CIO As M+A Integration Expert

Strategic mergers and acquisitions are expected to rise as the economy slowly recovers. This will put new pressure on CIOs to develop world-class M&A integration capabilities, according to a Gartner report released July 7, 2010.

The report, "Mergers and Acquisitions: Integration Without Tears," was released by analysts in the Gartner Executive Programs group, a membership-based organization of 3,800 CIOs worldwide.

According to Gartner VP Dave Aron, M&A integrations are among the most challenging and risk-laden situations that CIOs and their IT organizations. However, Aron notes that M&A integrations also present a powerful opportunity to demonstrate the capabilities and business value of IT, and to stretch the performance of IT team members.

Gartner identifies five key areas of M&A integration in which IT plays a key role (along with other parts of the business):

Phase 1: Due Diligence/Planning

This is where a basic plan of action is sketched out. In the most successful integrations, integration planning happens concurrently with due diligence and data gathering, with an initial hypothesis that is refined as information becomes available. 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.

Phase 2: Welcome/Signaling

Here, a limited number of visible changes are instituted to signal the new reality that the merged organization brings. Tactics include giving everyone harmonized e-mail addresses, phone accounts and security badges, and moving key people to different physical locations. Setting expectations, reducing uncertainty and motivating key staff all will dramatically effect outcomes.

Phase 3: Initial/Commercial

This is where the most urgent practical changes are instituted. This initial phase of the actual integration addresses urgently needed outcomes, which vary depending on the nature and goals of the integration. Common activities include addressing legal and regulatory issues and achieving transparency through the integration of financial and management information. Other goals may include presenting one face to the customer and addressing human capital management disparities. Execution risk is highest during this phase. There is usually a high level of personal uncertainty, along with transitional governance and project management.

Phase 4: Main Integration

Here is where most of the big process and system changes are executed. In this main phase of integration, the pieces of the post-integration landscape are put in place over time, in a series of waves. For absorption-style integrations, it means bringing everything in the target organization onto the parent platform. For best-of-breed-style integrations, it means putting the integration architecture in place.

Phase 5: Reap-the-Benefits

This is where the remaining benefits, such as cost synergies or increased market share, are harvested and monitored. This phase can also help capture lessons for subsequent M&A activities and other major transformations.

"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," says Mary Mesaglio, research director at Gartner.

Breaking Down The Workstream

Each phase of integration breaks down into workstreams — with IT representing one workstream, while functional areas and business units represent others. IT also normally has a role in the other workstreams, uncovering their dependencies and coordinating between them.

The IT workstream normally breaks down further into substreams, such as data conversion and end-to-end integration testing. This creates complex areas of activity requiring high degrees of coordination, project management and governance both within IT and with other business workstreams.

In enterprises where IT traditionally has strong project and service management skills, IT has an opportunity to play a larger role in the integration.

According to Gartner, the different phases of integration may have multiple subphases, or waves. For example, Phase 3 may have a pilot wave to prove, with minimal risk, that the integration approach works. Similarly, Phases 4 and 5 may be implemented first by geography or by line of business to reduce effort and risk, and to maximize improvement through ongoing learning. Phases may also overlap — especially the due diligence/planning phase, which may continue through Phases 2 and 3.