While Mergers and Acquisitions focus on accelerating business growth and increasing the market share, divestiture programs enable organizations to refocus on the highest areas of growth and rethink noncore businesses.
These business strategies will also bring in new challenges like process de-duplication, untangling IT applications including ERP, etc. These challenges need to be proactively addressed and sorted as they can lead to the undermining of the value of mergers, acquisitions or divestitures.
Opportunity for Cloud Transformation
M&A programs can also be utilized as an opportunity for overall business process transformation to a SaaS based ERP platform like Oracle ERP Cloud. Applying Oracle Modern Best Practice (MBP) will open the door for cost-containment opportunities, risk mitigation, and increased efficiencies. M&A success rates are often tied to corporate culture, business processes and technology. ERP Cloud transformation will enable processes standardization and support to unify technology stacks which will result in higher success rate.
Scenarios and ERP Strategy
Some of the major scenarios in mergers and acquisition are mentioned below. ERP strategy is to be aligned to each of the scenarios, targeting quick time-to-market and better cost effectiveness. In all the mentioned scenarios, ERP Cloud transformation can be an optional strategy.
Company ‘A’ and Company ‘B’ to merge and form a new company called ‘C’. Existing ERP used by either ‘A’ or ‘B’ can be leveraged and the new entity operations can be managed by that.
Company ‘B’ will be acquired by company ‘A’. Company B’s individual operations will be shutdown. Existing ERP used by ‘A’ can be leveraged and ‘B’s’ operations will be merged into that.
Division/Unit of Company ‘A’ is split and formed as a new Company called ‘B’. ‘A’ will remain as a separate entity. ‘A’ can continue using the existing ERP and process specific to ‘B’ will be decommissioned.
Company ‘A’ is split into multiple companies (A1, A2…) and the parent company ‘A’ ceases to exist. Existing ERP application will be archived, and new ERP can be setup for the split-up entities.
Key Design Decisions (KDD)
The key design decision points which drive the rollout of the overall ERP solutioning during M&A are elaborated in this section. The effective way of identifying the KDDs is to host a process workshop with key business process owners from IT and Business teams. KDDs are generally driven by 3 principles, which is current status, available options and recommended approach (which varies based on the M&A scenario as discussed above).
The KDDs for the solutioning include 6 sections – process, technology, organization structure, edge applications, people and other customizations. From listing the processes which need to be retained from the acquired entity to picking the best practices from the multiple available entities and then reusing the same for the merged entity, de-duplication is a major aspect of the first step. In terms of technology, it is critical to devise a retention and decommission strategy as well as a data archival strategy. For having an effective organization structure too, one must consider how to leverage the existing structure in the ERP, which will be retained post the M&A activity. Renaming the existing organizations and creating new entities which are linked to the existing hierarchy are also part of forming the new organizational structure.
Finalizing the list of boundary applications and the data structures which need to be integrated with the redefined ERP application and devising the overall integration strategy – middleware, integration frequency, data validation, etc., come up under the fourth step of edge applications. For any organization, keeping the people reassured and connected to the changes after the M&A activity is top priority. Under this step, merging the employees from the new entities, delimiting the existing employees and managing the dependent applications / modules where all the employee data has been used will help smoothen the process. Some of the other customizations include finalizing the custom objects based on the selected ERP, process and structure as well as forming a retrofitment strategy to include features that are new.
Process redesign is challenging for Mergers and Acquisition compared to divestiture. There are three parts to process finalization which can be used to complete the incoming process for the M&A program:
- Process Bucketing
The existing process is collected from the key stake holders and same will be split in to ‘Standard’ (processes which are common across all the entities) and ‘Unique’ (processes which are unique to a specific organization). The net new processes based on the industry standard and modern best practices can be added to this.
- Process Composition
The target is to get a completely harmonized process across entities. Disconnected processes should be identified and further reworked until there is alignment. For divesture, the exiting process will be used as is and the delta changes will be only related to changes to technology, organization and reporting structures.
- Fit Gap Analysis
Fit gap analysis can be done using the pareto principle where 70-80% process requirement can be bucketed in to either the standard out-of-the-box, existing workaround and / or customization (lift and shift or retrofit). The build also needs to be planned for the balance 20-30%, which would comprise new workarounds and customization.
For master data migration, the following processes need to be followed to improve the data quality and ensure calibration. For establishing a unique identity, methods are to be defined that can identify the unique records in the combined master. For example, VAT registration for a customer / supplier, UNSPC code for an item, etc.
It is likely that both the companies could be dealing with some or many same sets of customers and suppliers. These duplicates need to be cleaned and their attributes like payment terms, credit terms, etc., have to be streamlined. For reference data, the reference columns should be identified to facilitate the transactions loading post the M&A. The lookup values like payment terms, vendor type, credit grouping, etc., also need to be unified and linked to the final master data document.
For open transactions, steps to be taken to minimize the data volume and to leverage the reference data links in master data. Loading tools should facilitate two levels of reconciliation (preloading and post loading).
Merger and acquisition / Divestiture ERP programs are always time bound. HCLTech’s M&A toolkit has a predefined execution playbook aligned to the customers business and IT strategy to enable an accelerated ERP transformation. It also provides sample artifacts and strategy which can be used for completing the KDDs and process finalization.
HCLTech’s IP tool ADvantage SPADE can leveraged for migrating data (master, open transaction and selected setups) from an existing on-premise application to ERP Cloud. It also has enablers to accelerate assessment testing processes (test automation using HCLTech OneTest tool), development and deployment.