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Lynda J. Roth

As the president and founding partner of Woodland Hills-based LJR Consulting Services, Lynda advises clients on ways to improve profitability and productivity through both technology and business processes. She also works with companies and private equity firms on the role of information technology in mergers and acquisitions.



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M&A Understanding Strategic Value of IT Part 4

Filed under: IT in M&A Transaction, Information Technology, Information Technology Strategy, M&A transaction — Lynda Roth at 10:14 pm on Sunday, January 23, 2011

This is the fourth in the series on Understanding the Strategic Value of IT in M&A based on the McKinsey & Co article of the same name by Hugo Sarrazin and Andy West.

The topic for this post is ‘Creating the IT transition and merger plan’.

Most of the time in an M&A transaction the acquiring organization has made the purchase for specific reasons such as increasing market share, expansion into new geographic locations, adding products/services that compliment core products/services, consolidating functions to increase profitability in the combined organization.  In order to support their goals for the acquisition, they usually create plans to consolidate common functions within the merged organization such as sales, accounting, customer service, HR, potentially manufacturing, logistics, etc.  However, the consolidation of most of these functions require consolidation of IT systems and infrastructure.  As a result IT usually needs to be the first organization to the table.

If the acquiring company has followed the first 2 steps, IT will have already completed a due diligence on the acquisition’s systems, architecture and IT personnel.  This provides a natural platform to create a transition plan.  As the author’s noted in the article, building the transition plan in advance of the transaction completion, the IT team can move quickly to consolidate IT and enable a quicker consolidation of other functions and as a result quicker realization of ROI. 

The first component of the transition plan needs to be the personnel.  In the 1st phase, which was the analysis of the acquiring organization’s IT, a skills inventory should have been created.  So, the CIO will know the staff required to build the IT organization.  Also, as part of the due diligence the CIO will know the skills of the acquisition IT team and be able to make the decision quickly of the team members that are retained post merger.  In addition the CIO must identify the personnel in the acquisition that must be retained during the transition and create incentive plans for those team members. 

The second component of the transition plan is the network, hardware, mobile devices and communication infrastructure.  How will those be combined and what equipment, outsource arrangements and communication will be required.  This plan will include how to consolidate infrastructure prior to the consolidation of systems and processes.  I also include office productivity software such as email, spreadsheet, word processer software, etc..

The third component of the transition plan is the business systems and processes.  Decisions are required on which systems will be maintained, which will be eliminated and what new systems will be required.  This portion of the transition plan requires collaboration with business functions affected by the business systems being addressed.  Ideally the acquiring company will consider the age, functionality and support of the systems in their decision of which systems to eliminate.  Years ago I consulted with a bank to upgrade all of their legacy applications to new systems. The upgrade included not only their financial and back office applications but also their ATM, automated teller system and telephone systems.  The upgrade had been part of a strategy to re-insource their systems after an unsuccessful outsourcing arrangement.  Shortly after the upgrades had been completed the bank was merged with another bank that still had mainframe legacy applications.  Management decided to convert the acquired bank to the legacy applications.  Had the combined bank not been acquired again a couple of years later, it would have proved to be a very costly decision as ultimately all the legacy applications would have been replaced.  When the acquired company has newer and more effective systems it is in the combined company’s best interest to evaluate the systems to be maintained objectively. 

In addition to systems it is very important to evaluate business processes at this time.  Often in order to consolidate business functions, business processes need to be redesigned in order to enable the consolidation.  For example, I had a client that had grown by acquisition to greatly expanded geographical regions.  Because they had not modified their business processes and added additional technology such as document imaging, they were required to maintain back office functions in each of their geographic locations.  When we redesigned their processes and selected new systems they were able to consolidate to a single back office location and realize significant savings and productivity improvements.

It is the final phase of system consolidation that really enables the company to combine business functions and bring to fruition the goals of the merger.

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