IT Focus Area: strategy
March 12, 2015
5 Reasons CIOs Should Be Involved in Mergers & Acquisitions
Business culture today frequently hinges on the next merger and acquisition. With money, assets and the future of your organization at stake, it’s critical to have the right stakeholders shepherding the process.
All too often chief information officers (CIOs) and IT leaders are not part of the planning for mergers or acquisitions. In the fast-paced excitement of executing the deal, IT priorities like application rationalization and operations integration can be viewed as an afterthought.
However, waiting to include input from the CIO until late in the due diligence process – or even after the deal is made – can be a recipe for disaster. The result could mean your organization may become part of the high percentage of acquisitions that fail to meet target objectives.
Simply put, CIOs should have a seat at the table during merger or acquisition planning.
1. To ask the right questions
The CIO comes to the table with a different set of questions and answers in mind.
How old are the other company's data centers, and how urgently must a significant investment be made?
What are the organization's enterprise applications, when will licenses expire, and what are the maintenance fees?
What are the details do you have about the enterprise’s hundreds or thousands of laptop computers?
When will equipment warranties expire, and when must millions of dollars be spent on upgrades?
These are questions a CIO is ready to answer if asked to participate in an acquisition planning process. An expert look into the IT organization of the potential acquisition can add up to hundreds of millions of dollars, and may even affect the final purchase price.
2. To determine the right IT culture
It's the CIO's role is to audit both of the IT organizations and determine which culture should prevail. This role is crucial to ensuring a stronger, more efficient culture once the departments have merged.
Take for example the recently multibillion dollar merger of two of the United States’ largest airline enterprises. While one used everything from next generation web apps to savvy social media techniques, the other was still using technology from the 1980s, which made for a slow-moving organization. In this merger the CIO did a careful review of the two cultures. The nimble and more agile organization came out on top. That decision has greatly benefited the newly merged company.
3. Prepare systems to be ready on day one
Ensuring that business critical systems are ready from day-one is a basic step a business should take in its preparation for an acquisition and CIO input is crucial. The IT team is responsible for the complex and labor-intensive task of enterprise-wide systems integration so things such as phones, voicemail, and email work from day one. To business leaders, combining email or telephone systems may seem trivial, but slip ups cause monumental headaches for employees, and even customers. Historically, airline mergers have been notorious for failing to integrate IT properly, causing lost bags, reservation errors, and flight delays. Preparing to merge two entirely different IT organizations is anything but trivial and should be given expert attention for a seamless transition.
4. To make sure everyone speaks the same language
There's a myth that making a smooth transition during a merger or acquisition is an easy task to accomplish if one of the companies is small enough. The C-suite of a $5 billion enterprise may look at acquiring a $100 million company and see it as a non-event. But the CIO knows differently. It's the IT leader's responsibility to put technology risks and requirements into a language that business leaders can understand.
Of course, this is nothing new. Alignment of IT with the business can be worth millions and is consistently on the minds of IT managers.
5. To limit the risk of losing IT talent
Leaders often face the unplanned loss of employees during an acquisition. Part of the CIO's job during the merger process is to help identify the “superhuman” employees on the IT team with — the heroes with all the institutional knowledge of how IT at the enterprise works.
Addressing the risk of those people getting spooked about their future at the new organization and leaving during the merger will help moderate this often uncalculated cost.
IT Anticipates Business Critical Needs of Mergers and Acquisitions
More than 60 percent of acquisitions fail to meet their goals within the planned time frame, according to a Deloitte's study, "Solving the Merger Mystery: Maximizing the Payoff of Mergers and Acquisitions." Having a CIO at the table during the hard work of preparing for an acquisition could help other C-suite leaders execute the deal more successfully.
A previous version of this article was published in InformationWeek.