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Technology Considerations During the Merger of Two Companies

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3 Key Steps to a Successful IT Merger

The CIO (Chief Information Officer) is traditionally the most senior executive responsible for a company’s Information Technology (IT). However, this doesn’t necessarily mean the company’s technology is the CIO’s only focus. While the CIO is responsible for the overall technology strategy of the company, including putting into place risk mitigation plans and implementing new tech throughout business operations as smoothly as possible, the CIO is also responsible for making sure that technology serves the needs of the employees of the company and the departments they work in.

Merger & Acquisition deals (M&A) have become increasingly common among today’s global corporate ecosystems. With the increase of globalization, M&A deals have seen record-highs throughout the periods of 2014 to 2017, with 2015 seeing the highest peak of 5.8 trillion U.S. dollars in M&A deals globally. Additionally, according to the Institute of Mergers, Acquisitions and Alliances (IMAA), 2017 saw a growing number of M&A deals, with a growth of 2.9 percent when compared with the number of deals conducted in 2016. While M&A deals are important processes that are used to consolidate resources, cut costs and increase revenue, mergers, specifically, focus on the mutual combining of two companies into a new enterprise that then works to integrate their respective IT infrastructures, financial systems, software systems, business processes, etc. in order to maximize cost synergies and revenue synergies, along with increasing efficiency and productivity. The end-goal of merger deals, typically, is to reduce overhead, while increasing the enterprise’s bottom and top lines. That said, information technology systems are a crucial aspect of any modern small, medium or large business. Thus, technology – as a significant corporate factor – must be taken into careful consideration when dealing with the merger of two companies. Carefully considering the technology systems of two companies before a merge means following best practices in how to plan out an IT merger strategy, and how to implement the plan in integrating software and hardware systems in the new enterprise.

There are three core steps (with an additional note) that should be used (with regard to IT systems) when two companies are preparing to be merged. The steps will ensure that a successful merging of company IT systems takes place, and that the ultimate goals of the merger deal are met. First, it is important for business planners and executives to thoroughly assess and analyze the current state of IT systems associated with both companies in order to (later) craft an in-depth strategy on how to best integrate the two technology systems into a single infrastructure. Second, it is crucial to identify specific priorities and initiatives associated with the IT merger in order to deploy personnel and utilize the existing, limited resources efficiently for the merger to be conducted in a timely manner. Lastly, the best practice is to translate the IT merger priorities and projects into a detailed roadmap (a strategic plan) that includes all aspects of the IT merger process, such as sub-projects, timelines, contingency plans, etc. The strategic plan should act as a blueprint for the entire IT merger process.

Step 0: Avoid The Number 1 Mistake

As an additional note to the core steps of conducting a successful IT merger, it is important to first understand the true purpose of merging IT systems, and the true purpose of IT systems in corporations as a whole. IT systems exist in corporations to assist with daily workflows and operations, but ultimately exist to make business processes easier, more automated, and more efficient. Thus, the ultimate purpose of using IT systems in enterprises is to better the business itself, and specifically, to increase the enterprise’s bottom and top lines.

The purpose of merging IT systems is to ensure that the new enterprise (after the merger) has systems in place to make the new business operations easier, more automated, and more efficient.

Thus, one of the major mistakes that business executives make is to put too much emphasis on the IT department/infrastructure itself, when the merger should be business-led (i.e. focused ultimately on the business itself), not technology-led. This means that all merger goals – and their associated tasks/workflows and processes – should be focused on business operations and the overall business vision/goals, with technology being strategized, implemented and utilized in the background with the sole purpose of meeting those goals. Ultimately, all strategic planning, associated with the merger, should focus on managing the technology infrastructure of the new enterprise with the goal of fulfilling the vision of the new enterprise.

Step 1 – Assess: Analyze the Current State

The primary step in conducting a successful merger (including integrating and merging IT systems) is to thoroughly analyze and assess all aspects of both enterprises’ software and hardware systems. Once executives have already determined the specific goals, tasks and operations of the new enterprise, obtaining an overview of the IT systems allows an IT strategist/planner to match the new enterprise’s goals/operations with the specific functions of the existing software and hardware systems. This also allows an IT strategist or planner to determine and estimate what is needed, what needs to be disposed of, what can be kept, what needs to be upgraded, etc. and how much time and money it will take for the IT merge to be completed.

6 Key Areas To Analyze

With regard to corporate IT systems, there are six key areas that should be analyzed (including both hardware and software systems), along with IT policies, IT work (departmental) philosophy, incident response and cybersecurity strategies, etc. The six core areas to assess and analyze are the hardware/software technology infrastructure, the business systems, the specific corporate programs, the technology vendor contracts/licenses (and subscriptions), the technology budget, and all of the technology departments’ organizational structures.

1. Technology Infrastructure – Hardware, Software, and Network Systems

When conducting a thorough assessment of the IT systems of two companies who are merging, the primary area that needs to be analyzed is the overarching technology infrastructure, including the hardware, software and network systems that are in place. Such an assessment and analysis will help IT architects and planners with determining how to best meet the goals of the new enterprise via the utilization of the technology infrastructure. In addition to the above IT infrastructures, an analysis of the existing technology systems should include all related IT systems, such as cloud systems/hosting providers, servers, network clients/hosts, storage systems and databases, email systems, telephony platforms, data center facilities, etc. and – as noted above – should also include a thorough review of all data security policies. Such an analysis should also reveal whether legacy systems should be utilized or updated, whether upgrades should be conducted, and/or whether brand-new systems are needed. An in-depth assessment should also give executives the opportunity to determine how the new enterprise can innovate with new technology systems, and/or how technology strategic differentiators can be implemented.

2. Business Systems / Applications – Enterprise Platforms

The second major area that IT strategists/planners should analyze includes the enterprise platforms, systems and software applications utilized by both companies. This typically includes Enterprise Resource Planning (ERP) Software, Customer Relationship Management (CRM) suites, Business Intelligence (BI) & data analytics platforms, etc. This is a major step since – along with the first area to assess – the above enterprise business software systems are critical platforms that manage both day to day operations and customer relationships. Since different enterprises operate differently and have different workflows, needs and goals, it is imperative that the most significant goals of the new enterprise are identified and matched completely with the appropriate functions of an integrated enterprise system. This system should include the pertinent ERP suites, and the most appropriate CRM software. Regarding the former, a knowledgeable IT strategist and architect is required to understand the complexity of ERP suites and the modular nature of ERP platforms in order to strategize the integration of all enterprise software systems for the new enterprise.

3. Specific Corporate Products & Services

Companies operate differently. One such way of differing operations is with the different products and/or services that different businesses produce. Additionally, specific corporate programs – that are unique to a particular business – may include operating as a vendor for different platforms. Underlying such products, platforms and/or services are specific technology systems that may need to be transferred to the new enterprise. Due to this, it is important for technology strategists to identify the products/services of the new enterprise, and to match them with the products/services of the two companies that are to be merged. This process should include the transfer – and subsequent integration – of all pertinent and necessary underlying technology systems that are needed for each product/service offered by the new enterprise (with relation to the products/services offered by the two merged companies).

4. Technology Vendor Contracts & Licensing

When making an in-depth assessment of the technology infrastructures of two companies that are to be merged, it is critical to identify all vendor contracts, technology agreements, IT partnerships, software licenses/subscriptions, etc. in place, along with their respective timelines, cancellation policies and cost penalties. It is also important to identify the specifics of the contractual agreements that are in place. With such information, IT strategists/planners are able to construct a definitive plan (for the new enterprise) detailing the technicalities of vendor platforms, licenses and agreements, and technology (software) partnerships, etc. that are to be put in place and/or utilized. Such a plan is based on the software and vendor licensing/contract details associated with each of the two merged companies, since the contracts that are already in place can help to determine what underlying software/vendor platforms and systems are to be used in the future of the new enterprise, and/or which platforms, systems and licenses need to be purchased and obtained. Such platforms, software and systems can include ERP systems, Software as a Service (Saas) suites, CRM applications, etc. Ultimately, it is always critical that all vendor licenses and contractual agreements (and thus the actual software systems in place) match the specific needs – and fulfill the goals – of the new enterprise.

5. Budget

When strategizing and planning the merger of two companies, the budget – specifically the IT budget – is one of the most significant factors that must be assessed. This is because the IT budget of both companies ultimately determines how the IT infrastructures of both companies can be integrated, implemented and utilized. The IT budget of each business also helps to reveal the inner-workings of their IT departments, since the IT cost structure of each company determines their IT infrastructure. A skilled IT planner can use such information to maximize cost synergies and reduce overhead in the new enterprise, thus leaving more funds for the integration process. Thus, to be more specific, the integration budget must be taken into account and is significant in determining what IT systems can be merged, which systems can be upgraded, which new systems can be purchased, and the associated timeline for the merger.

6. Technology organization

The organizational structure of each company’s technology departments is key to successfully merging two companies. Thoroughly analyzing each company’s technology departments – including positions, roles, responsibilities, and even work policies and culture – can help IT strategists with the task of merging the IT departments of the two companies successfully. This includes understanding the details of each organization’s IT departments – along with their organizational structure – including the specific roles of the IT, engineering, R&D, and data science departments, for example. Such an analysis is especially helpful with regard to the modern landscape of occasionally overlapping senior-level roles associated with corporate IT infrastructures, such as the sometimes equivocal roles of the Chief Information Officer, Chief Digital Officer, Chief Data Officer, etc. in different organizations.

It is important to identify the organizational structure of the two merging companies in order to translate their pertinent IT roles into the established roles of the new enterprise. This may include details on the departmental heads (e.g. VP of Engineering, Director of IT) along with their roles and responsibilities, and which C-level executive they report to. Additionally, certain C-level executive roles may need to be explicitly defined, such as the role of the Chief Information Officer (CIO) and who the CIO reports to.

When assessing such a key area in each business, it is also important to identify the key roles in each IT department, along with the “go-to” resources that are typically utilized in each enterprise for solving issues when they arise.

Step 2 – Define and Prioritize Initiatives

The second core step associated with conducting a successful merger (with IT thoroughly considered throughout the process) is to begin the construction of a detailed roadmap of all programs/projects and priorities associated with the successful integration of the corporate software/hardware systems. This is important since IT resources are likely to be stretched during the merger/integration process. Technology leaders, thus, must take a systematic approach to ensure that these resources get deployed efficiently. This typically entails listing the key initiatives and tasks associated with integrating all IT systems in the merger process, along with concisely prioritizing each initiative in order to complete each project while reducing overhead.

Priorities Should be Considered in Three Key Areas

When determining the priorities of each initiative, best practice is to consider three key areas that have the most effect on the business itself when the task is completed successfully. They include (in no particular order) business impact, ease of implementation, and expected business benefit.

1. Business Impact

One of the key areas that should be used as a gauge for prioritizing IT merger tasks is the overall impact that the initiative will ultimately have on the business. The different, positive impacts that the initiatives can have on the business include:

  • Regulatory compliance: This can include the implementation of systems that will help the enterprise meet certain regulatory laws, such as HIPAA, PCI-DSS, Sarbanes-Oxley, FISMA, etc. and is often related to compliance with data-security legislations.
  • Risk management: Initiatives that are related to managing risks, reducing threats, implementing disaster recovery policies, and maintaining data and corporate security, etc. are also critical initiatives that greatly impact the business in a positive way.
  • Rationalization of services or product lines: All initiatives that ultimately affect the top line of the business (i.e. bring in revenue) are key components of the enterprise. Thus, all tasks associated with the establishment of the company’s products/services greatly impacts the enterprise in a significant way.
  • Rationalization of the application portfolio: Reducing the number of applications and eliminating redundant systems not only results in reduced IT license and maintenance costs, but greatly simplifies business processes and increases operational efficiency.

2. Ease of Implementation

Since it is key to reduce overhead and utilize all limited resources efficiently, another key area that should be used as a gauge for prioritizing initiatives is how much of a demand the initiative will require from the corporate resource pool. This includes time requirements, financial requirements, personnel requirements, hardware requirements, etc. Related to resource requirements is the technical complexity of the initiative, which may require specialized personnel or even maintenance. In addition to this, it is important to determine the degree to which certain projects/initiatives are interdependent with others, which can help to effectively determine which tasks need to be completed first (due to having a higher priority).

3. Expected Business Benefit

In line with the major advantages associated with merging two companies (i.e. cost synergies and revenue synergies), the third area that should be used as a gauge for prioritizing initiatives is the potential savings in costs that the initiative may produce, along with the potential growth in revenue and/or market share that the project may result in.

Step 3 – Develop an Integrated Roadmap

The third major step in conducting a successful IT merger is to translate all listed integration priorities (programs, projects and initiatives) into a roadmap, or blueprint. This is to be done after all priorities associated with the integration phase of the merger have been identified, which is typically carried out by the IT strategist. Ultimately, the final blueprint should include all projects, sub-projects, detailed timelines, and contingency plans. The final blueprint is likely to unearth overlaps across the prioritized initiatives and key gaps in the IT capabilities needed to carry them out. Such a blueprint, thus, helps planners to better strategize the implementation of the IT integration phase’s workflows.

How To Create a Detailed Roadmap

When crafting a detailed roadmap/blueprint, not only are the prioritized initiatives translated from a list into a thorough, strategized report, but all aspects of the workflows required to complete the initiatives must be well-understood and succinctly described. Per the above, this includes noting all sub-projects, timelines, contingency plans, etc. but also includes detailing all specialized personnel required, all resources needed, along with other necessities, such as specific IT systems, additional resources, etc. Such a roadmap should also include the details of the specific roles of personnel, the organizational structure of the managers, details of each daily integration workflow, etc.

Strong Management is The Foundation to the 3 Steps

Strong management is always necessary in any corporate process, more so with such a complex process as IT integration and company merging. Each of the three core steps described above (i.e. analyzing the current state, defining the prioritized initiatives, and constructing the detailed blueprint/roadmap), that are necessary for conducting an IT merger successfully, must be managed correctly. Ultimately, strong management is needed to align all daily workflows with the integration-phase blueprint. That said, during the IT integration phase of a merger, management is a critical, much needed factor that is required to guide all personnel, hold the process together, ensure that all workflows continue and are completed on time, and to align both the IT and business aspects, factors and goals of the new enterprise throughout the entire integration process. Strong management is also needed to ensure that resources are used efficiently, that all personnel are productive, and that the integration-phase roadmap/blueprint is planned, strategized, crafted and followed in such a way that all prioritized initiatives, upon completion, effectively fulfill the goals that were initially set out for them. Without strong management, it is easy for the complex workflows associated with an integration process to need more time, require more resources/money, and ultimately fail to be completed in the way that the integration-phase roadmap/blueprint stipulated.

4 Tips to Help Ensure a Smooth Process

Per the above, strong management is needed to ensure that the entire integration phase is completed in a smooth and efficient manner. There are many steps that can be taken to ensure that the integration phase is managed correctly, and that the integration of IT systems is completed in the best way possible. Best practice stipulates that four tips are taken into consideration, which center around identifying the leadership, addressing cultural issues, allocating resources, and ensuring effective communication.

Tip 1: Identify the IT Implementation Leadership Team Early

During the initial planning stages of the integration phase process, it is critical for all management and leadership teams to be determined as soon as possible. Since management is key in ensuring the smooth completion of the integration phase, identifying the IT integration leadership team early can help with mitigating organizational issues as they arise during the start of the process. Establishing the leadership team early on also helps to ensure that everyone is on the same page, and that the process can be planned and managed from the beginning so that all issues, if they arise during planning, can be swiftly dealt with.

Tip 2: Address Cultural Issues Head-On

Work culture is a very significant factor that can either make – or greatly impede – a merger process. Management is needed to ensure that all personnel, from both merged companies, understand the established work policies, philosophy, and vision of the new enterprise. Ensuring that all personnel effectively and efficiently work together is necessary throughout the entire integration process, otherwise unnecessary delays can ensue.

Tip 3: Clearly Allocate Resources

The efficient use of limited resources is critical when carrying out the workflows associated with the IT integration phase of a merger. To ensure that resources are used correctly, allocating resources in the beginning (in accordance with the integration-phase roadmap) is a significant task that can greatly mitigate issues arising in the future that result from resources being drained.

Tip 4: Clear, Frequent, and Transparent Communications

Effective communication is needed so that all personnel working on the integration phase of the merger are able to work together efficiently. In being related to work culture issues, different enterprises communicate differently, thus it is important for management to establish the proper protocol for addressing issues as they arise, and it is equally important for all corporate leaders to effectively communicate with personnel. This includes the delegation of tasks, explanations of workflows, establishment of corporate priorities, details of project timelines, etc. Effective communication is the backbone of all work processes, and while statistics from a Gallup survey indicated that 70 percent of U.S. employees are not engaged (i.e. not communicating efficiently with other personnel), another study by the McKinsey Global Institute showed that employees that are engaged in effective communication are 20-25 percent more productive at work, which can amount to over a trillion dollars in additional revenue due to the increased productivity.

The Close Alignment of IT and the Business is Key

Because the merger and integration of IT systems should be business-driven with regard to strategic planning, it is crucial to recognize that IT systems and business initiatives should be closely aligned throughout the entire merger process. This includes identifying the goals of the new enterprise and matching them with IT systems, platforms and software applications. When aligning IT with business initiatives, it is always helpful to establish an enterprise-wide architectural framework that helps to both structure the organizational model of the new enterprise’s business functions, and to visualize their relation to all technologies, data, and systems. Such a schema can greatly help executives to see the bigger picture throughout the merger process, which helps to ensure that the process is completed successfully.


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