U.S. companies spent trillions on mergers and acquisitions last year, yet up to 90 percent of these endeavors fail. Decreasing your firm’s M&A risk and increasing its chance of success starts with the right due diligence and early identification of your IT integration risks.
To help you stay a step ahead, I’ve highlighted what I believe are the three most common pitfalls in typical IT M&As. Use them to identify and evaluate the IT issues and risks you face and put pragmatic solutions in place.
Risk #1: Clashing Systems and Business Models
Consider how the two merging organizations’ systems and business practices compare. When you have many differences, you immediately have significant risk to deal with. This ultimately slows your merger timeline. By contrast, when you have similar systems and business models you avoid getting mired in a drawn-out best-of-breed analysis.
Our recent experience merging the systems and over $120 billion in assets of two Federal Home Loan Banks in just seven months exemplifies this. A critical reason we finished the merger in that tight timeline was the similarity in the two banks’ systems and business models.
Suppose we’d selected some applications from one bank and some from the other and then cross-pollinated the two into a new enterprise landscape. You can imagine the additional time and complexity needed to evaluate and gain consensus to move forward. That could easily have doubled or tripled the merger timeline and budget.
When you face systems and business model differences, come in the door ready to go one way or the other to cut down on integration complexity and the migration timeline.
I’ll make an unconventional recommendation and say that you should try to avoid the best-of-breed analysis altogether. Sidestep the long and potentially political debate on which systems are better. Pick a path and go. The organization will continue to grow and evolve after that.
Risk #2: Too Many Communicators
Acquisitions involve people losing jobs on one side. With mergers, you have people competing for positions and maneuvering for power. No situation is easy. The decision-making structure you set up must include a steadfast leader to move the ball forward despite complex organizational challenges that come with change.
Employees won’t know who to follow when multiple people set the tone and make decisions. They respond by forming camps and running off in separate directions.
Rarely does an organization have the required, internal experience. Consider bringing in a critical adviser who knows IT and business M&A. Someone who’s sat at the head table and helped CEOs, CFOs, CROs and CIOs make decisions and explain actions to their BODs. Someone who knows where potential trouble spots lie can help you identify and avoid problems before they become major issues, from contractual due diligence, through systems selection and delivery execution to post-implementation support.
Risk #3: You Can’t Prove You Did It Right
Although adding a few extra zeros or a comma to your customers’ account balances might make them happy, incorrectly transferring someone’s personal information is largely frowned upon. In today’s digital markets, data mistakes, thefts or disclosures put your company at risk of social outrage and media backlash – you have to get it right every time. Plus, your auditor will always argue that if your conversion activities aren’t documented, they didn’t happen. Implementing a balancing framework is a key success variable in M&As.
A framework that proves critical business data remained intact throughout the conversion and confirms everything moved correctly and completely through various stages of the migration will give you comfort and confidence. When end users, internal auditors and regulators ask you how you know what you did was correct, you’ll have documented proof showing you did the job right.
Your audit trail, evidence and proof of success can’t just be at a summary level. They need to be recorded field by field at a detailed element-level – loan by loan, account by account, customer by customer, penny by penny.
1Rivet can help you avoid these issues and more. We’re M&A experts with a suite of proven in-house products that control risk, create pragmatic solutions and guide your organization to success.