Can you kindly help review the term paper included below and suggest possible areas for improvement.
Thank you
The role of IT architecture in mergers and acquisitions
Introduction
A lot of organisations nowadays use mergers and acquisitions as a major strategy for business growth and continuity.The key principle behind a merger or acquisition is to create shareholder value over and above that of the sum of the two companies (Investopedia, 2008). It is assumed that two companies together are more valuable than two separate companies. Companies usually consider this option during periods of difficulty and target companies will often agree to be purchased when they know they cannot survive alone. Strong companies seek to buy other companies to create a more competitive, cost-efficient company. The companies will come together hoping to gain a greater market share or to achieve greater efficiency.
A merger is said to occur when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated (Investopedia, 2008). Investopedia (2008)) also defines an acquisition as a process in which one company takes over another and clearly established itself as the new owner. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded. Whether the process is called a merger or an acquisition ultimately depends on whether the purchase is friendly or hostile and how it is announced. In other words, the real difference lies in how the purchase is communicated to and received by the target company's board of directors, employees and shareholders.
IT architecture can play an enabling role in the process by speeding up the integration of business processes and IT systems in the organisations involved. This can be achieved with careful and detailed planning before and during the merger or acquisition. This paper aims to explore/understand the role of IT architecture in mergers and acquisitions by answering the following questions.
o What issues are at the forefront for companies involved in mergers or acquisitions nowadays?
o What problems exist that need to be solved?
o How can effective IT architecture assist in resolving these problems?
The Burning Issues
Dedicated management staff are constantly on the lookout for companies they can merge with or acquire. Little thought is given to the integration of the merging firms' business process and systems at the initial stages. The emphasis at this point is on share prices, balance sheet size, profits, products' range, market dominance, position in the market and potential costs savings from the merger or acquisition. This last position (i.e. potential cost savings) is particularly important and be greatly enhanced when the business processes and IT systems of organisations involved in mergers or acquisitions are effectively streamlined and integrated to remove duplication and maximise existing resources.
The role of IT architecture in all of these is to ensure that an organisation's IT resources are able to support its present business needs as well as projected future expectations.
For most medium-sized and large organisations, business processes are heavily dependent on IT systems which are either developed internally or purchased from third party vendors. Applications such as Enterprise Resource Planning, Customer Relationship Management, Supply Chain Management systems are now de-facto IT components in most organisations. Local area networks and wide area networks are also essential especially when they have large branch networks with offices in different parts of the world.
Organisations involved in mergers and acquisitions usually have cost savings as one of the desired outcomes of the process. When the organisation involved belong to the same industry (e.g. the banking industry), there is a need to reduce the back office costs (e.g. call centres) of the combined entity (McGinn, 2008). Other expectations include expected savings in infrastructure and headcount with the combined IT entity being expected to deliver improved performance that adequately supports the business requirements after the merger or acquisitions (Siemens, 2004).
Business executives also try to minimise the impact of the merger or acquisition on the day-to-day operations of the resultant organisation(s) from the process so that business processes/functions are not adversely affected, down-times are not experienced and customers are not inconvenienced (Siemens, 2004). Apart from people, IT infrastructure is the largest investment for most organisations and is a critical strategic asset for improvement (Worthen, 2002). An organisation's merger and acquisition intent (to increase scale, expand breadth or drive efficiencies) will determine the IT requirements for the resultant organisation(s) (Cullen, 2006).
The management staff responsible for the IT resources of an organisation (usually called a Chief Technology Officer (CTO)) has a duty to aid the decision making process of the management by providing the following information.
o A detailed and objective assessment of the organisation's existing IT assets, plan, status and processes
o Additional IT costs that will be incurred in the merger or acquisition process to achieve the desired transformation
Existing Problems
(Bargh, 2007) cites business reports as estimating that between fifty to seventy percent of mergers and acquisition fail. Cultural differences between the companies and an inability to combine two or more cultures are cause problems. The other major issue is the integration of IT processes and systems between the organisations
A recent research sponsored by Informatica and conducted by Bloor Research cited in McGinn (2008), revealed that in the first three months following a merger or acquisition, preparation of consolidated financial reports is difficult in most organisations since integration of processes and systems would not have been achieved. Additionally, integration efforts/activities were reported as lasting for up to two years and more in some organisations while yet another category of organisations could not even predict/indicate when they expect to conclude IT systems integration. (Cullen, 2006) points out that all the above-mentioned situations arise as a result of the following
o Poor documentation of systems, lack of metadata, diverse and uncontrolled data sources and poor data quality
o The IT department/staff are usually not properly consulted before and during the merger or acquisition
o Scalability and flexibility issues concerning the IT infrastructure of the organisations involved in the merger or acquisition process
o Under-estimation of the work that needs to be done in IT integration
o Duplicate application systems and twice as much infrastructure
o Vendors taking advantage of the IT pressures mergers and acquisitions place on organisations
o IT being regarded as a cost centre/ support service rather than a driver and enabler of an organisations corporate strategy
IT Architecture To The Rescue
A CTO and an IT architect (could be a staff or consultant) should have a seat at the due diligence table from the onset of the merger or acquisition process. (Guest, 2006) has indicated that an IT architect involved in this process must possess five core skills to function effectively. These are an appreciation of the IT environment where is working, an understanding of the business/technology strategy, design skills necessary for creating solutions, quality attributes that cut across every technology solution and human dynamics. These skills will be especially useful in a merger or acquisition by enabling him provide a detailed map of the IT infrastructure and capabilities of the organisations involved in the proposed merger or acquisition which can then be presented to the business executives involved in the process (Boomer, 2006).
This should be followed by planning to determine which systems to keep, what data is important and how much integration is actually needed before the organisations are technically joined (Boomer, 2006). Boomer (2006) further points out that the base technology of an organisation considering a merger or acquisition in which it will be the dominant partner should be good, scalable and flexible to meet the expansion requirements of the organisation. Worthen (2002) opines that transition teams should be established in the organisations involved in the process to investigate and discover the following.
1. Hardware
The age, brand, model and configuration of key hardware elements in both organisations should be evaluated. A "rip and replace" approach whereby minimum components belonging to the weaker organisation in the process are retained is least costly in the long run.
2. Application software
Greater efficiencies are achieved when applications are standardised across both organisations. This means one ERP system, one mail system and one document management system amongst others. Key considerations will include data conversion from a replaced system to the new one and backward compatibility. This means a few machines might need to be kept with the old application installed to look back to prior years' data if all data is not converted to the new system.
3. Network architecture
This refers to the use of remote access technologies such as Citrix to access application servers. If one of the organisations involved in the merger or acquisition is not conversant with these technologies and the other party is, there will be significant reconfiguration and training issues. While running a centralised application has its own set of licensing issues, significant savings can still be made on hardware expense at remote office locations.
4. Physical Location and Communication Issues
For customer-facing online applications such as Internet banking or e-retailing systems, a merger or acquisition could mean an increase in the number of customers (from different parts of the world) accessing the application from previous levels. Additional servers will required to re-distribute the workload and content management systems may also be needed to redistribute/re-route Internet traffic across specified geographical lines so that response times/rates are maintained.
Carrying out the above-mentioned assessments serves a dual purpose. Firstly, it provides an accurate report on the acquiring organisation's IT environment while building a case for required improvements. Secondly, it provides information on the acquired organisation's IT assets along with the development of an integration strategy with detailed timelines and estimated costs (Cullen, 2006). In carrying out all these assessments, it is essential that an IT architect looks for pointers that suggest that integration will be harder than expected or budgeted for (Boomer, 2006).
The desired result of either a merger or acquisition integration is to have an IT operation that is effective for both internal users and external customers. Usability, functionality and providing the required data output are out important elements of IT systems and quality assurance must be continually carried so that problems are corrected as quickly as possible in the early stages when they are less costly (Bargh, 2007)
Case Study (Waste Management USA)
The implications of not carrying out an IT due diligence and having a poor IT architecture were felt in the 1998 acquisition of Waste Management by USA Waste for $20 billion. The combined entity kept the Waste Management name. Neither organisation's IT architecture was scalable so the combined entity was saddled with over three hundred AS400 mainframes which could not be integrated.
The organisation experienced a significant loss of revenues and almost came to a standstill. The situation deteriorated progressively and culminated with the replacement of the senior management team in 1999. In 2000, Waste Management deployed a new IT architecture and for the first time developed an acquisition strategy that matched its IT capabilities. This new architecture has allowed the organisation to quickly absorb subsequently acquired organisations.
Conclusion
IT architecture is no longer just a blueprint of IT systems and infrastructure but has other aspects that are related to the business-technology alignment (Lee, 2007). IT architecture has become an inseparable part of an organisation's overall strategy. All relevant stakeholders involved in a merger or acquisition process will do well to understand how IT architecture fits within the overall organisational strategy. Decisions about IT issues in the organisations involved in the process should not be driven by a feature-by-feature comparison of the IT components in the respective organisations as the shortest path to synergies maybe to use as little as possible from an acquired firm (Cullen, 2006).
Mergers and acquisitions can expose existing inadequacies in an organisation's IT architecture. These inadequacies should be addressed and resolved before the organisation decides to embark on a merger or acquisition. Generally, the larger the organisations involved in a merger or acquisition, the greater the risks and problems of IT integration. A decision has to be made about which organisation's IT architecture is best suited for overall adoption in the combined entity. If both organisations do not have suitable IT architectures, the merger or acquisition may be temporarily placed on hold so that the appropriate architecture can be deployed in the selected organisation after which the merger or acquisition process can continue. It would be quite risky to have a merger or acquisition run concurrently with the implementation of a new base IT architecture. Rather what should happen during the post-merger or acquisition phase is integration of systems, applications and databases through interfaces to the base architecture.
The use of external consultants/vendors such as IBM or Microsoft may also be considered in building, unifying or integrating the IT architecture of the organisations involved in a merger or acquisition. Outsourcing of the IT integration function can reduce some of the pressures faced management teams especially when such projects require objectivity which may be difficult to source from either of the organisations involved in the merger or acquisition(Bargh, 2007).This will allow business executives focus on the expansion and continuity of their areas of core competence (McGinn, 2008). From an IT perspective, mergers and acquisitions can be smoothly implemented with the desired gains quickly achieved. This would however entail careful and detailed planning which must begin early in the process.
Thank you
The role of IT architecture in mergers and acquisitions
Introduction
A lot of organisations nowadays use mergers and acquisitions as a major strategy for business growth and continuity.The key principle behind a merger or acquisition is to create shareholder value over and above that of the sum of the two companies (Investopedia, 2008). It is assumed that two companies together are more valuable than two separate companies. Companies usually consider this option during periods of difficulty and target companies will often agree to be purchased when they know they cannot survive alone. Strong companies seek to buy other companies to create a more competitive, cost-efficient company. The companies will come together hoping to gain a greater market share or to achieve greater efficiency.
A merger is said to occur when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated (Investopedia, 2008). Investopedia (2008)) also defines an acquisition as a process in which one company takes over another and clearly established itself as the new owner. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded. Whether the process is called a merger or an acquisition ultimately depends on whether the purchase is friendly or hostile and how it is announced. In other words, the real difference lies in how the purchase is communicated to and received by the target company's board of directors, employees and shareholders.
IT architecture can play an enabling role in the process by speeding up the integration of business processes and IT systems in the organisations involved. This can be achieved with careful and detailed planning before and during the merger or acquisition. This paper aims to explore/understand the role of IT architecture in mergers and acquisitions by answering the following questions.
o What issues are at the forefront for companies involved in mergers or acquisitions nowadays?
o What problems exist that need to be solved?
o How can effective IT architecture assist in resolving these problems?
The Burning Issues
Dedicated management staff are constantly on the lookout for companies they can merge with or acquire. Little thought is given to the integration of the merging firms' business process and systems at the initial stages. The emphasis at this point is on share prices, balance sheet size, profits, products' range, market dominance, position in the market and potential costs savings from the merger or acquisition. This last position (i.e. potential cost savings) is particularly important and be greatly enhanced when the business processes and IT systems of organisations involved in mergers or acquisitions are effectively streamlined and integrated to remove duplication and maximise existing resources.
The role of IT architecture in all of these is to ensure that an organisation's IT resources are able to support its present business needs as well as projected future expectations.
For most medium-sized and large organisations, business processes are heavily dependent on IT systems which are either developed internally or purchased from third party vendors. Applications such as Enterprise Resource Planning, Customer Relationship Management, Supply Chain Management systems are now de-facto IT components in most organisations. Local area networks and wide area networks are also essential especially when they have large branch networks with offices in different parts of the world.
Organisations involved in mergers and acquisitions usually have cost savings as one of the desired outcomes of the process. When the organisation involved belong to the same industry (e.g. the banking industry), there is a need to reduce the back office costs (e.g. call centres) of the combined entity (McGinn, 2008). Other expectations include expected savings in infrastructure and headcount with the combined IT entity being expected to deliver improved performance that adequately supports the business requirements after the merger or acquisitions (Siemens, 2004).
Business executives also try to minimise the impact of the merger or acquisition on the day-to-day operations of the resultant organisation(s) from the process so that business processes/functions are not adversely affected, down-times are not experienced and customers are not inconvenienced (Siemens, 2004). Apart from people, IT infrastructure is the largest investment for most organisations and is a critical strategic asset for improvement (Worthen, 2002). An organisation's merger and acquisition intent (to increase scale, expand breadth or drive efficiencies) will determine the IT requirements for the resultant organisation(s) (Cullen, 2006).
The management staff responsible for the IT resources of an organisation (usually called a Chief Technology Officer (CTO)) has a duty to aid the decision making process of the management by providing the following information.
o A detailed and objective assessment of the organisation's existing IT assets, plan, status and processes
o Additional IT costs that will be incurred in the merger or acquisition process to achieve the desired transformation
Existing Problems
(Bargh, 2007) cites business reports as estimating that between fifty to seventy percent of mergers and acquisition fail. Cultural differences between the companies and an inability to combine two or more cultures are cause problems. The other major issue is the integration of IT processes and systems between the organisations
A recent research sponsored by Informatica and conducted by Bloor Research cited in McGinn (2008), revealed that in the first three months following a merger or acquisition, preparation of consolidated financial reports is difficult in most organisations since integration of processes and systems would not have been achieved. Additionally, integration efforts/activities were reported as lasting for up to two years and more in some organisations while yet another category of organisations could not even predict/indicate when they expect to conclude IT systems integration. (Cullen, 2006) points out that all the above-mentioned situations arise as a result of the following
o Poor documentation of systems, lack of metadata, diverse and uncontrolled data sources and poor data quality
o The IT department/staff are usually not properly consulted before and during the merger or acquisition
o Scalability and flexibility issues concerning the IT infrastructure of the organisations involved in the merger or acquisition process
o Under-estimation of the work that needs to be done in IT integration
o Duplicate application systems and twice as much infrastructure
o Vendors taking advantage of the IT pressures mergers and acquisitions place on organisations
o IT being regarded as a cost centre/ support service rather than a driver and enabler of an organisations corporate strategy
IT Architecture To The Rescue
A CTO and an IT architect (could be a staff or consultant) should have a seat at the due diligence table from the onset of the merger or acquisition process. (Guest, 2006) has indicated that an IT architect involved in this process must possess five core skills to function effectively. These are an appreciation of the IT environment where is working, an understanding of the business/technology strategy, design skills necessary for creating solutions, quality attributes that cut across every technology solution and human dynamics. These skills will be especially useful in a merger or acquisition by enabling him provide a detailed map of the IT infrastructure and capabilities of the organisations involved in the proposed merger or acquisition which can then be presented to the business executives involved in the process (Boomer, 2006).
This should be followed by planning to determine which systems to keep, what data is important and how much integration is actually needed before the organisations are technically joined (Boomer, 2006). Boomer (2006) further points out that the base technology of an organisation considering a merger or acquisition in which it will be the dominant partner should be good, scalable and flexible to meet the expansion requirements of the organisation. Worthen (2002) opines that transition teams should be established in the organisations involved in the process to investigate and discover the following.
1. Hardware
The age, brand, model and configuration of key hardware elements in both organisations should be evaluated. A "rip and replace" approach whereby minimum components belonging to the weaker organisation in the process are retained is least costly in the long run.
2. Application software
Greater efficiencies are achieved when applications are standardised across both organisations. This means one ERP system, one mail system and one document management system amongst others. Key considerations will include data conversion from a replaced system to the new one and backward compatibility. This means a few machines might need to be kept with the old application installed to look back to prior years' data if all data is not converted to the new system.
3. Network architecture
This refers to the use of remote access technologies such as Citrix to access application servers. If one of the organisations involved in the merger or acquisition is not conversant with these technologies and the other party is, there will be significant reconfiguration and training issues. While running a centralised application has its own set of licensing issues, significant savings can still be made on hardware expense at remote office locations.
4. Physical Location and Communication Issues
For customer-facing online applications such as Internet banking or e-retailing systems, a merger or acquisition could mean an increase in the number of customers (from different parts of the world) accessing the application from previous levels. Additional servers will required to re-distribute the workload and content management systems may also be needed to redistribute/re-route Internet traffic across specified geographical lines so that response times/rates are maintained.
Carrying out the above-mentioned assessments serves a dual purpose. Firstly, it provides an accurate report on the acquiring organisation's IT environment while building a case for required improvements. Secondly, it provides information on the acquired organisation's IT assets along with the development of an integration strategy with detailed timelines and estimated costs (Cullen, 2006). In carrying out all these assessments, it is essential that an IT architect looks for pointers that suggest that integration will be harder than expected or budgeted for (Boomer, 2006).
The desired result of either a merger or acquisition integration is to have an IT operation that is effective for both internal users and external customers. Usability, functionality and providing the required data output are out important elements of IT systems and quality assurance must be continually carried so that problems are corrected as quickly as possible in the early stages when they are less costly (Bargh, 2007)
Case Study (Waste Management USA)
The implications of not carrying out an IT due diligence and having a poor IT architecture were felt in the 1998 acquisition of Waste Management by USA Waste for $20 billion. The combined entity kept the Waste Management name. Neither organisation's IT architecture was scalable so the combined entity was saddled with over three hundred AS400 mainframes which could not be integrated.
The organisation experienced a significant loss of revenues and almost came to a standstill. The situation deteriorated progressively and culminated with the replacement of the senior management team in 1999. In 2000, Waste Management deployed a new IT architecture and for the first time developed an acquisition strategy that matched its IT capabilities. This new architecture has allowed the organisation to quickly absorb subsequently acquired organisations.
Conclusion
IT architecture is no longer just a blueprint of IT systems and infrastructure but has other aspects that are related to the business-technology alignment (Lee, 2007). IT architecture has become an inseparable part of an organisation's overall strategy. All relevant stakeholders involved in a merger or acquisition process will do well to understand how IT architecture fits within the overall organisational strategy. Decisions about IT issues in the organisations involved in the process should not be driven by a feature-by-feature comparison of the IT components in the respective organisations as the shortest path to synergies maybe to use as little as possible from an acquired firm (Cullen, 2006).
Mergers and acquisitions can expose existing inadequacies in an organisation's IT architecture. These inadequacies should be addressed and resolved before the organisation decides to embark on a merger or acquisition. Generally, the larger the organisations involved in a merger or acquisition, the greater the risks and problems of IT integration. A decision has to be made about which organisation's IT architecture is best suited for overall adoption in the combined entity. If both organisations do not have suitable IT architectures, the merger or acquisition may be temporarily placed on hold so that the appropriate architecture can be deployed in the selected organisation after which the merger or acquisition process can continue. It would be quite risky to have a merger or acquisition run concurrently with the implementation of a new base IT architecture. Rather what should happen during the post-merger or acquisition phase is integration of systems, applications and databases through interfaces to the base architecture.
The use of external consultants/vendors such as IBM or Microsoft may also be considered in building, unifying or integrating the IT architecture of the organisations involved in a merger or acquisition. Outsourcing of the IT integration function can reduce some of the pressures faced management teams especially when such projects require objectivity which may be difficult to source from either of the organisations involved in the merger or acquisition(Bargh, 2007).This will allow business executives focus on the expansion and continuity of their areas of core competence (McGinn, 2008). From an IT perspective, mergers and acquisitions can be smoothly implemented with the desired gains quickly achieved. This would however entail careful and detailed planning which must begin early in the process.