Business Consolidation, Mergers and Acquisition

Introduction

A 2007 article by McKinsey and Co, recently cited by Gartner (“Supporting the MADness: Enterprise Architecture's Role in Mergers, Acquisitions and Divestitures”, November 2007), reported that “the announced [Merger, Acquisition and Divestiture] activity globally in the first 11 months of 2006 equated to $4 trillion, surpassing record levels set in 2000.”  During this time of immense M+A activity, businesses have been asking their IT departments not only to continue their downward pressure on costs, but also to have a direct impact on business growth. Balancing these demands is difficult, and it should perhaps come as little surprise that the majority of mergers fail to deliver the anticipated shareholder value.   

Much of the problem lies in an organization’s inability to assess where the value lies in each company’s application portfolio and effectively manage the integration of this into a single set of core systems and processes.   Comprehensive gap analysis is required before any decision can be made on the fates of seemingly overlapping technologies.

Equally, the value of a merger can be seriously impacted by the time taken to enact any changes – there is a finite window of opportunity, during which it becomes easier to bring about process change.   Miss this window and people, and the processes they control, soon become entrenched in old ways.   The estimated impact of this on the business is huge, with Accenture recently suggesting that, in a merger expecting to reap US$500m in yearly cost savings, the cost from a seven-month delay could be as much as $35m per day.   Even a delay of just one month can incur a loss of benefit to the tune of $150m.    

Of course, these issues are not restricted to participants of M&A activity, with levels of portfolio complexity rising almost exponentially simply through historical and continuingly departmental approaches to IT.   Duplication and redundancy exists to alarming degrees in the IT portfolios of large enterprises.   Consolidation strategies are required to streamline processes, reduce IT complexity and improve efficiency.   Doing this in an accelerated time frame requires automated Application Portfolio Management tooling.

CIO / Executive

For the CIO, effective and timely navigation through post-M&A complexities can provide far-reaching benefits, helping IT deliver maximum shareholder value, strengthening IT governance and presenting a unified experience to customers from all parts of the new company. An appropriate APM initiative at this time can highlight areas of cost versus value, providing solid management information upon which strategies of consolidation and modernization can be built, and appropriate staffing levels considered. Getting this wrong can seriously impact an organization’s ability to maintain, let alone exceed, its current performance levels – this is especially true when considering just how much of the company’s competitive advantage is encased in its core systems and business processes.

Architect

IT Architects are at the heart of maximizing business value in the aftermath of M&A activity or during a period of consolidation within the application portfolio. Understanding existing software and resource capabilities sets the foundation stone for strategic growth, innovation and operational efficiencies. Starting with an initial audit of these capabilities, the architects’ office can not only start to build the optimal platform to support the business needs of today, but plan for how this may change in the coming months and years, and assess the impact that these changes will have on the entire IT environment. With both high-level enterprise views and the provision of deeper application ‘drill downs’, portfolio architects will find the decision support provided by APM a crucial companion in their daily role. 

Technical

The actual delivery of value following consolidation of systems, regardless of whether they are the product of M&A activity, comes at the point where designers, developers and software engineers effect change.   Application Portfolio Management brings with it system knowledge, helping to map out the impact and full scope of those changes, even before they have been made, and accelerate the understanding of the unfamiliar. A customer’s experience in dealing with the post-M&A company can succeed or fail on the strength of connectivity between previously disparate systems – failure to join up the companies in an appropriate way can not only frustrate users, but also lose valuable insight and opportunity at the point of customer contact. 

Conclusion

Successful mergers, acquisitions and portfolio consolidation require timely assessment of value versus cost across the entire enterprise.   Only then can an organization hope to create the solid foundation on which a successful platform for future growth, innovation and efficiency can be built. Only Application Portfolio Management can deliver the insight and levels of application understanding to build such a foundation.