Accelerating Business Benefits
According to Hiral Chandrana, vice president and global business head for consumer goods at Wipro Limited, companies are fast realizing that if the IT integration is not in place, “it impacts the ability of the two companies to collaborate” and slows the expected return. “The biggest bang for the buck is in accelerating the business benefits like supply chain agility, product development, new channels for reaching the customer, etc. If you look at the Kellogg -Pringles integration, I would say that the biggest transformation is in the supply chain, and at a global level, enabling a fully automated distribution and warehousing solution for newly acquired product categories and opening up new markets.”
Chandrana places IT integration in two buckets: enterprise connectivity and the operating model. Enterprise connectivity includes everything that an employee needs to be connected within the organization — phones, laptops, Internet access, emails, messaging, local area networks, wide area networks, virtual private networks, etc. The operating model includes the IT architecture, applications portfolio, enterprise data and the various business processes. These need to be streamlined so the combined entity can work seamlessly.
Chandrana says that for a smooth IT integration, companies must have a runbook or template, well-oiled machinery with a clearly articulated and well-documented plan, transparent timelines and costing model, the right people and the right partners. “There is a fairly big component of change management, so companies need to run this with very strong governance.”
At the execution level, Gigerich places special emphasis on security — of not just the physical pieces of the network but also the digital properties. Take websites, for instance. Most consumer goods firms use their websites to gather data about their customers. This data is then mined using analytics to devise the most effective customer experience. “Consumer goods companies are constantly under threat from people trying to break into their networks. So one of the first things we need to do is to see if the acquired company is as secure as we are and what more we need to do.”
Need to Keep an Open Mind
Andriole lists customer data base and customer service integration among the key challenges. “It’s also assumed that fulfillment data bases and processes will work together. The resolution of these challenges takes extraordinary planning and near-flawless project execution — which is why so many M&A IT integrations fail,” he notes.
The pace of integration could also pose problems. Typically, the integration needs to move faster if there is a transition services agreement (TSA), which usually happens when the acquisition is more of a carveout and not a full buyout. Under a TSA, the acquiring company pays the target company for certain services until the integration is completed.
But there is a cost associated with the speed of integration. The IT organization has to either add more resources or drop some existing projects. “It all ties back to the business plan and having a seat on the table,” says Gigerich. “If the business plan has been understood well, then everything can be planned around that.”
Andriole and Gigerich suggest that companies need to go into an IT integration with an open mind. “There could be some pearls within the target company that could be beneficial to the combined entity and it is important to leverage these pearls,” says Gigerich.
Andriole, who also is a business technology consultant, notes that many IT M&A integration efforts fail because of “politics and stupidity.” He points out that often, “even if the acquired company has superior technology, it may get subjugated to bad technology. This happens all the time — much more than anyone wants to acknowledge.”
Corporate culture also play an important role, he adds. “If change is anathema to a culture, then things don’t change. At the end of the day, a long list of things have to be true for M&A IT integration to succeed.”