How to manage a merger

Ecommerce isn't the only business trend that's hit the multi-billion dollar jackpot. Mergers and acquisitions are now so massive that they're heading beyond the trillion dollar mark.

Last year, the value of mergers and acquisitions around the world totalled more than $2.2tn, according to data and analysis tools provider Thomson Financial.

These figures are expected to increase further. Three-quarters of companies within the technology, media and communications industries expect to increase their use of mergers and acquisitions, according to consultancy Arthur Andersen.

To ensure you - and your IT systems - don't get caught on the hop, we've put together a survival guide to managing a merger.

Let the IT director direct
Some 63 per cent of companies believe IT is a "very important" factor in a merger, according to Arthur Andersen. It's not just the technology that is important - the IT director has a crucial role, too.

"The IT director's role had traditionally been underrated," says Paul Cartwright, a financial services partner with Andersen Consulting. "People thought of the financial and the geographical elements of a merger, but it's only recently that the City has seen that the seeds of the successful merger are in operations and IT."

When BP and Amoco joined forces in 1998, they discovered just how important the IT director can be, especially for keeping the rest of the team technically up to speed.

"There was an integration plan for the IT aspects and it was triggered through the IT director at the right time," says Peter Dudley, group telecoms director with BP Amoco. "It isn't rocket science, it's basic management and planning. Don't stop at the high level. Drill down and look for the areas that appear to be different in the two organisations."

Running different systems
The IT director's role really comes to the fore during an analysis of the merged company's two systems. Trying to achieve a balance between the two systems just isn't practical - you need to base your choices on business benefits.

Primo Sule, UK IT director with PricewaterhouseCoopers (PwC), was faced with this challenge when accounting giants Price Waterhouse and Coopers & Lybrand merged in 1998. At the time of the merger, the companies were using different operating systems: PriceWaterhouse ran Novell Netware, whereas Coopers & Lybrand used Microsoft's Windows NT.

"We were practical and decided which system was going to be around for a longer time," says Sule. "We decided NT would be around for five years, and so it was selected as the base operating system."

In these situations, it's vital to make a fully informed business decision, one that should not be swayed by the preferences of either company. BP Amoco used a joint integration team to decide the best way forward.

"In telecoms we decided to go for something new," says Dudley. "The Amoco philosophy was insourcing, and BP supported outsourcing. BP Amoco decided to go for a managed service model and to have a global tender process which was awarded in November last year."

A date with data
The challenge doesn't end with software and hardware. The IT department is also saddled with the task of finding a way to integrate two sets of data - and quickly. Some forward thinking is advisable.

"At BP Amoco, data was seen in advance as a potential critical issue, particularly with regards to customer information and email," says Dudley. Both BP and Amoco had a single desktop environment. The joint integration group selected one platform, all the other desktops upgraded and potential data compatibility problems ended."

Even forward thinking can't always help when you are short of time. Sule had four months to provide the newly formed workforce of 20,000 staff with access to their data. PwC scrapped various legacy systems that didn't scale appropriately to the knowledge demands of a larger company, and moved to a series of internet infrastructure applications. "There weren't that many problems, and because Price Waterhouse and Coopers & Lybrand were both accountancy firms, they had a lot of data issues in common", says Sule.

Despite PwC's experiences, similar business interests are no guarantee of comfortable data integration. Phil Bousfield, senior vice president for operations at software vendor Veritas, says his company's merger with Seagate Software presented considerable challenges.

"We didn't have a single customer record - we had multiple records," he says. "So we took a step back, migrated to Oracle's applications and created multiple customer records."

The two Cs
It's not all about technology - culture and communication are just as important as integrating data and infrastructure. Without committed staff, any newly merged company is bound to hit trouble. "Change is unsettling for people, so you must do as much communicating as you can - and then double it," says Dudley.

Workers within the merging companies will be plagued by uncertainty. To reduce this, Sule says that PwC attempted to provide role definition. "PwC announced the organisation of the new company before the merger," he says. "Then it concentrated on working together for three months before the merger, which greatly reduced the problems it may have discovered afterwards."

Research suggests that Sule could be right. Consulting firm KPMG says merger deals are 26 per cent more likely than average to be successful if companies focus on resolving cultural issues.

As part of its focus on cultural issues, BP Amoco tried to ensure that there was an equal representation of both companies' workers at all levels within the new organisation.

"This representation helps you to understand where each company comes from in the early months of the integration," says Dudley. He also says it's vital that the newly merged organisation continues to check for representation in the post-merger period.

"For 18 months, PwC was supporting and rationalising and we didn't have time to look at the strategy of the firm," says Sule. "After the merger, PwC had time to develop a proper IT strategy."

Checklist: How to make that merger work

Make pre-merger planning a priority and be prepared for the unexpected. Ignore dreams of an equal balance - the standardisation of IT systems based on business benefits is vital to a merger. Don't forget your staff! Change is unsettling, so communicate and attempt to resolve cultural issues. Remember to plan beyond the date of the merger - you will need a series of post-merger reviews, for example.