Nearly three-quarters of corporate executives don’t grasp the vital role IT plays in the success or failure of mergers and acquisition, a recent study by consulting giant Accenture finds.
As a result, many businesses are failing to maximize the potential of mergers and are missing out on substantial financial benefits, according to the report, “Keys to the Kingdom: How an Integrated IT capability can increase your odds of M&A success.”
When it comes to merger activity, corporations are acutely aware of the challenges of integrating other aspects of their businesses, such as their organizational units and their employees. But Accenture’s study finds that too few companies are giving the same level of scrutiny to the integration of their technology operations – a critical lapse in today’s IT-driven enterprise.
The lack of focus on IT integration during the “lifecycle” of a merger or acquisition inevitably can lead to a host of problems. For example, while many companies look to IT to help bring about a successful merger, many do not involve IT in the decision process before the deal is done. Frequently, the result is that companies are less able to recognize potential difficulties in uniting IT operations before the actual integration has taken place.
Opportunity for CIOs
For CIOs and other enterprise IT leaders, the disconnect presents the challenge- and the opportunity- to raise the profile of the IT organization and signal its importance prior to the start of merger and acquisition activity – and squeeze additional value out of mergers.
Mirror, mirror: Six Ways CIOs Can Polish Their Image
The CFO: The CIO’s New Best Friend?: CFOs are moving from being “scorekeepers” of IT spending to proactive leaders who consider IT essential for strategic growth.
Aberdeen Report: CIOs’ Top Application Investment Priorities for 2002
ConocoPhillips Chooses Its CIO: The about-to-merge energy giants Conoco and Phillips Petroleum pick the Phillips IT exec to oversee technology.
“The truth about M&As is that about half of them either fail outright or else fall well short of the value they’re expected to bring because when viewed unilaterally, IT integration can wind up crippling rather than enabling the new organization,” says Gary Curtis, partner in Accenture’s Strategy practice.
Accenture studied 57 M&A projects in North America and Europe in the late 1990s (target companies: $100 million to $500 million in revenues) and monitored them post-merger, paying attention to the integration efforts surrounding IT operations and the effects on the company.
The study found 58% of the companies did not get IT involved in integration planning until after the plan to merge was announced. Twenty-six percent got involved during the deal, and only 16% got involved pre-deal.
Additionally, less than half the companies surveyed performed detailed IT integration planning. Among the companies that performed IT due diligence, 70 percent said subsequent integration was a success, compared to 18 percent for those who did not report the deal a success.
Seventy-three percent of companies that called their mergers successful had a full-time IT manager assigned to the integration effort, compared to 40 percent who did not call the integration a success.
8 Keys to M&A Success
To help companies get on the right track and reach the full potential of mergers and acquisitions, Accenture developed eight imperatives for corporations to follow. They include:
- Drive the IT integration program based on a vision of future IT capability. Of deals called financially “successful”, 71 percent said they were driven by a vision of the future IT capability. This “future vision” of IT capability led to IT stability more quickly, which led to greater financial value of the merger.
- Involve IT early in business discussions about the deal. Companies that involved IT leadership in the pre-deal business planning were more likely to reach financial goals of the merger.
- Perform an IT due diligence before the deal is signed. Companies that did realized a greater financial value and a “more successful integration experience.”
- Engage in detailed IT integration planning. Detailed planning helped companies to identify and prioritize the activities that were “most likely to deliver value.”
- Appoint a dedicated IT integration team and manager to oversee the IT integration The best way to make IT integration a priority is to identify core resources that will work full time on the integration plan.
- Use experienced staff to manage the IT integration. Nearly half the companies surveyed said that only 10 percent or less of their staff had previous experience with IT integration.
- Use external staff to help execute the IT integration activities. This helps companies fill temporary capability gaps during integration work.
- Engage in IT cultural change and human performance-related programs. Survey respondents told Accenture the most difficult post-merger challenges revolved around human or cultural issues – integration of cultures and reorganization of personnel. Accenture’s report notes: “Planning must occur that is focused on the overall change journey and the methods by which people in the organization own the changes that oare occurring and embrace the work of the new company.”
David Aponovich is senior editor of CIN.