Everything okay, 3 years after the merger?

// IT Merger & Acquisitions

Or: What comes after the »post merger integration«?

 

The integration phase subsequent to mergers is a huge challenge. Often, its success decides about the failure or success of a merger. For many years already, noventum consulting has been supporting the manifold planning and operational aspects of this critical project phase in the IT, financial, insurance, energy, and other sectors. Carsten Fröning, Director, consultant at noventum since 1997, and responsible for the topic „Post merger integration“, provides information about this important milestone in the PMI lifecycle of a company.

novum: Mr. Fröning, is the moment 3 years after the integration or after the merger a critical point in time?

Carsten Fröning: Actually, the 3 years should be looked at more symbolically. PMI projects have durations of different length. Some mergers that are focused on achieving synergies in heterogeneous areas of business through the merger, are actually completed after project durations of one and a half years. Other PMI projects, such as the harmonisation of an application landscape for an insurance company, have a duration of 3 years. The same harmonisation for a group of financial service providers may even encompass durations of 5 years or more. 

If we refer to the end of the PMI project as the „zero hour“ and then think 3 years ahead, we have reached an important point in time. Based on all project developments, an interesting effect results: The PMI project is completed and the question arises as to what does the company do afterwards, which objectives are established after the project and how can these be achieved? Strictly speaking, this question should be asked already at the start of the PMI project, but definitely at its end.

novum: But is there an automatic necessity for changed objectives after the merger?

Carsten Fröning: Absolutely. Merger projects pursue a number of objectives. Quite often, the objective to achieve efficiency objectives (economies of scale and scope) dominate. Other merger projects pursue strategic considerations, such as an increase of the relative market share through the acquisition of a company. These strategies are the entry into the merger, but not the end. Accordingly, there is a necessity - subsequent to the merger - for a strategic realignment with an eye on the market. Moreover, only a few merger projects do additionally have a dedicated IT strategy approach.

»IT innovation comes after IT cost reduction or an increase in efficiency«

novum: Is the strategy process a critical process for the company or for the IT within the company? Or are there other topics that require increased attention?

Carsten Fröning: Finding a strategy and alignment with the market is a process that is necessary after the merger, but it is actually a well mastered process. The IT strategy must be taken into consideration as well. The merger of the commercial systems always takes place very quickly in the merger. As such, the start of the subsequent fiscal year is quite often the Go Live date for the commercial processes. Here, the 3 years after the merger feel like they have passed faster and the implementation of the operational system is still in full swing. In terms of the operational systems, merger projects tend to take 3 to 5 years. Therefore, the points in time of IT strategy finding do differ. It is important to redirect the dynamic from the objectives of cost reduction or efficiency increase into the direction of innovation.

novum: The company‘s vision and the human element often receive a lot of attention. What is your assessment of these topics three years after the merger?

Carsten Fröning: A company‘s vision is typically defined during the merger project, but does have to prevail against the old visions and has to establish its value. 3 years after the merger, we have reached a critical point in time. Then, a vision that is strongly focused on consolidation has to pick up the thought of innovation again. 

From personal experience, I would like to illustrate such a situation with an example. In a merger project at an automotive supplier company, noventum did support the merger project of multiple production sites with separate ERP systems, each. The motivation for the merger was actually a critical business situation in an overall economically strained situation. For cost reasons, the company had to lower the system support expenses and eliminate inefficiencies that were caused by heterogeneous processes in heterogeneous systems. In the context of the merger, the focus was therefore strongly placed on cost reduction. In this, the existing vision did neither hurt nor help. After the merger, which took place very successfully, a gap opened up for the IT department and the affected commercial departments. The vision had to be repositioned after the PMI project. Specially for the IT department, an IT vision and strategy was established that harmonised with the company‘s vision. In this, the focal point was the innovation-promoting effect of the utilisation of ERP systems. The question how IT could enable shorter production cycles did once more move more strongly into the foreground. This shift in direction sure is an important and sensible alignment also in other industries, 3 years after the merger, the latest.

»Companies that have merged continue to exist in the heads of people for a long time«

novum: What significance does the human element have for our topic?

Carsten Fröning: Let‘s take a look at the employees and their perception of the company. 3 years after the merger it is an interesting experience to hear from employees when introductions are made that their „origin“ is still a central component of their self-image. A typical sentence at a merged company is: „I am an employee of NewCo, but I am actually an employee of the Predecessor company.“ Interestingly enough, this association of affiliation does not have an expiration date. In the dialog with project employees you are, at times, depending on the tenure and the company‘s history, told about of up to three predecessor companies that have not, in part, existed for 20 years. This self-perception shines a clear light on how attractive the merged company has become to the individual employees and what it is lacking in.

novum: Is this exclusively about the self-image?

Carsten Fröning: Self-image is important because it does, psychologically, border on motivation. But this is about more. Employees have a specific way of dealing with processes and resources. They do, for example, try to apply the IT service management processes of a predecessor company one-on-one to the new company. The motivation for this is manifold: it ranges from an instinctive „I‘ll make sure I get back what was taken from me in the merger“ to an opinion of „The new company has so little attractiveness that I‘d rather rely on handed down processes“. This situation must be recognised by management and dealt with early on. The vision and strategy of the merged company considerably contribute towards the employees of „NewCo“ also supporting and pursuing new processes.

»Establishing a joint self-image is not the only task of executive management«

novum: Based on your experience and the consulting approaches at noventum, what opportunities do you see 3 years after the PMI project?

Carsten Fröning: Actually, the period of 3 years after the PMI can be viewed as an occasion for a reorientation and strategic realignment. No standardised name has been identified, yet, for this approach. „Post post merger integration“ does not appear to work linguistically. The term „second wave“ of the PMI project also did not prevail. 

There are factors that would have such a second wave of the PMI process appear sensible and - in part - easy to implement:

  • Reduced cultural resistance within the company. The specification of a uniform vision and strategy is a good foundation for the amicable cooperation of all employees within the merged company.
  • Clarity regarding the protagonists and processes. Three years after the merger, employees did get to know each other. Factually, the function interaction is also regulated through the organisational chart and through processes. The working hypothesis that all employees involved participate without a hidden agenda creates clarity if it is represented believably.

 

In addition, there is potential for the implementation and optimisation of joint process and the creation of new „best practices“. The future motivates.

  • Clarity regarding the areas of action. Those items that could not be realised in the PMI project are known and new areas of action are identified in the strategy process.

Good project management supports these potentials early on. To explain, based on the example of the areas of action: Most PMI projects in the ERP field are, for example, required to reach the point in time at which the edges of the magic project triangle put a lower priority on expense and quality. Functional requirements that could not be implemented for the Go Live are moved to a Release 1.1. that can be implemented in year 1 after the merger project. It is then the task in year 3 to move this motivation into a continuous improvement process and to enable innovation.

novum: Is there a need to wait 3 years in order to leverage the additional potentials after the PMI project?

Carsten Fröning: There are potentials that arise only after the PMI process is completed. In this respect, „after the PMI project“ actually is „shortly prior to the optimisation project“. The further pursuit of non-realised PMI objectives and the identification of new objective is a continuous task of executive management. As mentioned initially, a 3-year limit is more of a symbolic figure for the right point in time after the merger.

novum: Thank you very much for the interview!

 

noventum consulting

Carsten Fröning

DIRECTOR

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