According to Harvard Business Review (HBR) “typically 70%–90% of acquisitions are abysmal failures”. HBR recommendations are around smarter capital investment decision making, providing better management oversight, transferring or sharing valuable skills and capabilities. What I struggled to find are the details around actual failures, and what role does technology play into it. There are very few researches and surveys that provide some meaningful indication. The most explicit one, conducted by EY back in 2016 for the financial sector suggests that 35% of organizations have underestimated challenges of IT integration.
This might be due to lack of attention to technology pre-deal, but more likely attributes to downstream integration work. Far too many organizations fall victim of power games and miss to take engineer like approach to integration planning, design, and management.
Omitting the obvious business process standardization, applications rationalization, infrastructure consolidation and selection of the target stack. I would like to focus on the underestimated complexity of interoperability challenges impacting M&A IT integration.
- Custom code point-to-point integrations. Either inherently or due to lack of understanding of the better options organizations fall into the trap of custom code point-to-point integrations. For example by connecting application to a number of databases in an attempt to fetch more complete information about the customer (e.g. profile from one system, complaints form another, past transactions from third, invoices form fourth etc.). Over the period of time the number of such integrations increases and adds to overall solution complexity, scalability eventually becomes impractical.
- Poor integration design. Business processes often require to use multiple systems to be updated. Referring to the previous example where each system provides fragment of the customers information and might be owned by different departments (e.g. finance, sales). Each department makes own entries the way they are used to. In such cases mistakes, duplication, and data quality issues are inevitable. And may result in business process slow down, creating unnecessary complexity and employees’ fatigue.
- Single point of truth. Imagine you are halfway through integration and already operate under the new brand, but your sales office still has multiple systems to refer to customer information. How likely is that these records are not consistent or incomplete between systems? Data scattered across numerous systems may hit your brand reputation hard. But what if organization is unable to produce a trustful compliance report? At least the one employees can believe in. This may have far more serious consequences.
Certainly, there is no silver bullet that helps to address the above challenges. Some organizations lean towards the monolith approach (one system that does ERP, CRM, Channel, and Core business). Rarely the case you would find one seamless solution that provides adequate scalability and functionality to the business. This may result in vendor lock-in and increase cost of operation for mediocre functionality.
A bit more mature organizations look to create operational data store for day-to-day decision making and reporting, followed by long term data warehouses for regulatory reporting and analysis. At best they start right by addressing data quality, data standardization issues but end-up implementing hundreds of batch jobs that extract, transform and load information to the data stores. Over the period of time, this becomes another burden that complicates upgrades, the introduction of the new systems and impacts organization’s ability to scale.
What organizations often miss is that the above challenges are likely a result of weak interoperability. Understanding your data quality requirements and information flow, followed by centralization, standardization, and orchestration of integrations is what I believe can gear organization up for success. Interoperability solutions based on open standards can help:
- Resolve immediate and key M&A integration issue of data sharing between incompatible systems and counterparts;
- Break systems, applications and it’s components into smaller modules that are easier to upgrade, replace, dispose and scale. Makes organization ready to integrate new business;
- Make new ways to innovate by simplifying the integration of new channels (i.e. mobile, web portals, virtual assistants) and partners (i.e. supply chain/logistics, wholesale buyers); and
- Create an opportunity to increase social engagement with employees and customers by making it possible to leverage social network data.
Please check out my blog for more articles on M&A subject. I touch upon Digital, Cybersecurity, technology due-diligence and other M&A matters.