How To Keep IT On Track When Integrating Companies - Expectations And Assumptions

Companies are continuing the trend of acquisitiveness - but they're looking for value acquisitions that they can justify to their investors. These companies are promising investors huge returns through increased market reach, efficiencies of scale, consolidation of operations, and the catch-all notion of "synergies".

Missed expectations

But the devil, as they say, is in the detail in the savvy management of the merger and acquisition process. In fact, according to Boston Consulting Group (BCG), between 1992 and 2006, 58.3 percent of deals destroyed value for the acquirer's shareholders, producing a net loss of 1.2 percent for all transactions. Why the high failure rate?

Expectations set during the pre-acquisition due diligence and planning process - expectations about operational metrics, timelines, and financial results - often bear little resemblance to post-acquisition reality.

Unfortunately, pre-acquisition, very few executives are willing to openly acknowledge all the potential risks, or prepare for the possibility that their organisations are not fully equipped to address them. As a result, these problems, clear in hindsight, make the promised returns difficult to grasp.

The primary goal for most M&A transactions is simple: deliver positive financial results within a specific timeframe. Most deals are expected to become accretive within a 12-18 month time frame. 

One of the key disciplines required to meet this aggressive time scale is comprehensive risk management and risk mitigation. Three key areas executives typically focus on are:

• People - Who stays? Who goes? Who reports to whom? How do we mesh the cultures?
  
  
• Business processes - How do we link and align them? Which processes should we preserve? Which need to change?
  
  
• Systems - How do we integrate the IT systems? Which applications can be consolidated? How do we get users switched over to new applications?
  
  

The data quagmire, and how to avoid it

From the systems approach, CIOs and IT managers are often governed by executives and boards with unrealistic expectations created by inadequate due diligence during initial merger or acquisition activity.

Pre-transaction, initial due diligence often requires that systems be evaluated, and operational and financial data be delivered to the bankers.

Post-transaction, mandates to integrate systems come down from the boardroom, setting extremely aggressive deadlines over which IT often has no say. IT teams scramble to figure out what to prioritise, and how to get things done in near-impossible timeframes.

Aggressive deadlines for systems integration are bad enough, with stressed-out IT teams and lots of short cuts. But what really trips up a lot of M&A integration efforts is the data.  Terabytes of data. Hundreds and thousands of data sources. Data in arcane, difficult-to-access formats. Data in spreadsheets. Dirty data. Data that can't be found. Data that no one really understands or can explain.

For example, to consolidate business applications, data has to be migrated from one system to another. But this isn't always easy - in fact, many companies fail to make this first hurdle. According to a recent study by Bloor Research, more than 80 percent of data migration projects fail or overrun. 64 percent are delivered late, and 37 percent run over budget. 

When the data migration project fails, the initiative to consolidate systems or integrate business processes fails. And the promised business results of increased operational efficiency or greater revenue fail to materialise in time to meet executive and shareholder expectations.  In the worst case scenario, the stock price plummets.

What leads to these failures?

Teams make assumptions about data that turn out to be false.

IT teams are stymied by issues with source systems, continuously moving targets, and poor data quality. They often lack needed expertise, both in source system interfaces and in overall data migration best practices. And, even after they have delivered the project, they can be tripped up by auditors who ask for non-existent documentation of business rules and data migration processes.

They must focus on data issues from the beginning, even during pre-acquisition due diligence. It cannot be treated as an afterthought in the overall integration planning. 

Moreover, teams should ensure that they have the data integration and data quality tools and skills in place to address the myriad of data issues that arise during M&A, and to deliver projects faster and more reliably. 

Companies who fail to address these issues upfront are charting a perilous course.

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