, communication using video, internal collaboration tools etc helps in clarifying doubts of team members. IT professionals need to understand that the best of IT solutions may not work unless people on the ground accept it. Have equal focus on tools as well as people who are going to use the tool to create a win-win solution.
To conclude, the success or failure of an M&A depends on the quality of integration job performed. The integration strategy should be tailored as per the deal objectives. The success of IT integration depends on Executive sponsorship, the integration team and how well they are able to facilitate change in the acquired company. A good quality integration job done has lasting effects in company’s success and its ability to create value for shareholders.