Executive Briefings

I.T. and Merger Mania: Keeping the Ship Afloat

Think of the typical corporate merger as the meeting of two ocean liners. It's tough enough to combine the crews. But how do you mash together two engine rooms?

I.T. and Merger Mania: Keeping the Ship Afloat

I’m referring, of course, to the challenge of merging the information-technology systems of formerly separate entities. Too often the acquirer is left with multiple, incompatible applications running different parts of the organization. It’s an invitation to inefficiency.

Often the existence of multiple instances of a given application, or systems from rival vendors, are the legacy of a merger that never quite merged. Judging from the tales told by chief information officers, it’s more the rule than the exception.

Which is hardly surprising, given the never-ending mania for mergers today. For every story about a spinoff – think of the recent announcement by Hewlett-Packard Co. about the splitting of its personal-computer business from its consulting and services arm – there are many more about one company gobbling up another. All in the name of boosting shareholder value.

According to PwC US, the value of M&A deals in the industrial manufacturing sector surged 72 percent during the second quarter of 2014, reaching a record $60.1bn. The trend signaled “a more confident base of business leaders taking a risk-tolerant approach to deal-making,” said U.S. industrial products leader Robert McCutcheon.

Apparently that insatiable appetite for risk includes accepting the possibility that mergers and acquisitions will lead to a hodgepodge of I.T. systems that can become a huge drag on profitability. Newly combined companies find themselves bearing the cost of maintaining redundant systems and staff, not to mention the likelihood of poor customer service and inadequate data security.

Do CEOs care? According to Randy McGraw, senior vice president of technology and operational services with West IP Communications, I.T. has historically been considered a cost of acquisition. Worried about the human aspects of big corporate combinations, executives have skimped on due diligence on the systems side. They’ve utilized some assets and written others off. Meanwhile, the ship clunks along at a diminished speed.

They might not have that luxury anymore. “I think the world is changing,” says McGraw. “Companies are seeing information technology as a potential asset – a means of gaining efficiencies and operating effectiveness.” When it comes to carrying out due diligence now, smart companies are bringing tech to the table.

One reason for the shift lies in the nature of today’s systems. Technology, says McGraw, “is infiltrating every aspect of the business.” It’s no longer solely a case of desktops tied to a central server that’s running an enterprise resource planning (ERP) backbone for internal operations. Now there’s the cloud, by which virtually every kind of application can be delivered, as well as new complexities driven by the coming of the Internet of Things. When machines start talking to one another, without the need for human intervention, they’d better be speaking the same language.

Newly merged businesses are finding it necessary to address platforms that deliver multiple apps: financial, communications, collaboration. What’s more, the extended nature of today’s global supply chains demands that systems not only link internal users, but those outside corporate walls as well, including suppliers, contract manufacturers, logistics providers and customers.

The cloud is making it easier to unify multiple I.T. systems in the wake of a merger or acquisition, says McGraw. It’s moving the discipline from a capital expenditure to one based on day-to-day operating cost. There’s less of a physical infrastructure to be maintained in-house, and the transition to new or upgraded systems is easier – for the user, at least.

“The cloud allows you to create a replicable model, especially if you’re in an aggressive acquisition mode,” McGraw says. “It lends itself to a single platform, and a more predictable cost model.”

As a result, companies are less likely to sweep I.T. concerns under the rug out of concerns about limited time and resources in a post-merger environment.

But the cloud is still a relatively new concept for many businesses. And it’s far from fully mature. McGraw says the suitability of cloud services depends on the application in question. As long as internet access falls short of being truly dependable and pervasive, companies will balk at the prospect of unifying all of their systems in the cloud.

Progress is being made. The spate of recent cyber attacks has nervous I.T. managers scrutinizing their systems for security gaps, especially those that form within legacy apps inherited from acquired companies. Ironically, the cloud, which initially raised questions of security from companies running critical apps internally, might be the safer way to go.

Clearly, the cloud is no magic solution to the challenges that I.T. departments face after a merger or acquisition. They still must sort out various applications, rectify the data and unify all users on a common platform. Integration is never an easy task. But it’s one that a growing number of companies on the acquisition trail seem willing to tackle. They’re realizing the need to put things in order, both above and below deck.

Next: The state of I.T. in emerging-economy supply chains.

Comment on This Article

I’m referring, of course, to the challenge of merging the information-technology systems of formerly separate entities. Too often the acquirer is left with multiple, incompatible applications running different parts of the organization. It’s an invitation to inefficiency.

Often the existence of multiple instances of a given application, or systems from rival vendors, are the legacy of a merger that never quite merged. Judging from the tales told by chief information officers, it’s more the rule than the exception.

Which is hardly surprising, given the never-ending mania for mergers today. For every story about a spinoff – think of the recent announcement by Hewlett-Packard Co. about the splitting of its personal-computer business from its consulting and services arm – there are many more about one company gobbling up another. All in the name of boosting shareholder value.

According to PwC US, the value of M&A deals in the industrial manufacturing sector surged 72 percent during the second quarter of 2014, reaching a record $60.1bn. The trend signaled “a more confident base of business leaders taking a risk-tolerant approach to deal-making,” said U.S. industrial products leader Robert McCutcheon.

Apparently that insatiable appetite for risk includes accepting the possibility that mergers and acquisitions will lead to a hodgepodge of I.T. systems that can become a huge drag on profitability. Newly combined companies find themselves bearing the cost of maintaining redundant systems and staff, not to mention the likelihood of poor customer service and inadequate data security.

Do CEOs care? According to Randy McGraw, senior vice president of technology and operational services with West IP Communications, I.T. has historically been considered a cost of acquisition. Worried about the human aspects of big corporate combinations, executives have skimped on due diligence on the systems side. They’ve utilized some assets and written others off. Meanwhile, the ship clunks along at a diminished speed.

They might not have that luxury anymore. “I think the world is changing,” says McGraw. “Companies are seeing information technology as a potential asset – a means of gaining efficiencies and operating effectiveness.” When it comes to carrying out due diligence now, smart companies are bringing tech to the table.

One reason for the shift lies in the nature of today’s systems. Technology, says McGraw, “is infiltrating every aspect of the business.” It’s no longer solely a case of desktops tied to a central server that’s running an enterprise resource planning (ERP) backbone for internal operations. Now there’s the cloud, by which virtually every kind of application can be delivered, as well as new complexities driven by the coming of the Internet of Things. When machines start talking to one another, without the need for human intervention, they’d better be speaking the same language.

Newly merged businesses are finding it necessary to address platforms that deliver multiple apps: financial, communications, collaboration. What’s more, the extended nature of today’s global supply chains demands that systems not only link internal users, but those outside corporate walls as well, including suppliers, contract manufacturers, logistics providers and customers.

The cloud is making it easier to unify multiple I.T. systems in the wake of a merger or acquisition, says McGraw. It’s moving the discipline from a capital expenditure to one based on day-to-day operating cost. There’s less of a physical infrastructure to be maintained in-house, and the transition to new or upgraded systems is easier – for the user, at least.

“The cloud allows you to create a replicable model, especially if you’re in an aggressive acquisition mode,” McGraw says. “It lends itself to a single platform, and a more predictable cost model.”

As a result, companies are less likely to sweep I.T. concerns under the rug out of concerns about limited time and resources in a post-merger environment.

But the cloud is still a relatively new concept for many businesses. And it’s far from fully mature. McGraw says the suitability of cloud services depends on the application in question. As long as internet access falls short of being truly dependable and pervasive, companies will balk at the prospect of unifying all of their systems in the cloud.

Progress is being made. The spate of recent cyber attacks has nervous I.T. managers scrutinizing their systems for security gaps, especially those that form within legacy apps inherited from acquired companies. Ironically, the cloud, which initially raised questions of security from companies running critical apps internally, might be the safer way to go.

Clearly, the cloud is no magic solution to the challenges that I.T. departments face after a merger or acquisition. They still must sort out various applications, rectify the data and unify all users on a common platform. Integration is never an easy task. But it’s one that a growing number of companies on the acquisition trail seem willing to tackle. They’re realizing the need to put things in order, both above and below deck.

Next: The state of I.T. in emerging-economy supply chains.

Comment on This Article

I.T. and Merger Mania: Keeping the Ship Afloat