The deal guys stand ready to merge your company. But how about the IT department?

By Nan J. Morrison, senior executive, IT strategy and transformation group, Accenture

As the economy recovers, many analysts expect many corporations to go on a buying spree, gobbling up weak competitors or expanding into new businesses.

The problem? There’s a strong chance the would-be acquirers are not as ready as they think. While they may have the strategy, the resources and the will to make an acquisition bid, it’s quite likely that their IT organizations may not be in the shape needed for the deal to quickly generate large synergies.

According to Accenture research, nearly 40% of C-level executives point to the weakness in combining IT operations are as a primary reason for M&A integration failures.

Early planning is critical.  Experience shows that those deals where IT involvement began before the merger closed generated far more value in the first 18 months post-merger than those that did not.

The readiness plan

CIOs should begin to prepare their IT organization for a potential merger – even if it is not necessarily imminent. Proactive planning can help a CIO gauge IT risks and resource requirements when the due diligence process begins, effectively creating value for the merged acquisition while “keeping the lights on” for the existing business.  Even if the merger never happens, nothing is lost:  planning will help uncover short- or long-term improvement opportunities and potential transformative innovations for the organization.

To avoid the chaotic times that follow a merger announcement, when various stakeholders are briefed, the CIO needs to be involved in assessing potential M&As well before any deal is announced.  Any CIO who is not part of the due diligence team, and available to offer an assessment of IT risks and investment needs, is at a distinct disadvantage.

As the likelihood of a deal increases, the CIO needs to focus on these five key areas:

1. Mobilize the team. An IT leader (not typically the CIO) will need to manage the IT integration office, creating linkages to business teams, overseeing cross-team issues, risks and dependencies, and developing IT synergy and investment models.
2. Create and share guiding principles.  The CIO must assume a leadership role to minimize disruption to the existing business while enabling a relatively painless transition to the new organization.
3. Build a fact base.  A fact base, or a set of assertions and definitions, about IT’s current infrastructure and budget can help a CIO gain insight into the current IT organization and identify gaps that need to be filled. In the case of a large media company that was about to be acquired, the IT team performed a full application inventory, creating profiles that documented every application by locations, functions, primary business users, and interfaces, and the policies and procedures they supported.  This not only helped the integration team more effectively sort through the application mix of the combined companies, but gave their counterparts in operations a rich new reference database for application troubleshooting, maintenance and reporting.
4. Identify the most likely targets for IT synergies.  Stopping less important projects can save cash and capital.  Meanwhile, other projects – especially those in the latter implementation stages – can be accelerated.  For example, speeding up the final phase of an software rollout that is unlikely to change after the merger may free up resources down the road for integration work.
5. Pick your likely “big five” projects. Business-critical functions enabled by IT must also be prioritized.  This involves thinking about the role the IT integration office will play in the following five categories:

• Branding: What effect will brand-related changes have on the corporate website, extranets, or electronic documentation that features the company’s brand?
• Operations footprint: Will call centers, distribution centers or factories be consolidated? Can their core processes and customer service functions be realigned to improve effectiveness and efficiency?
• Customer-facing processes: How will customers reach the company after the merger? Will there be a need for multiple customer databases or support systems during the transition?
• Financial policy harmonization: How does alignment of accounting and other financial functions and procedures effect enterprise-resource planning consolidations?
• Major real estate moves or consolidations: What IT infrastructure or desktop systems must be moved, rebuilt or decommissioned?

While these five areas are important to any IT strategy initiative, they take on far greater and importance and immediacy when a potential merger looms.  The CIO, as a result, must be ready to reformulate plans and ruthlessly prioritize to drive high performance while meeting a series of ever-changing demands.

Morrison is a New York City-based senior executive in Accenture’s IT Strategy and Transformation Group and is responsible for IT in the Mergers & Acquisitions practice area in North America.