Successful M&A transactions also include complete IT system integration
// by Matthias Rensing
IT & Management Consulting, IT M&A, IT Sourcing, IT Strategy
The replacement of smaller IT shadow systems is often postponed in the case of mergers. These cause problems later.
When two companies merge, two technical worlds usually become one. Higher efficiency, scaling effects and the basic idea of "one company - one system" are the guiding principles of any integration. This is easy to see in the merger of similar companies, if the goal is not a different business model, but above all an improved market position. Since a large-scale IT integration cannot wait for every side event, smaller special applications are often dragged along and end up in isolation. This pragmatism helps at first, but subsequently causes problems and leads to a dead end.
The natural goal of every merger is "One company - one system".
Mergers and acquisitions are a complex system of big decisions and small compromises in implementation. This also applies to the integration of IT in one system. The assumption that with a merger or takeover it will always be the stronger partner with the better IT systems that sets the future new framework is unrealistic. In some mergers, the future company simply relies on the IT system of the larger partner, be it "better" or not. The reasons for this are many and varied. Last but not least, it is easier to take the lead when working in a familiar system environment and "the others" have to make the adjustments.
The rationality of such processes is sometimes more political than commercial or technological. And yet it is inevitable, the goal must also be the same for IT: "One company - one system".
Why the "Big Bang" rarely brings 100% standardization - advantages of "shadow applications
Even if two companies merge that already had the same business model before, the details of the concrete processes and their process-supporting IT applications are often different. Each company brings its own customers, its own products and processes into the merger and the consolidation effort is often considerable. Mergers are therefore major business and technological projects that often take years before they can be considered completed.
Why are smaller, specialized IT applications often allowed to continue, even if the goal of the merger is complete standardization?
The reason for company mergers is usually a commercial one. Decisions are made at group level and IT is rarely involved in the early planning stages, for example in due diligence. For those responsible for IT, this results in a short lead time and without a corresponding roadmap, general solutions are often the consequence, which cannot take every question into account. The continued use of proven, existing IT processes and tools can reduce the complexity of integration, especially if they do not directly affect the functionality of the future core system.
In individual cases, the high time pressure involved in IT system integrations means that these cannot be fully implemented and smaller systems may continue to support business operations without damage. Limited resources or technological hurdles also play a role in this procedure. As a result, processes are not fully adopted and existing process-supporting tools continue to be used. They then continue to run as finished, perfectly coordinated IT processes, but are not technologically integrated into the target system. Such complete technological integration into the target system is often not the plan either.
The example of software maintenance
"Indispensable" applications can be found, for example, in the environment of software maintenance, documentation and customization, for which many companies have written their own applications that serve their specific system landscape. The complete software lifecycle, from requirements to implementation, maintenance and associated documentation, may be managed in such tools. These applications were created as quality assurance processes and tools for software maintenance. Their technical and business value lies in the fact that they guarantee the processes for maintaining and servicing legacy systems over the long term. In this way, they are not easy to replace. A complete standardization in the IT target system is one of the long-runners of every merger. If there is no corresponding tool in the target environment for a proven feature, applications of this kind can survive long after the merger.
What disadvantages or costs do "shadow applications" bring?
Smaller applications supporting the core system of an enterprise are useful, but they cause problems in the long run.
The know-how question: the range of special applications will tend to decrease in the merged company and the number of employees who can operate them will gradually decrease. If only a few employees are able to administer or adapt these applications, a know-how monopoly situation will arise. When such experts leave the company, this becomes a problem.
The support problem: Application development and application support in the merged company focus primarily on the core system. Integration into the core system is the most important task of a merger and this ties up know-how and resources. The support of smaller "residual applications" must then be provided by the "islanders".
If there is a functional connection between the remaining applications and the core system, these may put a strain on any future release change due to additional adaptation efforts. This makes the further development of the main system more difficult.
If the idea of "one company - one system" is technologically undermined in the long term, other integration tasks of the merged company will also be burdened. The self-image of the employees needs as much social commonality as possible, common business processes and a common technical equipment.
The End of Shadow Applications can also mean an Upgrade
The survival of small applications in a merger in the slipstream of large IT system unifications is plausible, useful and sometimes unavoidable. Nevertheless, the goal must be either to gradually replace them or to officially include them in the set of recognized and enterprise-wide tools. In this way, they become part of a future uniform system landscape of the company.
In a systematic process, the reasons for the survival of old residual technologies should be found, analyzed and eliminated, be they political, commercial or technological.