M&A, Business Applications and Synergies

Depending on the type of Mergers & Acquisitions (M&A), different aspects of business are affected.  Business applications can play a pivotal role in all areas of M&A as it enables the target operating model, business processes and information needed to run the operations, grow the business or transform.

M&A creates an environment to bring two organizations together typically providing similar/complementary business services or alternatively providing new services to expand into other markets. The end goal is to achieve Synergies by merging two companies.

Regardless, when two companies merge, it creates a high degree of chaos across different divisions in the enterprise and there are many changes that happen all the way from individuals to whole business functions.  The M&A key goals are to grow business, provide better services to their customers, improve margins and lower cost of operations.

Before the commencement of any integration activities, the organizations use business applications through business processes to deliver business services.

As the two companies come together, the business has to define a new target operating model, the business direction (globally, regionally and/or locally), locations, customers and processes have to be aligned in the new company (NewCo). This, in itself, is a significantly challenging task to undertake especially in a complex organization with multiple business divisions.

At the outset, each division has to identify and name a business leader, who will then asses the current state and define the future direction of the business services as well as the associated processes. These changes can take time and can have significant implications on technology that enables these processes. In some cases, there can be radical change of direction from where the companies were heading previously.

To enable IT Synergies from Business Applications, there are key elements that are important for this process to work smoothly:

• Business processes and direction: Details of business processes and creating business process inventory is essential to provide a holistic view of what and how an organization delivers the business services. Knowledge of value chain processes and business direction is very important as it defines what can be disrupted and what can't be. Aligning applications to value chain processes also allows to see "white spaces" or gaps once two companies are merged.
• Application Inventory: Creating an inventory of key business applications with information related to owners, business criticality, cost (capital and operational expenses), client facing, usage, business capabilities delivered, regions impacted, SSO/AD enabled, in-house/outsourced, people supporting apps, business impact and target state established  the key attributes that should be captured at this time. This information will also help other work streams like security, infrastructure, ERP and service delivery, etc.
• Day 1 readiness: For Day 1 readiness, provisioning access to the foundational applications become the highest and most visible priority. Having sight to these access processes and changes required to remediate applications and prepare for a joint organization (i.e. reporting, conflict checks, payroll, people management, etc.)
• IT Budget/Spend: Information on IT Budget and spend is critical. Although, be warned, often not all application spend is tied to the technology budget and is tied to other business functions budget. If the application costs can't be ratified or related to the IT Budget, it creates a big disconnect on what Synergies can be achieved from the M&A.
• Stakeholders involvement: Key business decision makers involvement is critical to define the business applications target state. If multiple stakeholders are involved, it complicates the process to achieve IT Synergies. (i.e. multiple IT stakeholders will eventually connect to business stakeholders and define the target state and thus elongates the process). 
• Culture: Culture plays a key role in business change management and getting buy-in from multiple stakeholders. Organizational culture in the NewCo takes time to settle-in with the "new normal". This has to be given priority in enabling the organization to make effective decision (by key decision makers taking the lead).

If one or both companies have robust applications that support the business processes, the process of integration can be much smoother through applications alignment with business processes or capabilities. If, however, both companies don't have robust applications enabling business processes, the process of integration will take time and the organization risk disruptions in their business value chain. The ERP applications should always be focus to be rationalized first as HR, Finance and enterprise supporting functionality are critical to create a NewCo. Ultimately, people have to get paid and finances have to be in order for M&A to work and support future profitability.

In the current business landscape, many Fortune 500 companies are going through mergers and acquisition or divestiture. To allow for smoother integration (or divestiture) - understanding the business landscape through business applications is critically important as it allows to achieve synergies quicker and prepares the organization to achieve its long term strategic goals .