September 3, 2015

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IT in M&A: Are you integrating the Enterprise or the Application

There was a time when consumer choices were not that complex, walking into a store and choosing a product did not require much decision making and analysis. CPG majors had only each other to counter and fight for shelf space in front of the customer.

The new decade started with the advent of organic foods which has cut deep not only into the profits, but also ate into their revenues and market share considerably. The increasing pace of micro-segmentation amongst customers has put a lot of pressure on organizations to innovate and accelerate product creation and go-to-market strategies

Organizations cannot afford to start a new cycle of market sensing and product creation and therefore are eyeing strategic acquisitions rather than organic growth, as a way to enhance their capabilities and move up the value chain

The ongoing year has already witnessed some remarkable developments in the deal business and is shaping up to be a mega year in terms of merger and acquisition spread. According to independent capital market experts, multiple mega deals have been proposed this year alone, totaling to more than $950 billion which is a substantial increase in deal volume from the same period last year.

But what problems are CPG players trying to address through these Mergers. It might zero-in on the following:

  • Shift to omni-channel strategy for enhanced customer experience
  • Reducing Demand Fluctuation by vertical integration
  • Product Localization to combat local players
  • Reach new customer segments through product acquisition

It’s quiet clear that this trend is here to stay and it offers significant scope to technology vendors to showcase their integration and collaborative prowess. The big question then becomes “how much IT matters in this transition and how can it offer substantial post-merger value for greater customer engagement?”

Why is the CIO worried due to new business opportunities? To answer this, let’s think of what challenges he faces in a merger scenario

  • What policy do I follow for Integration , do I choose best of breed or integrate all
  • What systems do I keep and what do I remove
  • How is my access management program challenged due to the merger
  • How do I optimize my data centers

These considerations due to one merger can itself be a CIO’s worst nightmare. It then becomes imperative to conduct business process analysis and understand the changes required with respect to people, processes, technology systems and compliance of the concerned parties.

More often than not, the integration of technology and operations proves to be a really complex and difficult exercise because of inadequate consideration during due diligence. IT teams are excluded from early stages of a deal only to be brought in later to rationalize different aspects of two or more complex enterprise application .

This kind of approach makes it very difficult to manage large IT infrastructure as one has to deal with functionally dissimilar business application systems, multiple hardware protocols and websites.

The challenges after a merger may fall under many different aspects such as people, processes, policies, solutions etc. but the key to successful M&A IT integration remains rationalizing the enterprise as a whole instead of separate applications

In order to deliver such a synergy, the organizations, with the help of their technology partner must undertake the following:

  • Creating IT systems which are flexible and accommodative enough to include myriad business applications gained from merger to a new entity
  • Understanding the perspective of IT leaders on the viability of systems integration and how it will affect the overall strategy and operations of the organization
  • Planning and delivering post-merger integrated business solutions

This kind of collaboration is essential from a technology vendor’s perspective but it is not enough. Not anymore.

In the last few years, with the shift of consumers to technology platforms, companies can no longer ignore the role of technology vendors in the board room. Now the top priority for them is to look for IT enabled innovation which offers differentiation across a tightly contested market space

As a technology vendor, you are not involved anymore at the application level however the conversation is now at the enterprise level. There is a need to drive technology-thinking in business processes and product offerings and offer data driven insights to shape post-merger business strategies

Demand-driven supply chain, closer and direct interaction with consumers as well as differentiated mobile & location based services are becoming critical success factors as part of the merger strategy for market domination.

But the onus of enabling this change is on us, technology can now craft the possibilities of new organization initiatives. The time is ripe for IT vendors to go beyond traditional integration services and showcase game changing innovation to move beyond the role of a technology partner and rise to the level of strategic M&A enabler