Perspective Donald Dawson

Steven Waller
Kelley Mavros

The Role of IT
in Successful
Merger Integration
Contact Information

Chicago Dallas Florham Park

Tom Casey Donald Dawson Michael Mariolis
Partner Partner Senior Associate
+1-312-578-4627 +1-214-746-6503 +1-973-410-7690
tom.casey@booz.com donald.dawson@booz.com michael.mariolis@booz.com

Rajendra Parande Stephen Chen Frankfurt

Principal Principal Andreas Späne
+1-312-578-4675 +1-214-746-6504 Partner
rajendra.parande@booz.com stephen.chen@booz.com +49-69-97167-408
andreas.spaene@booz.com
Steven Waller Art Davidson
Principal Senior Associate Rome
+1-312-578-4621 +1-214-712-6687 Alberto De Monte
steven.waller@booz.com art.davidson@booz.com Principal
+39-06-69-20-73-1
Syed Ali Mariano Gonzalez alberto.demonte@booz.com
Senior Associate Senior Associate
+1-312-578-4687 +1-214-746-6511
syed.ali@booz.com mariano.gonzalez@booz.com

Kelley Mavros
Senior Associate
+1-312-578-4715
kelley.mavros@booz.com

Ritesh Sharma and Ron Wade also contributed to this Perspective.

Booz & Company

EXECUTIVE As the global economy slowly gathers steam and merger-
and-acquisition activity returns to pre-crisis levels, the
SUMMARY
crucial role of information technology in merger integration
is worth underscoring. Successful IT integration requires
that technology leaders balance their resources among
three priorities, each of which carries risks and benefits for
the whole organization. First, IT departments are tasked
with “keeping the lights on,” or ensuring business-as-usual
operations during the integration process. Second, they must
combine the IT departments of merging companies, often
with the aim of reducing costs or recognizing other synergies.
Finally—and most important—they must provide IT support
for integrating all business units while establishing an end-
state architecture for the long-term business objectives of the
company in its new iteration.

Balancing these priorities requires regular communication

between technology leaders and management, starting as
early as possible in the merger process, so that IT departments
understand the strategic goals behind a potential deal and
can prepare to support those goals. IT and business leaders
must undertake a deliberate planning process in order to
develop a realistic, detailed road map for the many steps in
IT integration—within the IT department and throughout
the rest of the company—along with the optimum sequencing
of those steps. Fundamentally, this close partnership and
communication between business units and IT leadership
requires a strong governance structure.

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BALANCING As macroeconomic conditions
gradually begin to improve, investor
hardware, and staffing resources),
often with the goal of reducing costs.
COMPETING confidence stabilizes, and liquidity Finally, CIOs must balance these two
PRIORITIES returns to the credit market, global
M&A activity is likely to regain
steps with the larger goals of provid-
ing IT support for the integration of
momentum. IT departments will other company functions—such as
play an increasingly larger role in the HR, finance, and operations, in which
long-term success or failure of these the potential synergies are often far
deals. Because technology has become greater—and establishing an end-
so pervasive, IT touches virtually all state architecture to support the new
aspects of a company’s operations, company’s future growth.
and many of these functions are
mission-critical. IT is the common In this context, the challenge for CIOs
denominator among all corporate is to understand how best to deploy
departments, and insufficient IT resources at a time when those
technology support in the wake of resources are likely to be working at
a merger virtually guarantees that full capacity. A strategic approach
potential synergies within affected during planning can clarify the
departments will fail to materialize. decision-making process. CIOs must be
at the table and communicating openly
While ensuring that IT delivers with management during discussions of
required value during merger integra- the ramifications of various M&A sce-
tion, CIOs must balance three com- narios. Through this communication,
peting priorities in the process. First, they can ensure that their departments
they are tasked with simply “keeping know about future changes to core
the lights on,” or continuing business- business objectives and can prepare to
as-usual functions for employees, support those objectives. And as the
during a time of corporate stress deal closes, they must assemble a road
and in the face of technological risks map for all aspects of IT integration. A
inherent in a large-scale change in framework for IT merger integration
systems. At the same time, they must can help technology leaders oversee all
also combine the IT departments of steps of the process (see “Case Study:
merging entities (including software, Building the Perfect Merger”).

2 Booz & Company

 Case Study: Building the Perfect Merger

When two large national homebuilders in the U.S. recently merged, they had
specific strategic goals in mind. Both companies had undergone substantial
cost-cutting measures on their own, due to challenging conditions in the
residential real estate market. So any cost savings from synergies related to
the merger (more than $300 million) would need to be recognized quickly.
At the same time, the resulting company would have the dominant spot in
the U.S. market, and it needed to be positioned to grow rapidly once the
market rebounded. To that end, management wanted to implement some
enhanced operational capabilities. In other words, the company needed to
do more with less.

The cost reduction specifically pegged to integrating the two companies’

IT departments was only about 6 percent of total savings. Yet IT support
would be crucial in helping other departments throughout the new corporate
structure to achieve their savings targets. For example, integrating field
support applications alone would make up about 15 percent of total savings,
more than twice the savings from cost reduction in the IT department itself.

To ensure that IT understood the operational requirements of the entire

company both during and after the merger, the CIO assigned a point of
contact for each business team early in the process. Through regular and
extensive communication with those teams, the IT department was able to
generate a comprehensive list of IT objectives for all business lines. Those
objectives were then prioritized based on risk, potential savings, and available
IT resources.

The most immediate IT priorities were to integrate the following:

• Financial reporting systems (due to the risk of missing key reporting

deadlines)

• Field use systems

• Corporate architecture from the two corporate platforms, which required

members of both of the IT departments and their complementary skill sets

Finally, once applications and architecture were successfully combined, the

IT department itself could be integrated, which involved staff rationalizations.
This process resulted in a delay in achieving some synergies in the IT
department, but it captured far greater early synergies for the organization as
a whole.

In the end, the company identified significant additional opportunities to

rationalize resources, captured the best practices and talent from both
organizations, and implemented the new operational capabilities it sought.
Perhaps most important, it also exceeded its goal for overall cost reductions.

Booz & Company 3

The elements of IT merger integration department. Areas of analysis include technology needs during and after
can be thought of in three distinct the following: the merger.
phases:
• Hardware, software, and network As part of this understanding, CIOs
Step One: Gather Requirements systems must define how best to provide IT
and Assess Gaps in Capabilities support for the company’s long-term
The first step in merger integration • Enterprise platforms (e.g., ERP and/ growth strategy, including hardware
should happen during the due or CRM systems) and software for new product and
diligence phase, when IT must service initiatives, customer retention
develop an initial understanding • Corporate programs for specific and acquisition, and entry or expan-
of all technological requirements lines of business, products, services, sion into new markets.
created by the merger. This starts and vendor platforms
by evaluating requirements within A common pitfall in merger integra-
the IT department itself. CIOs Technology leaders must also assess tion planning is to place too much
need to develop a comprehensive the entire company through the IT emphasis on the IT department itself—
understanding of the IT resources on lens, to determine how they can specifically short-term cost savings
both sides of the deal to determine and must support the integration from integrating IT resources—and not
how the two entities can fit together, of business units and corporate enough on the IT requirements or new
where any possible synergies can functions—finance, HR, operations, business capabilities needed to bring the
be found, and where integration administration—along with any company’s other functions together or to
risks might lie. This requires a rationalization of product lines and/ support future growth. This occurs when
census of IT infrastructure and a or services in those functions. executives from IT and the main business
plan for rationalizing resources and This involves working alongside are not in alignment during the strategic
eliminating redundancies in the business teams to understand their framework, analysis, and design stages.

A common pitfall in merger integration

planning is to place too much emphasis on
the IT department itself.

4 Booz & Company

 However, when IT and business units most effective way. When IT is looped and possible rationalization of
are working closely together, CIOs into the process of inte-gration plan- services or product lines
can assemble a comprehensive list of ning early on, it can work in conjunc-
all initiatives and objectives related to tion with business teams to decide how • Ease of implementation, including
IT support for the merger. best to prioritize projects. technical complexity, resource demands
(both personnel and hardware), and
Step Two: Prioritize Initiatives These priorities should be consid- the degree to which certain projects
Given that IT resources are likely to ered across three dimensions (see are interdependent with others
be stretched thin during merger inte- Exhibit 1):
gration, technology leaders must take • Expected business benefit, including
a systematic approach to ensure that • Business impact, including regula- potential cost savings and growth in
these resources get deployed in the tory compliance, risk management, revenue and/or market share

Exhibit 1
IT Initiatives Must Be Prioritized Across Three Dimensions

SAMPLE IT POST-MERGER INTEGRATION INITIATIVE PRIORITIZATION

High

IT Process
Best Practices Mandatory
Finance &
Architecture Accounting High Priority
Standards Consolidation
Medium Priority
& Road Map
IT Org ERP Lower Priority
(Risk, Regulatory Mandate)

Structure Integration
Bubble size
Business Impact

indicates level of
business benefit

Vendor
Mgmt
Low

Easy Difficult

Ease of Implementation

Source: Booz & Company

Booz & Company 5

Step Three: Develop an Integrated imbalances. Furthermore, it should structure, and staffing resources of the
Implementation Road Map include key conditions and success combined entity; and supporting busi-
Once CIOs have identified integration factors for each step. ness projects that require adjustments
priorities for both the IT department to IT platforms.
and the new corporate structure, A detailed implementation plan
they can translate this list into a road requires overcoming several chal- Second, these departments must iden-
map, including sub-projects, detailed lenges. First, IT departments must tify and address sequencing issues.
timelines, and contingency plans. balance multiple types of projects Several initiatives may have related
The map will likely uncover overlaps and initiatives from the three primary interdependencies that mandate
across the prioritized initiatives and objectives discussed earlier: continu- a specific order of execution. The
key gaps in the IT capabilities needed ing business-as-usual operations to implementation road map should be
to carry them out. A robust map maintain stability during integration; updated to include these scheduling
should include a plan to address those rationalizing IT applications, infra- requirements (see Exhibit 2).

Exhibit 2
An Implementation Road Map Establishes a Schedule for Priority Initiatives

SAMPLE IT POST-MERGER IMPLEMENTATION ROAD MAP

Year 1 Year 2
Initiatives Status
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Product Rationalization
IT/Business
Merger Support
Market Expansion

Finance Consolidation

IT Merger
ERP Integration
Integration

Process Design

Business as Usual Business as Usual/Production Support Ongoing

Source: Booz & Company

6 Booz & Company

Strong Governance Is the Several best practices can improve the money, talent, and business
Foundation Supporting These Steps likelihood of a successful governance processes—are to be allocated
A strong governance structure structure—specifically these: among competing priorities.
ensures that IT and business lines are
aligned throughout the integration • The IT implementation leadership • Mergers are inherently stressful
process. The ultimate goal of gover- team must be identified early in for an organization, but clear and
nance is to provide a clear direction the merger process, to reduce frequent communication can help
ensuring on-time and within-budget uncertainty in the organization alleviate this problem. In particular,
completion of the integration activi- and set clear lines of responsibility. senior management should
ties, while realizing all potential cost Chief among these responsibilities establish and enforce principles
savings and synergies. This struc- are defining potential initiatives and that set the tone for integration,
ture includes oversight and controls marshaling the IT resources needed including articulating the overall
through entities such as a cross- to support them. vision behind the deal. At the
enterprise decision forum, a merger same time, a transparent process
integration office, and a combined IT • Cultural issues are usually significant for making decisions, along with
and business steering committee. in determining the success of mergers straightforward communication
and thus need to be addressed head- of those decisions through all
A key reason that strong governance on. Differences manifest themselves levels of the organization, will help
is so crucial for merger integration is not only between the corporate cul- ensure that employees understand
timing. Merger integration efforts typ- tures on either side of a deal but also the rationale behind difficult
ically occur over a sustained period between IT and business functions in choices and act quickly in support
of time, during which circumstances the same organization. The ability to of them. Often, this requires
can evolve and many elements of the understand and manage behaviors, candidly discussing the trade-offs
original plan can change. A solid gov- while acknowledging complementary and potential risks to business
ernance structure that encompasses strengths and skill sets, is critical to operations, service levels, and other
IT and business will help ensure that merger integration. aspects of the company, alongside
these changes get addressed in a con- a frank discussion of how those
sistent manner across the combined • Consistent criteria are needed to trade-offs are necessary for the
firm, rather than in silos. decide how resources—including organization’s long-term success.

Mergers are inherently stressful for

an organization, but clear and
frequent communication can help
alleviate this problem.

Booz & Company 7

CONCLUSION With IT playing an increasingly per-
vasive role in today’s organizations,
incorporated into a road map for
the integration process. That map
successful merger integration requires must include resource allocation,
close alignment of IT and the business any gaps in IT capabilities (along
side of a company before, during, and with a plan for how those gaps are
after the merger. Such an approach to be addressed), and a schedule
dictates that IT communicate early of benchmarks for completion. It’s
and often with the business during all crucial that CIOs do not fixate solely
aspects of the M&A process. Frequent, on IT consolidation efforts but rather
frank communication between the two consider them as one of several
will generate a holistic view of the new responsibilities, including continuing
company and a thorough understand- business-as-usual IT functions and
ing of its capabilities. ensuring that their organization has
the structure and resources needed to
With a clear picture of the targeted support the business opportunities of
strategies and potential new initiatives the combined company.
afforded by the deal, IT can work
with business lines to establish This is a significant undertaking,
priorities early in the integration requiring a strong governance struc-
process. These priorities, including ture between IT and the business. As
near-term cost savings goals in a result, merger success often hinges
the IT department along with on the early and comprehensive
larger synergies in other functions involvement of IT in planning and
of the overall company, become executing a merger integration.

8 Booz & Company

About the Authors

Donald Dawson is a partner

with Booz & Company in
Dallas. He specializes in
IT transformation, merger
and restructuring execution,
and operations delivery
performance for IT and utility
companies.

Steven Waller is a principal

with Booz & Company in
Chicago. He specializes
in technology strategy and
merger integration planning for
energy and financial services
companies.

Kelley Mavros is a senior asso-

ciate with Booz & Company
in Chicago. She specializes
in technology strategy and
merger integration planning
for financial services and con-
sumer companies.

Booz & Company 9

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