Why IT's Future Must Include M&A Planning
Planning for a merger or acquisition can be tricky, but it's a bullet that most CIOs will have to bite.
You'd better be planning for M&As -- as in mergers and acquisitions. It's the kind of planning that seems obvious, given the M&A tumult of the last decade. As market forecaster Gartner Inc. points out, however, it's what too many shops aren't doing.
How can IT realistically expect to plan for an M&A scenario? Gartner concedes that planning for such an event can be tricky but necessary.
"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," said Gartner vice president Dave Aron, in a statement.
"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."
Gartner outlines a five-phase process, starting -- of course -- with due diligence and planning. Ideally, the market watcher suggests, shops should map out their integration efforts along with their due-diligence and data-gathering activities. In any case, Gartner counsels, shops needn't worry about executing at breakneck speed: "That integrations must be conducted quickly is a myth. Rather, planning and communication should be conducted as quickly as possible. The speed of integration depends on the context and goals."
The next phase involves a makeover of a sort: merged firms should institute a select number of "visible changes" that help communicate to the combined company -- merger and mergee alike -- the significance of the new (or merged) "reality," Gartner suggests. Visible changes can include new ("harmonized") e-mail addresses, phone accounts, or security badges.
"Important outcomes center on setting expectations, reducing uncertainty, and motivating key staff," the analyst firm indicates.
Next is what Gartner dubs the "Initial/Commercial" phase. It's a step that emphasizes "urgently needed outcomes," which can include legal and regulatory issues, as well as the integration of management or financial information. Merged companies should also focus on presenting a united front -- showing "one face" -- to existing or prospective customers. "Execution risk is highest during this phase, as a high level of personal uncertainty, along with transitional governance and project management, normally exist," Gartner cautions.
Next, companies need to focus on the nuts and bolts of integration: in the case of a full-scale absorption (in which an acquired company is completely absorbed by its buyer), shops need to be prepared to bring everything -- lock, stock, and aging System z900 mainframe -- in-house. In best acquisition scenarios, it's at this point that shops need to develop an integration architecture.
It's only in the final phase -- which Gartner dubs "Reap-the-Benefits" -- that shops can focus on longer-view issues -- e.g., "synergies" or an increased market share.
This phase can also produce benefits of a different kind, inasmuch as it gives shops a chance to collect or identify best practices for other M&A scenarios.
In almost every phase of the M&A process, the role of IT will be outsized, Gartner indicates. In other words, while IT integration comprises a discrete component (what Gartner dubs a "workstream") of any integration scenario, most other M&A components (or "workstreams") will have IT aspects, too. Quite aside from the nuts and bolts of absorbing or merging IT assets, IT's involvement in the M&A process will change over time.
"A good rule of thumb is that roughly 25 percent of a typical M&A integration effort will come from IT, but the time and effort that each phase requires from IT vary significantly," said Gartner research director Mary Mesaglio, in a prepared release. "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."
Gartner analysts present M&A as an opportunity for IT to demonstrate its business value. "M&A integrations … are fraught with risks. 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," Aron said.
"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."