A Mergers & Acquisitions Playbook for CIOs, Part 2
This is part 2 of a guest post by David Spinelli, intellectual property (IP) development manager, and George Anderson, IP architect, Enterprise Strategy Services team within Microsoft’s Services organization. In part 2, they discuss the elements of the playbook. In part 1, they discussed the demand for a common playbook to prepare for and manage through M&A activities.
In Part 1 of the post, we introduced the M&A framework for IT. The framework addresses the essential role that IT must play in the full cycle of M&A activities, from pre-merger planning to post-merger integration, toward the goal of increasing stakeholder value from the deal. The framework defines vital processes with clear inputs and outputs throughout the 6 M&A phases:
- Due diligence
- IT integration
- Readiness and adoption
- Post-integration review
Activities within the framework address the people, process, and technology aspects of M&A transactions. The framework was developed through extensive secondary research, and the results of a survey conducted among CIOs and IT executives previously involved in M&A transactions. Survey participants reflected on what went wrong, and what was missed, and they shared key advice on M&A transactions. The framework is used worldwide by Microsoft Services, and their client engagements will further refine the IP behind the framework.
The pre-planning phase
Before any business transaction occurs, pre-planning activities set the stage. Here, the CIO needs to take a strong leadership role to decide with the CEO and business leaders how IT will align with the organization’s M&A strategy. In this phase, initial plans for dealing with organizational culture issues are identified, budget is estimated, potential risks are evaluated, the new organization’s technical capabilities are identified, and the M&A due diligence team is formed. The CIO, or senior delegate, should be part of the due diligence team.
Regardless of the organizational objective for M&A, involving the CIO as part of the executive team from the start, being very direct in communicating processes and decisions, and helping to determine whether the organizational objectives can be realistically met, are all imperative to M&A success [source: University of Arizona Eller School of Business, CIO M&A Survey, October 2011]. The CIO cannot be perceived as a “back order taker.” Instead, the CIO must be involved in the process from the very start and possess a high level knowledge of the entire process and its status. Again, this process requires strong leadership to ensure that decisions taken are not only strategic, but also time sensitive.
Day 0 spans the deal announcement until deal close. There are 2 phases here: due diligence and planning.
Due diligence is when a detailed assessment of the target of acquisition is performed. Performing due diligence, especially with regard to information systems compatibility and integration issues, is absolutely critical. When correctly performed, due diligence can help identify risks and opportunities. The risks include sources of potential risk that require immediate action [source: Deloitte, The role of information Technology in M&A, page 2]. Opportunities to reduce costs, take advantage of resources or assets in new areas, and improve IT effectiveness and increase business flexibility can be identified and pursued.
Moreover, during the due diligence process, required decisions or actions can be identified before any significant progress on the merger or acquisition. Expectations can also be set. Finally, the due diligence team has to confirm how much (or how little) compatibility there is between IT architectures and assets of the merging entities.
Integration planning phase begins after due diligence is completed. Still within the Day 0 timeline, the integration planning phase consists of determining the plan of action to complete integration of IT systems technology and the new IT organization.
Research indicates that some of the most unexpected and hard to resolve difficulties arising from an M&A integration stem from cultural issues. Not planning for these issues can potentially magnify their impact, and allow them to become a major setback in the integration process [source: Cullen, Alex. Mastering M&A: The CIO’s Game Plan. Page 13]. Communication is key, as both firms’ staff must be kept informed of important decisions. In addition, CIOs and IT executives surveyed believed the Integration Management Team is key to providing leadership throughout the M&A. Quickly deciding who will be part of the Integration Team allows the team to conduct planning and integration earlier than otherwise practical.
After the Integration Planning Phase is completed within the “Deal Announcement to Close” phase, the IT Integration Phase starts. This phase is a part of Day 1. IT integration is a slow and gradual process in which the individuals from both organizations learn to co-operate in the transfer of strategic capabilities [source: Maria, Alaranta. Evaluating Success in Post-Merger IS Integration: A Case Study. Page 1].
CIOs should focus on managing the change as outlined in the planning phase, and also consider communicating this change management plan to their employees. Working with the transition teams that are formed in the planning phase, and the
ongoing cross-departmental teams to implement change management, is imperative. The key activities within this process are to:
- Align internal and external communication.
- Implement a phased long-term engagement program.
- Communicate a clear implementation timeline.
The firm’s executives lay out a timeline of when they want to see the synergies of the M&A realized. A CIO must know this timeline and plan all integration projects accordingly. The key process activities are to:
- Split IT integration project deliverables into phases.
- Plan critical milestones to the lowest level (for example when the acquired firms’ customers will be transitioned to the customer service application).
- Develop integration project timeline.
IT integration project deliverables are further divided into the following phases [source: Cullen, Alex. Mastering M&A: The CIO’s Game Plan. Page 10]:
- Phase 1: Infrastructure integration has to be completed in this crucial phase. Conduct this phase within the first 100 days of the M&A transaction.
- Phase 2: Data integration is performed in this phase, and it is usually completed in the first 6 to 12 months of an M&A.
- Phase 3: Full integration and re-engineering (if needed) of the IT processes is performed in this phase to capture the ultimate synergies of the deal. The most complex projects, such as integrating the ERP systems, are completed in this phase (the phase length depends on the complexity of the project).
After completing the IT integration phase under Day 1, the readiness and adoption phase must be performed. This phase includes activities from separation to integration.
In order for the CIO to be prepared for the Readiness and Adoption phase, the CIO has to be aware of how to manage the IT Organizational Change. According to a study performed by Towers Watson, the top five challenges identified when managing IT Organizational Change are: aligning the different cultures, communicating and managing change with employees, retaining key talent, maintaining employee engagement and productivity, and integrating compensation and benefit programs [source: Tougas, Kissack, Lynch et al. Mastering the People Risks in M&A,Page 3]. In addition to these identified challenges, evaluating employee readiness and conducting training are critical processes for the success of the M&A. Research shows that the employees that leave after an M&A typically are not the underperformers but rather the best employees [source: SAP White Paper: Madness? Mergers, Acquisitions and Divestitures, Page 9].
A key piece of advice mentioned repeatedly during our survey was to cross train systems engineering teams by combining resources of different teams. For example, cross training engineering teams on UNIX, Linux, and Windows equally helps the entire organization support its newfound mix of technologies and related business applications.
This 2-part blog post has scratched the surface of a more comprehensive M&A Playbook for IT that Microsoft services developed in conjunction with the University of Arizona Eller College of Management. A white paper and consulting engagement can provide your IT team a general road map that you can use to proactively identify challenges, navigate an M&A project, and ultimately help achieve the desired synergies and goals of the new business organization. If you’d like to learn more about this M&A Playbook, please send your inquiries and comments to the Microsoft Enterprise Architecture IP team at firstname.lastname@example.org.
David Spinelli and George Anderson