Opinion: Why IT Integration is Critical to Merger Success - ' Common Integration Mistakes ' (
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One of the common mistakes in the heat of merger integration is layering interim solutions one upon the other until IT effectiveness is hurt.
The problem, of course, is these shortcuts tend to outlive their "temporary" designations as the next top priority of the business quickly becomes the most important item on the IT agenda. The result is that redundant technologies and applications are allowed to survive in the merged company, creating a fragmentation of IT capabilities, technologies and architectures, and the attendant increase in costs.
For example, a merging entity may decide to maintain multiple enterprise applications and customer databases to avoid the initial cost and work of combining them, or simply to appease a business client in the short term. However, as new priorities emerge, these applications and databases tend to remain separate. This prevents fully integrated operations, limits the advantages of scale, introduces complexity, and limits flexibility over the longer term.
In those transactions where one partner is truly dominant, it's easy to fall into the trap of simply selecting the leading partner's systems to run across the combined company. It is the easy way, but often the wrong way.
For example, when one major banking company acquired a financial services firm a few years ago, the integration ran into precisely this difficulty. The bank decided to switch its newly acquired brokers over to its own technology platform. But according to Registered Rep, a magazine for the brokerage industry, one source complained the new platform was "about five generations behind" what the brokers had in the first place. This increased their workload, with one broker saying he had to start working on Saturdays again just to catch up.
While having a clear direction and moving quickly are important, the right way to approach this issue is to analyze the best of breed in each area of the two organizations. Then, management can pick and choose from the very best IT assets the combined entity has available.
When it's time to sit down and plan the IT merger integration, don't underestimate middle- and back-office integration requirements. Doing so can cause IT synergy estimates to run 40%-50% too high.
The middle- and back-office tends to be where IT is at its most complex, rife with redundancy and fragmentation. Technology areas that get broader attention are improved over time, but challenges in the middle- and back-office are often swept under the rug. So, when it comes to combining these operations following a merger, the job ends up being much larger than anyone ever imagined.
We typically see back-office integration problems that include critical interdependencies, unexpected technology incompatibilities and requirements to support multiple systems well beyond their estimated timeframes. Go into this effort with eyes open, expecting to face unknown challenges.
Quite clearly, a successful post-merger integration must include a robust IT integration program. The best programs begin with rigorous IT integration planning and an effort to identify all major issues that may arise. They include detailed and objective assessments of IT capabilities, technologies and architectures, including the investment required for successful integration.
As critical, however, is the ability to define the integration so that it both implements quick wins and commits to the longer-term efforts needed to ensure a successful merger integration for IT itself and the business operations that are dependent upon it.
Tom Casey is a Vice President at the management consulting firm Booz Allen Hamilton focusing on Information Technology. Gerald Adolph is a Senior Vice President of the firm and head of its Restructuring & Integration group.