Senior Partner & Managing Director
A PMI Road Map
Mergers, both forced and unforced, will remain a common event for the foreseeable future—and IT integration will be one of the key factors that determine whether those mergers ultimately deliver the targeted benefits. Most companies know this and focus on it. Still, the results typically fall short and the same questions arise repeatedly:
This is not to suggest that IT postmerger integration (PMI) is simple. On the contrary, it is a disruptive, time-consuming, complex, and expensive process, as well as a psychological and emotional trauma for those involved. Yet it is a navigable challenge if companies approach it comprehensively and systematically.
Sadly, though, most companies don’t. Most never adequately address the “hard” side of the integration, failing to make the necessary systems decisions, identify cost targets, and develop implementation plans. One company that decided not to establish cost targets up front had to revisit that decision when it became clear that the proposed integration solutions were unaffordable. Another company’s IT organization neglected to bring the business side on board and was surprised when key platform decisions were reversed. Yet another IT organization was unable to deliver the targeted synergies because of poor tracking of results.
Even more common is the failure to address the "soft," or people, side of the integration. A large-scale IT integration is particularly problematic. Management teams are changing, cultures are clashing, and there is no clarity regarding who will have a role going forward. At the same time, people are being asked to execute the largest change program they have ever contemplated. Firms that do not address these issues virtually guarantee themselves failure.
Companies can and should do better. We outline below the elements of a successful postmerger IT integration. These encompass both the hard and soft sides of the process and are tailored to the CIO of the new organization, who has a unique vantage point and is ultimately the key determinant of whether the effort succeeds or falls short.
Neglecting to properly assess progress is a root cause of failure in IT integration. Many of the usual systems and processes are no longer relevant and things can change by the hour, with today’s success or failure often incorrectly coloring the CIO’s longer-term view. What’s needed is a lens that allows the CIO to step back, escape the day-to-day noise, and see the big picture—to determine where things really stand and what key actions are necessary to get back on course. The elements below can serve as that lens, allowing CIOs to assess where they are and take the appropriate actions to bring the integration back on track.
Element 1: The Targeted Synergies Are Achieved Without Compromises
Achieving IT synergies is seemingly a relatively simple process: cut the development budget and reduce operational manpower. The relationship between integration activity and synergies is often poorly understood, however. And if synergies are not carefully thought through, problems in service and change capabilities can quickly emerge, creating long-lasting business issues. On the other hand, costs can quickly spiral out of control as the business tries to transform its capabilities and IT uses the business’s transformation effort as an opportunity to upgrade.
To make sure that the targeted synergies are realized, CIOs should plan to do the following:
Element 2: The New IT Organization Is Formed with No Loss of Key Talent
When faced with an uncertain future, the best people start looking at other options. It is essential, therefore, to take proactive steps to retain key IT talent. In one recent IT integration that we observed, nearly all of the best people two layers from the CIO in the acquired company departed. This left the merged organization with vacancies in roughly 33 percent of the positions at a vital level in the organizational structure.
To retain the right talent, CIOs can take several actions:
Element 3: Systems Integration Decisions Are Made Quickly and Perceived as Fair
In our experience, it is crucial to make systems decisions quickly and transparently. Very often, this is the point at which a psychological chess match ensues between rival organizations fighting for relevance, each with its own scoring systems and means of justification. Unless this infighting is curtailed, progress will be delayed and questions will linger.
CIOs can prevent the chess match by taking the following actions:
Element 4: The New IT Organization Operates Efficiently
It is often hard during an intense integration to think about efficient operations. Yet unless coherent actions are taken, what is left after the initial flurry of activity is an operation that doesn’t meet the business’s needs and requires post-PMI transformation. Getting it right starts on day one. Integration and business-as-usual activities need to be aligned, new governance forums have to be established early, and a focus must be maintained on day-to-day operations. Compounding the challenge is the fact that there is often a personnel selection process going on and the new team that emerges may not have experience with all of the operations, creating a high risk of service problems.
The following steps can help the CIO ensure that operations are efficient:
Element 5: Customer and Vendor Relations Remain Strong
It is imperative that the integration does not jeopardize relationships with customers. While it is unrealistic to expect that the transition will be seamless from a customer perspective, every effort should be made to minimize any negative impact. Similarly, it is of vital importance to maintain strong relationships with key vendors, which can be an important source of targeted synergies. Understanding what these vendors want and working with them as partners can be enormously beneficial, especially when they provide access to critical capabilities.
There are a number of ways for the CIO to safeguard relationships with customers and key vendors:
Develop a strategy for negotiating with key vendors to derive maximum value from the relationship during the integration and beyond
Element 6: The Integration Is Delivered On Time and As Planned
What makes an integration different from most change programs is its size and the level of interdependencies among the different parts. Integration plans can thus be highly interlinked, and a slight delay in an early activity can cause major delays in the overall integration. Accordingly, the process must be carefully managed. Decoupling activities and developing contingency plans can be the keys to timely delivery.
The mindset of the business side also needs to be taken into account when planning. In general, business synergies can be delivered quickly in a merger, often without much IT involvement. The full delivery of IT synergies, by contrast, can take years—especially in the bigger integrations. Compounding matters, the majority of IT synergies can be delivered without full systems integration because change efforts can be quickly focused on key systems. The end result is the so-called integration trap: the business wants to move on and is frustrated that IT is still spending time integrating, and the business case for IT integration begins to fall apart. (See the exhibit “Finishing the Integration Quickly Can Help Companies Avoid the Integration Trap.”)
To avoid the integration trap and ensure that the integration is delivered successfully and on time, CIOs should do the following:
Element 7: Morale Remains High
Morale is often the most overlooked part of an integration. Without proactive monitoring and communication—and clear action plans—significant issues can arise, ranging from low productivity to the loss of key talent.
There are a number of ways for the CIO to make sure that morale remains high:
The Challenges and Rewards of Solid Execution
Merging two IT landscapes is a difficult, complex, and exhausting task, one that many companies never complete. If mismanaged, it can fail to deliver the targeted synergies. It can also exact a sizable toll on staff, with talented people jumping ship and those left behind feeling demoralized.
By being aware of the guidelines above, however, you can do much to ensure that your particular IT integration succeeds. The challenges are great because you will need to address all facets simultaneously and on an ongoing basis. But the result—an IT organization that is an innovative, strategic weapon and enables the business to get the jump on the competition by opening up new technological possibilities—will more than justify the effort.