Half-baked mergers

Many woes await companies that inadequately integrate after a merger

merge road sign route path street
Nemo via Pixabay (Creative Commons BY or BY-SA)

It can take years after a merger has been declared “complete” for the IT processes and systems to be truly merged. Over the years, we’ve all seen stories in the business press about this sort of thing, and yet it keeps happening, despite what can be dire consequences.

I’m sure you aren’t reading it here first, but it’s worth repeating: The merging of IT processes and systems should be planned as soon as negotiations are finalized, and the integration of IT staff and systems should begin as soon as the legal documents are signed. There are many reasons why this is important. Here are some of them:

Disappointed consumers. Shortly after the American Airlines/USAir merger was announced, the two carriers announced that they would share frequent-flier numbers and associated elite status rankings. For several months, this seemed to work as advertised. Recently, however, a frequent flier with over 3 million American miles traveled on USAir; while the computer accepted his American frequent-flier number, it did not recognize his elite status and did not grant early boarding or better seating, as American would do. The gate agents eventually made the adjustments, but the traveler was frustrated, given the expectations set by the merger. Disappointed customers sometimes seek alternate products

Unmet large-account expectations. Customers, especially the biggest accounts, expect to receive better service or more product choices after a merger. A few years ago, a specialty manufacturing company became a global, $10 billion organization as a result of multiple mergers and acquisitions. Customers who bought from 10 to 15 different suppliers found that MegaManufacturer now offered a much more complete product line. Unfortunately, MegaManufacturer did not integrate the sales force or internal systems quickly, forcing customers to order from multiple sales reps and preventing consolidated billing. MegaManufacturer invested in full integration only after several large customers threatened to depart.

Fragmented loyalty. Until there are visible breaks with the past (business objectives, systems, management structures, etc.), most employees remain loyal to their old business unit. Frequently, business units don’t cooperate and even put individual business unit priorities ahead of the new organization’s objectives. Efforts to create a new enterprise culture are crucial.

After several acquisitions, one multi-brand restaurant chain began expanding geographically. New stores were included in each brand president’s objectives. At one point, brand development teams even bid against one another for new store sites, artificially inflating the prices. The brand management met their objectives, but the extra cost of the internal bidding war reduced company earnings and impacted shareholder value.

Eroding IT service levels. Integrating IT infrastructure and foundational IT systems is an enormous and complex undertaking. It is also an opportunity to address necessary projects that never get approved. For example, funding for standardization, DRP and single sign-on are often neglected, but are significant components of a reliable and cost-effective infrastructure.

Several years ago, a $12 billion, merger-created manufacturer believed that a consolidated infrastructure would reduce IT costs. Unfortunately, accountants reduced the combined infrastructure budget 15% on the day the merger documents were signed, causing layoffs in infrastructure staff. The remaining team had no time, staff or budget to integrate networks, applications, domains, etc. As problems and frustrations rose, the staff’s morale and productivity plummeted, reducing service levels. The rest of the enterprise was angry; worse, customers were irate.

Unproductive employees. With any merger or acquisition, employees expect reorganizations and potential layoffs. Until the new organization is announced, most employees are highly concerned about their personal future. Until each knows what his or her new job will be, much time can be wasted speculating, commiserating and interviewing.

Poor vendor management. Mergers frequently result in more than one vendor providing primary IT products or services. This presents an opportunity to review each vendor’s product offerings, pricing, service and contract terms. Failing to conduct a full supplier review inevitably results in duplicate expenses. In addition, mergers and acquisitions can affect licensing terms — beware of violations that can result in huge penalties!

Properly implemented mergers and acquisitions should produce major benefits for all stakeholders. When a merger occurs on paper but not in practice, problems and failures outnumber benefits. Poorly managed mergers frustrate everyone! If your customers don’t receive benefits, why should they tolerate the hassles? Deliver or be deserted.

Bart Perkins is managing partner at Louisville, Ky.-based Leverage Partners Inc., which helps organizations invest well in IT. Contact him at BartPerkins@LeveragePartners.com.

Copyright © 2014 IDG Communications, Inc.

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