Putting IT together

Putting IT together

Reports on mergers and acquisitions often highlight the financial and knowledge management gains - or costs - of such undertakings. But what about their impact on IT strategies and operations? Our latest roundtable discussion gets some answers. BEA kindly sponsored this roundtable on mergers and acquisitions.

On acquiring and being acquired

Garry Collings, @Large:

Strategically and operationally, I have been on both sides of that table, and I must say they are uniquely different. They both hold different challenges. I believe if you're the company being acquired, your focus must instantly be on the people because anybody with half a brain knows that the true intellectual property resides in their heads. Not in the documentation, not in the system that it sits on. And if you are the person making the acquisition, it's vitally important to get close to the people yet again to make sure that they don't panic and jump ship. You could lose some very serious intellectual property overnight by people's disheartenment and their fear that they're going to be taken out... No matter which side of that table you're on, your foremost importance must be the people.

Ed Saul, Tower: The first question that we need to answer when we're faced with mergers or acquisitions is the business reasons behind that. Because the way IT responds to that, it is key to first of all understand the drivers. A lot of the mergers that we have had in Tower have been about, 'Well let's bring these businesses together so we can generate synergies.'

What we've got to look at in a merger, where you're trying to drive synergies is, where's the overlap? If there are overlaps in technology or if you get duplication, how do you get rid of that duplication quickly so you can get costs out? The next one was about merging Tower companies, and in all of those, the starting point for us was, 'Let's get the leadership right.' So immediately, appoint the appropriate new business and IT leadership, and then drive it from the top down.

Make some very quick strategic and tactical decisions around which systems are going to be the go forward systems, which ones are we going to shut down, which ones are we going to integrate versus which ones are we going to rationalise and switch off.

Nigel Bonser, Vector: Our problems were not technical. It was simple from the IT perspective - they had two systems so you move into one of them.

It's no different to having one system and moving to another one. You're still migrating data. You're still training people and you're still working through business processes in really close detail... The big problem which needed to be carefully managed was the fact that as people think that they're number is up and they won't be around, they start to leave or they stop doing what they're doing.

And when the company's focus is all about maintaining standards and keeping the customer happy, and in our case keeping everything safe, that's a serious issue... In the IT space, we have a situation where somebody would make a decision without considering the bigger picture and so you're locked into something which shouldn't really ought to have been done, and so that needs to be undone over time.

But worst than that is people ought to make a decision and don't, and you don't know it's not been done because you don't really understand their environment... So it's just like walking a knife-edge for a little while, being a little bit uncertain about how secure you are.

Anyway, it worked. We finished the merger. Our last bit was to get rid of a legacy system which they were having problems supporting, and that's gone live.

Pat O'Connell, Carter Holt Harvey: Carter Holt has a long history of lots of changes... The company has grown through acquisition - merger and investment - so I'm not a stranger to any of that... So all we have to do at the moment is be prepared to be flexible whichever way it goes.

Probably our initial challenge around the due diligence phase and so on is more making sure we have our contractual position in order. And that is actually something we're pretty good at now because we've had to do that with divestments in the past.

Chris Quin, Gen-i/Computerland: We're an organisation of 1400 users sitting on a mix of Telecom's SAP, Computerland's PeopleSoft and Gen-i's PeopleSoft, and in a variety of customer service management or help desk tools. How you move through the last nine months of that without breaking anything?

Integration of some of these things is valuable, how do you do that? Carefully, slowly. We started the merger of Advanced Solutions and Gen-i last year, so we kept Computerland deliberately separate for a period of nine months in the end, and it was because we felt two things.

One, there was enough to do just pulling together two companies without going to the third one. Secondly, Computerland is a little bit different, a bit more of a medium enterprise and [with a] regional focus as well. With the Gen-i and Advanced Solutions focus, we purchased an IT company because we believed in a number of things, like the way it manages customers, the way it manages service, the sort of capabilities it had. So what we are trying to do is become like it rather than make it like Telecom.

M&A as opportunities

Garry Collings: Treat it as an opportunity to renegotiate all the contracts, and then concentrate on the technology. It's an opportunity to address everything that exists today.

Nigel Bonser: You may actually have the disadvantage of having systems you didn't want and couldn't get rid of, for various different reasons. And now you have the excuse you needed, and so some good could come of it quite easily.

War stories

Anne Buzeika, University of Auckland: The discussion about systems is quite interesting because that's probably been the biggest challenge. The Auckland College of Education was a much smaller entity that had home grown systems. It had systems that worked specifically to the needs of that business and they were systems that had been developed alongside the users and alongside the people who wanted the information from those systems.

Of course we've merged with the university [of Auckland] which uses PeopleSoft, and there's no intention or there was never even thought of taking the university's systems and putting them into ours, which were a lot smaller. So we were going to merge our systems into theirs. What we've done is we've come up with a compromise to ensure that the users have to buy into it.

There's no question we'll put all of our information into PeopleSoft and that's currently being processed through at the moment, but what we're going to do is look at a feedback to a faculty system where some of the faculty specific functions can still be carried out... So we feel that is sort of a compromise that keeps the users quite happy that we've made the change. We've moved into PeopleSoft's environment, but they can still have all of those things that they wanted.

Garry Collings: At Mainfreight we were the acquirer and we went through 300 per cent growth in two years. From a strategic perspective, my role was to identify synergies between the acquired company, recognise talent and make sure that we didn't lose it in the process. From an operational perspective, my role was to cut out the cost as much as possible, as quickly as possible and get rid of duplicated systems as quickly as humanly possible.

Then fold it all back in together as fast as humanly possible. Now, in some cases that was rapid fire. Mainfreight was built on methodology of ready, aim, fire, and when you have that sort of autonomy to get on with the job, it makes the job easier.

When I was at TranzRail a number of years later and we were acquired by Toll, all of a sudden I found myself in a situation where I'm sitting down thinking, okay strategically how should I be acting? I'm now the people being taken over. So I found that strategically I was focused on retention of skills.

I was focused on putting people's minds at rest that they had nothing to be worried about. I got the team together as a group, sat down with them, and said, 'Look if you're looking for some guarantee that you're going to all keep your jobs, you can forget it. I'm not going to give that.

All I will say at this point is back yourself, and if you don't understand what that means then let me elaborate for you - if you're any good at your job you're still going to be here, and if you're not you're probably not. So if you're one of those people then I suggest you start looking in the market now.' I felt that that was so important that I didn't give them a false sense of expectation, I didn't give them a group hug and give them a feeling that I was going to look after them because I didn't have that power, I was not the person making the decisions.

But operationally I found myself focused on a whole different area. I found myself in the situation of sell your product to your new owner. Make sure they fully appreciate what they have just acquired. Make sure that they ascertain where the skills are and where your skills perhaps are stronger than the ones that they have in their own camp.

Kim Gordon, Glaister Ennor: My experience has been two-fold. One is externally, as the lawyer buried in the due diligence room, and in a commercial or legal role negotiating new licences. Software vendors are getting more sophisticated in how they structure licence fees to capture 'inorganic' growth which is any increase in use of their software through mergers or acquisitions. This has to be kept in mind for any organisation that is subject to M&A activity, particularly on a frequent basis, as this can add substantially to the cost of the merger or acquisition.

Licences and contracts

Pat O'Connell: On licensing you'd be surprised how much you've got... If you're into M&A I couldn't advise you more strongly to make sure you get a real good handle on your licensing and contractual situation and keep that tight... Part of the problem about due diligence is actually getting the stuff in the data room.

Kim Gordon: The key when negotiating contracts, whether they're licences or any other type of agreement, is to watch for the traps and triggers... If you think you [would be] in an M&A type situation in the near future, how can you get out of the contracts quickly? Also traps in them in terms of, if you do acquire - are you going to get caught out in pricing, particularly on tiered licence fees?

Also, as I said before, [there is] the risk of the vendor changing ownership. I've had clients who have been caught out by their selected provider being acquired by an organisation that they rejected in their selection process.

Working through different cultures

Chris Quin: Well there are two implications that could be interesting to discuss. One is the technology linked to people and culture is actually quite strong. So we have two procurement businesses that supply hardware and software customers. One in Gen-i and one in Computerland - both running on PeopleSoft, but quite different developments of PeopleSoft, and fiercely independently proud of what they've done with those systems within each of those businesses.

You had to work through it as a cultural issue as much as a technology issue, because you had to think about, how do I come out the other side of this with the very best procurement account managers, general managers and those people proud of their work from the past not feeling it was rubbished in a merger?

That one worked well because we were able to take what Computerland had built with their system and apply Gen-i software development to it, and build something that everyone saw as the best of the best in terms of every one at stake... There's also another link that's interesting.

We just did an engagement survey and one of the key things that came back on it a good six or seven months into the merger was, 'What's the strategy?' That was number one in the list of things they wanted to understand. I guess that's the thing in IT. We don't employ any blue collar people.

They're all white collar, reasonably intelligent workforces who we pay to think, and the problem with that is they do. So the time spent on strategy we think is the most valuable time, because they're smart enough to then make that context for their own decisions... The other one is you've got to keep communicating to the mother ship because they think you're up to something.

Tracking IT costs

Nigel Bonser: I think the scariest thing is understanding the budgets that you're about to assume, because you don't know what it is, and then you may find that IT is in one place and therefore you go and look at their IT in one place.

And you think you've got the whole picture, and then you discover that they've actually got IT people all over the place and therefore cost centres, and then who's paying for them?

Implications on architecture

Chris Quin: There are some quite big implications at architecture level too when you think about flexibility, scalability in terms of, how do I build an IT environment for this organisation that can cope with being half as big or twice as big or in different locations or in different countries, without having to throw everything out and start again?

For Telecom overall, I think it's got itself into a relatively modern fairly flexible architecture that can be deployed pretty easily. So the issues now are not about whether Telecom's approach to basic tools could be employed into these organisations, it's more about what is best for this business ... Then you've got to look at, so where are the management systems and the reporting systems that we need to run the business?

Pat O'Connell: We tend to go in with a three-stage approach to an integration of an acquisition. The first one is doing the bits like putting a piece of string between you so you can actually email and do your financial consolidation.

The second phase is probably the full infrastructure and consolidation where you roll your standard desktop and put your proper server and structure through and so on. And then the final one is the longer term stuff which you probably don't want to do on day one, which is all your systems, all your integration putting on SAP or whatever it happens to be... You've got to have that on the horizon on day one so they don't say down the track, 'Oh I didn't know about that, or don't want to do that anymore.' You've got to get them to sign off on all that upfront otherwise you're going to build yourself a headache later.

Good communications

Anne Buzeika: You've got to know where you're going. You have to have a very clear idea as to what you are trying to achieve out of it. For us the biggest thing was making sure that we kept the communication channels flowing within the process, but also with both our customers and particularly our users, and our stakeholders. Our stakeholders needed to know where we were going because they needed to feel confident.

Ed Saul: You need to identify who are your right leaders and who are your right people. You need to also pick out who possibly don't fit the new model going forward, and you need to deal with the hard calls on that, as quickly as possible.

There's so much uncertainty that comes into these things, you need to take as much of the uncertainty out as possible, and that means making calls and not delaying decisions. Just get the changes, clarify the changes, communicate the changes, and make the changes. People will respect that and follow that.

In the panel

Pat O'Connell, chief of information technology, Carter Holt Harvey

Anne Buzeika, general manager IS, faculty of education, University of Auckland

Chris Quin, group general manager, Gen-i/Computerland

Ed Saul, group chief information officer, Tower

Garry Collings, director, @Large and ex-group general manager of IT, TollNZ

Nigel Bonser, information services manager, Vector

Kim Gordon, partner, Glaister Ennor

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