Mergers and IS Strategy
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Buying all or part of a business is one of the most complex strategic decisions a company can make.
The rewards are great, but research indicates a low rate of success:
60 - 80% could be classified as financial failures.
66% do not add shareholder value
However, while many management researchers consider that mergers tend to fail, many managers involved in mergers still consider them a success
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There may be a variety of motives for merger and therefore a variety of critical success factors.
Economic Motives
Marketing economies of scale
Increase profitability
Risk-spreading
Cost reduction
Technical economies of scale
Defence mechanism
Response to market failures
Create shareholder value
Personal Motives
Increase sales
Managerial challenge
Acquisition of inefficient management
Enhance managerial prestige
Strategic Motives
Pursuit of market power
Acquisition of a competitor
Acquisition of raw materials
Creation of barriers to entry.
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IS is a significant factor in mergers:
Mergers may be done in order to acquire IS
Mergers may fail because of incompatible IS
IS may drive the merger
Understanding the stakeholders performance measurements for a merger will help us to identify the role of IS.
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What are the CSFs of the merger? How can IS support these?
Mergers may have multiple motives
Mergers can create performance improvement in a number of areas.
IS strategy should be aimed at supporting identified areas of performance improvement.
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Forces impacting IS
Infrastructure rationalisation
Business Integration
Application and data merging
Service maintenance
Development of strategic projects
IT Department integration
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Implementation example for Insurance Co. Merger.
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Workstream |
Purpose |
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Customer/ channels |
Map intermediaries to new branch territories Harmonise terms and conditions, invoicing etc. Consolidate duplications of management information Identify key relationships for special treatment Identify and product client communications |
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Product |
Rationalise product set and branding |
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HR |
Manage downsizing and redeployment/termination. Implement common terms, conditions, rates. Trade union relationships. Culture change |
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Premises and logistics |
Acquisition, disposal and modification of premises to support new design, including leasing/rental. Manage building work cabling, telephony, fixtures |
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Business processes |
Identify, document and implement process change or harmonisation. This defines many requirements on IS/IT. Ensure internal / external audit satisfied with business controls |
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IS/IT |
Implement IS/IT changes to support business changes. Address IS/IT rationalisation opportunities to reduce IS/IT costs |
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Training |
Identify, design and deliver training in business process and technology. Measure effectiveness. Provide first level Helpdesk during implementation. |
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Management Information |
Define and implement usable management information for merged operation |
Source: Robertson and Powell, Managing the IS function during mergers, ECIS 2001
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Approaches to IT Merger
Absorption
Best of Breed
New IT Platform
A new IT platform carries with it the problems of complexity and completing the integration in a short timescale.
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Integration Plans
A successful merger requires an IS/IT integration plan.
An IT integration manager should be appointed.
The IS/IT Integration plan should incorporate compatible and relevant items from the merging companies IS strategies.
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Issues to be examined in the IS/IT integration plan
Review of existing IS and compatibility.
Decisions on selected merger approach and rationale.
What have we got?
How does what we've got compare?
How far apart are the two companies systems?
Scrapping certain projects
Examining projects under development
Identifying changes to service management
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IT Concerns
New firm structure
User Access
Location moves/ consolidation
Product/brand rationalisation
Customer / channel interface
Management information
Early integration of key applications
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IT Infrastructure rationalisation
Technical - networking, servers etc.
IT asset audit, disposal of redundant assets
People - roles and reorganisation
Procurement - suppliers, existing licences
Service Management - help desk rationalisation etc.
Finance - budgeting, costs centres, chargeback
Standards - merging of development, documentation and other standards.
Authorisation structures
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Data Problems
Quality
Manual rekey versus IT effort
Loss of data
Legal / privacy issues
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Interface
Merged companies need to rapidly present a single external interface.
May involve
Quick construction of integrated front-end to disparate legacy systems.
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Staff Problems
Uncertainty
Stress
Poaching
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Cases
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Case |
Benefits |
Strategy |
Issues |
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European banking / insurance |
Creation of single product set by building new products on new IT platform |
Leave old technology in place; No data conversion |
Culture |
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European insurance merger |
Cost saving through branch rationalisation |
New branch front ends access both firms legacy systems through common desktop; No rationalisation of data centres; New IT platform for future products |
Long migration timetable |
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European insurance merger |
??? Extended operation without branch or product rationalisation |
Consolidation of physical data centres; multiple logical environments. |
Cultural differences; No IT costs and flexibility benefits |
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Australian Bank Merger |
Absorption of small bank by large to give competitive edge |
Best of breed - failed, replaced by absorption approach. |
Too long timescales; Lack of technology assimilation |
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Notes:
Might need more staff, not less to get the merger off the ground.
Limits on costs, resources and skills.
Importance of cultural issues.
Last Updated by Neil McBride 3/10/01