Challenges faced in merger and acquisition for Information System like ERP
Most mergers and acquisitions are decided upon at the management or group level without the involvement of IT in view of software outsourcing companies in India. But these decisions have a direct impact on the IT landscape. This leads to increase in complexity of integration – particularly data migration and integration.
In an acquisition, a target company is acquired and absorbed by the bidding company and after the deal only the bidding company exists, while the target company goes out of existence. A merger differs from an acquisition in that two companies join to form an entirely new organization. This involves integration of all of the components of the two companies to form a new company. In practice, the terms mergers, acquisition, and consolidation are often used interchangeably, because they differ only in terms of legal aspects. Software development companies or IT vendor whom company is in contact faces number of issues and challenges in integrating information systems of two different companies owing various reasons.
Globalization has contributed to an increase in the number of mergers and acquisitions of technology applications and services. Also the increasing rate of adoption of SaaS and Cloud computing had led to the need of merging and acquiring in companies.
Challenges prior-Merger or acquisition
The first challenge is selecting a right company that can extend the portfolio of the acquiring company. The next challenge then is to prepare businesses to address existing issues surrounding finance, compatibility, management, and legal areas. The other challenge deals with the difficulties that arise when trying to integrate people, systems, and business processes. Challenges surrounding integration of systems and business processes arise and overcoming them can be quite difficult if not done right.
Challenges post-Merger or acquisition
Organization must overcome the challenges arising post a merger and acquisition in order to achieve its business goals efficiently and effectively and to get a competitive edge in the global market. It is rare to find two companies with identical systems and applications especially when they run different business. This distributed structure of organizations makes it critical to deal with the shortcomings in order for that to be a successful merger or acquisition.
It majorly covers 3 aspects for implementing a successful integration of two different businesses for software development companies or external vendor or company’s internal IT department. These are: - 1) Strategic Aspect, 2) Organizational Aspect and 3) Technical Aspect. Each of these is elaborated in following section.
a) Strategic Aspect
For any Merger and Acquisition, first of all, the company must define its strategy and relating growth objectives. Second, the company must evaluate whether the business of the acquired company is identical to its own functions. After this assessment the company should carefully evaluate the IS of both the companies. The final step is the selection of the IS integration strategy with the choices of total, partial or no integration.
b) Organizational aspects
Organizational Fit and compatibility with the acquired or merged organization is the major organizational challenge that must be catered for successfully integrating the functions of both the companies, merged or acquired.
c) Technical Aspects
The major technical challenges that companies face following the merger and acquisition are as follows:
- Insufficient IT integration
A lack of synchronization throughout the IT infrastructure can cause difficulties with everyday business processes creating complications and reducing the overall efficiency of the business.
- Lack of visibility
With merging of two similar businesses can lead to duplication of customer information. This emphasizes the need of single view of customer information by implementing a proper integration of customer data information system.
- Data integration
It is necessary to have access to updated information regardless of whether data lies on premise or in the cloud. Without proper integration of the information system of two organizations retrieval of information scattered across various systems, applications and services becomes complicated.
- Compliance regulation
This challenge arises when two businesses have different compliance levels. Policies, procedures, guidelines are crucial for the business to run smoothly. Moreover, when the acquiring company is global, there is a need of imparting training and education about new compliance policies to its employees.
- Data migration
When there are different information systems that are to be integrated after merger or acquisition there may be challenges for migrating data due to different formats. This leads to a need for converting the data in a common format to make the data migration accurate.
- Cost of transition
The integration of Information System and data migration leads to incurring extra cost. Costs from interdependent projects are rarely accounted for. Hence the cost estimation should be planned efficiently so as to make optimized use of resources and implement the transition in minimum cost.
- Time to market
Low experience of what is to be done, how to do and what it would take - can lead to delayed visibility of enhancements in the company. The benefits that company gains after merger or acquisition should have a quick visibility and quicker time to market to obtain greater profitability.
Customization may lead to low source data quality, inconsistency in data and gaps in expected result and actual customizations. Customization becomes necessary when two different companies are merging but at the same time customization should be implemented only where it is necessary.
- Adverse change impact
When there is no communication, training or adoption plan for technology changes, this can have an adverse impact on the functioning of the company. Also the unanticipated changes can lead to adverse change impact on its legacy employees.
The integration of two Information Systems is a complex project which involves several challenges. The important things to be kept in mind are :
- A large benefit can be achieved by high degree of integration of the different systems
- A flawless communication strategy is important
- Maintaining competitive parity in technology usage is essential
- Focus should be on gradual IT cost reduction