Ensure a Smooth IT Transition During a Merger and Takeover
There’s a lot of work to do when two companies combine, especially restructuring the IT (Information Technology) infrastructure. Because businesses depend on their IT systems to run day-to-day operations, job one is ensuring that the IT infrastructure is updated to meet the needs of the newly formed company within a short period of time. Of course, how you go about this often depends on whether it’s a merger or a takeover.
Mergers occur when two companies mutually agree to combine into one. This will require extensive analysis of both IT infrastructures to determine the most efficient and effective way to integrate IT systems and solutions as well as to eliminate those that are no longer necessary. The two companies may have been using completely different IT systems, in which case you’ll need to map out the most efficient way to meet the IT needs of everyone at the newly formed company.
In the case of a takeover, it’s one company typically buying a smaller company. In such a case, the larger company is likely to keep their existing IT infrastructure in place, while the smaller one will have to transition to that infrastructure. Even then, the needs of the smaller company will have to be met, especially if their product or service depends on the IT solutions or systems they were using, meaning new systems or software may need to be incorporated into the existing IT infrastructure.
Whether you’re going through a merger or an acquisition, the IT infrastructure will have to change to meet the new needs of every department.
Common IT Problems Companies Face While Merging
The following are some of the most common IT problems that newly formed businesses face following a merger:
- Poor IT integration – Poor integration of IT systems can cause all kinds of issues with everyday business processes, including onboarding new employees, sales, order processing, and accounting. This will reduce efficiency throughout the company. Additionally, poor integration of supporting and process applications will likely result in mistakes and replications. All of this will make everyone less productive as they focus on annoying non-work inefficiencies.
- Poor visibility – When two companies merge, it could result in duplicate data. For instance, if both companies had customers in common before the merger or acquisition, they both have data on those customers. Unless you establish a customer data integration system, you could, for example, end up assigning two sales representatives to the same customer as a result. Such a lack of visibility will result in miscommunication and poor distribution of resources.
- Difficulties in retrieving data – Data integration is an absolute must when a merger or acquisition occurs. Otherwise, there will be important and sensitive data stored in numerous systems, applications, and services, making it difficult to find and access.
- Compliance issues – All kinds of compliance issues can pop up during a merger or acquisition, especially if one of the businesses is global. There’s a good chance that prior to the merger or acquisition the two companies did not have the same policies, guidelines, and contracts addressing regulation compliance. Compliance regulations must be reviewed and new guidelines and policies implemented if necessary. Even if an acquiring company keeps all of its policies and guidelines, new employees must be trained and educated to ensure continued compliance.
- Loss of talent – If you wait too long to implement organizational structures and leadership in place for the IT departments, talented staff and executives may exit to other companies. It’s one of the reasons why communication is so important. A lot of people may not know where their future lies and will take the initiative to find a new job instead of waiting to be let go.
Plan Ahead and Check In
Obviously, having an IT integration plan is much better than not having one at all; however, having a plan isn’t going to do much good if you don’t begin executing it until the merger or acquisition goes through. It can take months and sometimes even years (depending on the size of the merger or acquisition) to develop and execute an IT integration plan. By waiting until the merger or acquisition goes through, you risk significantly hindering the newly formed company’s business operations.
The moment your company begins having talks about a merger or acquisition that is likely to go through, begin putting an IT plan together. This plan should be reviewed by the IT leaders in both companies to help ensure that the process goes as smoothly as possible. Make sure that you check in regularly with these IT leaders to make sure no new challenges or problems have popped up.
Communicate Effectively with IT Staff
A successful IT integration plan depends on clear communication. Not only should you be talking to business and IT leaders in both companies to discern what type of systems you’re dealing with and what the major IT needs of the company are, but you should also be communicating with the IT staffs of both companies.
This will give you a better idea of what the current IT challenges are on both sides from the employees’ perspective. Taking these challenges into consideration when creating an integration plan can help you create a more effective IT infrastructure in the long run. By speaking with the IT staff from the other company, you’ll make them feel like they have an actual say in the proceedings and aren’t just being left in the dark, and that nobody cares about their particular needs.
Survey the Technology of Both Companies
Before you begin to put together an IT integration plan, you will need to carefully evaluate the existing IT systems of both companies. The ultimate goal is to meet all of the IT needs of the company post-merger or acquisition while eliminating all redundancies, which often come in the form of duplicate or overlapping systems (from CRM systems to email platforms). If you don’t eliminate such redundancies, duplicate systems will result in extra support costs as well as inconsistent processes for similar business functions between the companies.
While this can seem like a Herculean task, there are tools available, such as an Application Rationalization tool, that can help pinpoint what systems should be retained, expanded, consolidated, or retired.
During mergers, you may end up consolidating systems into a new IT infrastructure because the needs of both companies differ. If you’re acquiring a smaller company, it may be more efficient to just use your existing systems instead and simply plan for them to transfer from their systems to yours. The following are some of the areas of both companies IT systems that you will need to evaluate:
Look for Functional Similarities Between IT systems
Both companies will more than likely have some similarities within their IT infrastructure. Both companies will have accounting departments that rely on certain accounting applications. In such a case, you will need to decide which system will be more functional moving forward – do you simply migrate one company’s entire accounting department to the other’s system or will it be a little trickier than that? For example, maybe neither system is flexible enough to accommodate more staff and a new accounting system will need to be evaluated and selected.
It may not be as easy as just comparing the various IT systems to see where overlapping occurs. While one company may have been using separate applications for different departments, such as accounting and HR, the other may have been using a consolidated platform that covered both of these functions. You will need to identify and map the functional overlaps across both companies’ IT systems in order to accurately evaluate each company’s infrastructure and to develop the most effective IT integration plan.
Assess What Valuable Technology is Being Acquired
Don’t just assume the best course of action in an acquisition is to migrate the entirety of the smaller company to your existing IT infrastructure. Even if your infrastructure has the capability to take on a larger staff, your systems may not necessarily be able to meet their needs.It’s not just about them having to adapt to your systems, after all.
Consider the reason their company was acquired in the first place. They may be using specific systems that make their products or services possible. Without these systems, you could be sacrificing the very thing that your company acquired their company for. In such a case, you should strongly consider adopting their systems into your infrastructure.
What Contractual Obligations Exist?
Besides evaluating the functionality of each company’s systems, look at any contracts that might be in place. The company you’re merging with or acquiring may have multi-year commitments to certain IT systems and platforms that can be quite complicated to get around. Breaching such contracts can result in stiff penalties. You’ll need to decide whether these penalties are worth it when integrating your IT systems.
In some cases, you may just want to pay the fines as keeping certain systems may make your IT infrastructure less efficient. In other cases, you may want to favor their IT systems due to those contracts and find a way to integrate them into your infrastructure.
Data Quality and Migration Effort
When evaluating different applications, consider the quality of the business data held in each application. You don’t want to lose valuable business data that either company can bring to the table; however, there may also be outdated data and overlapping data that will only take up space and make it more challenging to organize all of your newly formed company’s data.
Evaluate the challenge of not only migrating important data into the newly formed IT infrastructure, but also the effort required to clean up and consolidate the existing data so you don’t end up migrating outdated data or overlapping data.
Business Strategy and Integration Objectives
Evaluating the IT systems and applications of both companies is certainly important in regards to reducing unnecessary costs, but keep the overall business strategy of the company in mind as well. The goal of the merger must take precedence over saving a few dollars here and there when it comes to determining what applications and systems you integrate into the final IT infrastructure and what you decide to get rid of. The last thing you’ll want to do is get rid of systems or applications that could have been useful in achieving your business goals in favor of reducing the bottom line.
Merge IT and Business Strategies
Taking care to thoroughly evaluate the IT systems and needs of both companies ahead of a merger or acquisition will allow you to develop an effective IT integration plan ahead of time. Executing a strong IT integration plan ahead of the merger or acquisition will help ensure that your newly formed business will run as smoothly as possible by setting the tone for a successful IT strategy, reducing potential risks, preventing potential financial loss, and mitigating potential problems down the road.