Why CIOs need Enterprise Architecture to cope with M&A Initiatives

“M&A is a mug’s game: Typically 70%-90% of acquisitions are abysmal failures”. This bleak view, confirmed by countless surveys of M&A ventures over the years, was expressed by Roger L. Martin, former dean of the Rotman School of Management in the June 2016 edition of the Harvard Business Review. Why then do business managers embark on M&A ventures that have a low chance of success? And then often load the blame onto their CIO when things go wrong.  Read on to understand why CIOs need Enterprise Architecture to cope with M&A initiatives.

The M&A Promise

The truth is that top managers are easily seduced by dealmakers who offer the prospect of a combined enterprise creating value and enhancing the share price through the exploitation of synergies. Predicted synergistic benefits generally come in four areas: Business Operations, Support Functions, Markets and Knowledge. The idea is that cost savings and business growth can potentially result from enhanced business capabilities, shared services, combining R&D, broadening the market customer base, and expanding the scope of product/service offerings.

Underpinned by smart financial engineering, the high-level business case for M&A can be very convincing. With almost any M&A venture, however, there is a paramount need for secrecy, with knowledge of the negotiations restricted to a small number of people. Furthermore, once the deal has been announced, there is pressure to implement it as quickly as possible, not only to achieve the synergies, but also to limit the period of uncertainty that can have a detrimental impact on workforce morale in both companies. Unfortunately, these factors mean that the implications of the merger or acquisition are rarely subjected to detailed, critical scrutiny.

The M&A Problem

The basic problem is that while the dealmakers can often identify the synergies, they are not the people who are required to deliver them. This work falls to the operational managers who have to make the organisational changes work, the HR people who deal with the layoffs, the retraining and the cultural issues, and the IT staff who have to reshape the combined company’s business operating model and its supporting systems and technologies.

Case Study

All too often it is work in the information systems area where intractable problems first come to light. We worked with one chemical major that had acquired a company in the same line of business. The potential synergies were obvious: complementary products, strengths in different world markets, scope for combining research facilities, and so forth. Because the applications architectures of both companies were totally incompatible, the CIO secured an agreement with the business managers that the two firms’ sales and marketing activities would continue to be run in parallel until the implementation of a new suite of systems designed to meet the needs of the combined business. That consensus didn’t last long. Only six weeks after the merger, the Head of Sales & Marketing came to the CIO to demand a more rapid implementation of the new system. “We are starting to lose money. We have customers buying products from both sides of our business who now want hefty volume discounts applied across all of our product ranges.” And an even worse piece of news: “Some of our bigger customers understand our business better than we do: They had negotiated lower prices from what is now one side of our company, and they want the same concessions applied to product sales from the other side. But with two customer files and two completely different systems, our people can’t even anticipate these problems and head them off, as they don’t have the necessary oversight. Why wasn’t this spotted earlier?”

Similar hard-luck stories with requests for new, rapidly implemented IT solutions soon emerged from other operational areas, such as procurement, supply chain and accounting. Although none of these practical issues had surfaced during the due diligence process, it was left to the CIO and the operational managers to make the best of a bad job.

How to make M&As a Success

To improve the chances of success with an M&A venture, the CIO needs to get in early and insist that the business case should not only identify the synergies resulting from the combination of the two organisations, but also specify what kind of value the synergies will deliver, and how.  To support this, and at the same time highlight the operational risks, the CIO needs to present views of the current enterprise architectures of each side of the planned merged company, as well as views of the future planned combined state. The aim should be to demonstrate what the meshing of two different business operating models would entail. Even at a relatively high level, the views will reveal both problems and opportunities that should inform the due diligence process and help to build a more robust business case.  The CIO needs their Enterprise Architecture to provide this view and to cope with M&A initiatives.

At worst, if the top business managers are so emotionally committed to the deal that they choose to ignore the practical challenges highlighted by the CIO, they will know that now is the time to update their CV and seek pastures new.

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