Enabling critical reporting capabilities during a strategic transaction

In our last article, we discussed six different ways to improve data management and interim operational reporting during an M&A (merger and acquisition) transaction. We have received several excellent questions about the integrated/interim reporting section of that post, so we concluded that we should go a bit further into that particular topic, as it is one of the most critical areas to address during an M&A transaction.

What are most IT leaders missing during an M&A transaction?

Today, more than ever before, M&A success is strongly correlated to getting information technology (IT) right. With an increase in deal activity over the last few years, most IT executives are getting the fundamentals right, including business continuity and minimal disruption on Day 1. However, after Day 1, the burden of transforming from closing the deal to running the combined businesses quickly becomes the top priority, with interim reporting being key.

The CIO MUST prepare to operate the business beyond Day 1, as almost everyone else will be focused on surviving the closure of the deal. Interim reporting will be the first critical need after deal closure so that executives have visibility to information and can operate the combined business effectively.

What are integrated and interim Day 1 reporting?

During Day 1 planning, CIOs rightly focus on business continuity and financial closing.  At that point in time, every executive knows that deal closure and business continuity must be the primary focus, as any failures at that critical juncture will have profound impacts on the business. Before Day 1, the organization’s ability to combine disparate data (both master and transactional data) from various legacy systems and processes into a holistic view of KPIs is often deferred. Typically, these are expected to be covered later, by long-term systems integration, while businesses apply “Band-Aid” manual workarounds in the weeks and months shortly after deal closure.

In order to provide data and reporting visibility before, during and after deal closure, there is a clear need for integrated reporting, which is a cross-functional program intended to identify, prioritize and implement both interim and long-term reporting solutions to meet critical post-close reporting requirements, while minimizing throw-away costs as the organization slowly converges to a longer-term reporting model. This can be an IT-led program with strong business stakeholder engagement to identify and prioritize analytical/reporting needs across all areas of the business.

Interim reporting is part of the overall integrated reporting approach and provides management the capability to make informed decisions that impact the top-line immediately before and after deal closure.

How do you establish the interim reporting program?

There are three initial steps to address the interim reporting needs and support your business at this critical stage:

1. Understand immediate reporting needs and categorize them.
   • First priority: key overall business and organizational reports with metrics to drive decisions (e.g., demand planning across legacy subsidiaries, price-volume-mix analysis)
   • Secondary: business unit or corporate function specific reports (e.g., operational reporting specific to a business unit)
   • Persona: reports specific to executives (mostly subjective evaluations presented as a report)

Once these categories are understood, leaders should align on a catalog of analytical and reporting needs with functional and business leadership (this includes all three reports – first priority, secondary, personal)

2. Rank reporting needs through a clear, data-driven prioritization framework, evaluate required investments, and communicate those plans so everyone understands how reports and development resources are being prioritized. Without taking those steps, certain executives will inevitably feel underserved as their reports are deprioritized. Be clear and honest up front about priorities.
3. Provide immediate capabilities to support ongoing operations and business decisions. Unfortunately, many companies start here, with the initial focus on technical tools. You are much better served by understanding needs and priorities first, before making solution decisions based on technologies.

How to approach integrated Day 1 development?

The challenging post-transaction environment creates demand for broader and deeper levels of actionable intelligence at a faster pace. So, integrated Day 1 reporting [is/becomes] an indispensable tool for all executives. Our experience shows integrated Day 1 reporting requires a structured approach that brings all business and IT stakeholders together in defining a solution. We see this as a multi-step process.

Establish your team

First, it is critical to establish a cross-functional stakeholder team that can discover, analyze and prioritize interim reporting needs. This will include several key considerations. For example, discovery should be open to all needs, but scope can be limited by function, BU, line of business or critical metric. Analysis requires a deep dive into understanding current state of both transactional and master data to understand disparity in data definitions and usage. This is key to identifying what is required to enable an interim view of combined data. Prioritization requires an agreed-upon framework and standardized ranking so that consistent values are applied to assign priorities.

Categorize to help with priorities

Next, define solutions for each prioritized reporting need. Solutions we see fall into four major categories:

• Manual reporting: collect required data and produce reports.
• Specific automated metrics: select quick-win opportunities to automate reporting and develop custom reporting code, augmented by some manual data integration.
• Automated reporting: select and implement an automated off-the-shelf reporting solution that can report from manually compiled data sources.
• Automated collection and reporting: select and implement an automated collection and reporting solution (integrated processes with automated consolidation and reporting).

Build, test and deploy

Once the solutions have been defined, it is time to understand the technical implications of each solution (e.g., data architecture requirements). The solutions are then finalized and priced with detailed cost estimates, including internal and external sources for implementation. Finally, when all of those steps are complete, the solution can be developed, tested and implemented.

Why focus on integrated Day 1 reporting?

Integrated Day 1 reporting has both quantifiable and non-quantifiable benefits. Quantifiable benefits differ by size of transaction and complexity of reporting requirements, but a set of soft benefits below can be applied to any transaction. Here are some key areas:

First, it will provide one version of truth. It helps enable true measurement and metrics on Day 1 across entities involved in a transaction, which allows critical data elements to be consistent and visible for decision-making. And it will also provide the foundation for better measurement of metrics, strategic planning and risk management post Day 1.

Second, it will improve data quality. As the data from both sides of the transaction is better understood, the reporting tools will be able to help pinpoint where data issues exist, allowing the companies to more quickly remedy problems. This will include non-standard analysis, as needed. It also helps empower numerous audiences across the entities with clear/standard data and sets the stage toward an eventual self-service model or analytics COE as part of longer-term transformation.

Finally, it will accelerate leadership’s decision-making ability. As confidence in the reporting system grows, managers and leaders will be able to more quickly assess status and issues within the business and more rapidly determine the decisions required to adjust and improve performance. Instead of waiting days or weeks to get data to confirm a path forward, executives will get the information needed to move forward more quickly, thereby making the organization nimbler and increasing the odds of success.

Summary

Overall, maintaining visibility to operational and financial results is critical in the aftermath of an M&A transaction. The extent to which you will need to pursue interim reporting solutions will depend on a combination of deal size and type, and the number of functions involved. Regardless of the deal you are engaged to support, the best approach is to build a viable integrated reporting program, with strong support from leadership, your technology providers and your internal teams. In so doing, you will take a big step toward a successful M&A transaction.

I want to extend a special thank you to Sumi Jagannathan and Sri Prabhakaran for their significant contributions to this article.