In good times, mergers and acquisitions are often driven by dreams of synergy, the idea that \n\ntwo successful companies can unite to capture a bigger piece of the market and be more \n\nprofitable through economies of scale. In bad times, they can be driven by desperation, with \n\none company leaping into the arms of another to avoid collapse.\n\nMore on CIO.com\nHow to Get More from Mergers and Acquisitions\n\nWhen Your Company is a Target\n\n'Shotgun' Mergers in Financial Services Put IT Teams and the Success of the Deals to the Test\n\n7 Tips for Surviving a Merger or Acquisition\n\nHow CIOs Can Make Mergers, Acquisitions and Divestitures Work for Them\n\nIn Tough Economy Chrysler Looks to IT to Trim Expenses, Improve Business\n\nHow Coty Tackled Post-Merger Supply Chain Integration\n\nIn the past few months, we've watched mergers between distressed financial institutions \n\narranged over a weekend, with the federal government playing matchmaker to address a severe \n\nfinancial crisis. The rushed nature of these transactions presumably means that the \n\ncompanies skipped some steps in the normal merger and acquisition planning process. Ideally, \n\nthe parties to a merger go through due diligence to assess each others' strengths and \n\nweaknesses, which includes examining information systems and networks to assess the likely \n\nlength, cost and feasibility of systems integration.\n\nFor the CIO to be intimately involved in that process is a best practice. Or so says every \n\nCIO. But in reality, that doesn't happen often enough, even in the absence of an economic \n\nmeltdown. According to a 2007 study, "Wired for Winning," by Deloitte, fewer than 30 percent \n\nof companies get IT involved in the planning process before a deal is closed. The study also \n\nfound that this lack of involvement has serious consequences. In one case involving a global \n\nmanufacturer, IT integration costs exceeded premerger estimates by more than $100 million. \n\nCIOs feel the pain: Only half of respondents to our 2009 "State of the CIO" survey said they \n\nare involved appropriately early on in mergers and acquisitions.\n\nSo face it. The CEO and the board, in hot pursuit of a market opportunity or acting in \n\nresponse to competitive pressure, are likely as not to stampede past the CIO and set goals \n\nfor the transaction based more on back-of-the-napkin estimates than thorough study. Even \n\nwhen the CIO is intimately involved, he probably won't have veto power over the deal. \n\nInstead, the CIO's role is more often to set realistic expectations for how long integration will take and what it will cost. Here, CIOs who have \n\nbeen through multiple mergers and acquisitions share their best advice for what to do when a \n\ndeal is less than ideal from the IT perspective.\n\nYou Figure It Out\n\n"At least in my experience, never once did a deal get stopped because of some technical \n\nissue," says Allan Hackney, SVP and CIO at John Hancock Financial Services and veteran of \n\nmore than 50 M&A transactions stretching back to his days at AIG and GE Capital in the '80s. \n\nJoe Beery, the former CIO of America West and US Airways, agrees. "The CIO's role is \n\nfiguring out how we will accomplish the integration."\n\nBeery presided over systems integration for the merger of the two airlines. Although he was \n\ninvolved with the due diligence, he never felt he had the power to say no to the merger, he \n\nsays. "It was more like, 'We're going to do this deal. Joe, go figure out how to get it \n\ndone.'"\n\nBeery is now CIO at life sciences company Invitrogen (currently merging with Applied \n\nBiosystems to form a new company, Life Technologies). He describes the experience of \n\nintegrating the airlines so that they could operate as a single carrier within 24 \n\nmonths\u2014a goal CEO Doug Parker had publicly committed to achieving\u2014as "tough and \n\ngrueling". The "single carrier" goal meant US Airways had to \n\nmeet specific Federal Aviation Administration standards for unified operations, requiring \n\nthe integration of many back-end systems. Although he pulled it off, Beery says, "I'm not \n\nsure I would wish that kind of activity on my worst enemy."\n\nCharles Beard, who spent years consulting at the Oliver Wyman division of Marsh & McLennan \n\nand KPMG Consulting (now BearingPoint) before becoming CIO at Science Applications \n\nInternational Corp. (SAIC), notes Beery's experience as an example of how the structure of a \n\ndeal can significantly influence the IT strategy that a CIO must follow. In the America West \n\nand US Airways transaction, the decision to immediately integrate the two carriers had a \n\nmajor impact on the IT environment. \n\nIf the carriers could have come together under a holding company structure operating \n\nseparately, that business strategy would have dictated an entirely different\u2014and more \n\neasily executed\u2014IT strategy for supporting the merger. Beery could have provided some \n\ncommon services to two independent air carriers as an interim step. For that reason, Beard \n\nargues that even the due diligence phase is too late for the CIO to be getting involved. He \n\nor she should really be part of the discussion about the shape of a deal to help guide \n\ndecisions by handicapping the odds of success. Depending on the intent of the transaction, \n\nthe CIO can design the technical due diligence and contemplate the impact on the current IT \n\nenvironment. He can provide these findings to corporate development during transaction \n\nnegotiations.\n\nBeery says he was involved in making those strategic decisions and ultimately saw the logic \n\nof pushing for full integration. Too often, however, the CIO's role is merely to cost out \n\nthe implications of a decision that's already been made, Beard says. And even when the CIO \n\nis consulted, he says, "once the decision is made, it's our job to salute smartly and carry \n\nout orders."\n\nThe Top Priorities\n\nThe good news, sort of, is that whether or not you've been involved with due diligence, your \n\nfirst steps after a merger or acquisition may be similar. The systems of a large \n\norganization are too complex to be taken in by the quick peek the acquiring firm is allowed \n\nbefore a merger is consummated, says Graham Seel, CIO at California Mortgage and Realty. \n\nSeel spent two decades at Bank of America and worked on mergers including those with \n\nNationsBank and FleetBoston and the acquisition of Continental Illinois.\n\nBut in a shotgun merger, there's pressure to work faster and \n\nmore intensely to prioritize which systems must be integrated first, as well as to structure the new IT organization, says Peter Blatman, a principal \n\nwith Deloitte. So when the order to merge comes (whether from your CEO, a bankruptcy judge \n\nor the Secretary of the Treasury), it's a good idea to know where to start.\n\n"If it were me in one of these situations, I would concentrate on a few things that are \n\nmust-dos, where the faster you do them, the more likely you are to avoid problems," says \n\nHackney, the John Hancock CIO. First on his list would be to control and integrate financial \n\nsystems\u2014not necessarily merging general ledgers but figuring out how to consolidate \n\nthe numbers and integrate accounting practices. "In those systems lies the truth about \n\nwhat's happening with the company," he says. "The sooner you can peer into that data and \n\nreally understand the situation\u2014and the sooner you surface any surprises, any issues, \n\nany smoking guns lurking in the background\u2014the better." Even when there's adequate \n\ntime for due diligence, you learn to expect some surprises, he says.\n\nSecond on Hackney's list: network and IT security integration. "The sooner you can reconcile \n\ntheir security policy to yours, the sooner you can link their networks to yours, which \n\nallows you to assimilate the acquired people more quickly," Hackney says.\n\nUnfortunately, the CIO typically doesn't find out about security weaknesses until after the \n\ndeal is executed, he says. In a previous role, Hackney saw security weaknesses surface with \n\nthe acquisition of relatively small firms in India and Southeast Asia. They had a greater \n\ntolerance for information security risk. "Security can be a real hindrance to bringing an \n\nacquired entity into the fold," he says.\n\nHackney would make integration of financial, security and also distribution systems his top \n\npriorities in any acquisition, but he says they would be even more urgent in a distressed \n\none.\n\nMaintain Momentum\n\nWhile no one likes to be rushed, in some ways urgency is a CIO's friend. That's because the \n\nearly days of a merger are when you're likely to get the most accomplished. "If you can't \n\nget majority of the work done on IT integration within the first six months, it doesn't \n\nhappen," says Deloitte's Blatman.\n\nThe merger team typically builds up "a good head of steam" at the beginning of the process, \n\nBlatman says, but tends to run out if integration drags on too long. Often, a merger team \n\nthat was pulled together ad hoc, on short notice, can lose momentum as people drift back to \n\ntheir old jobs. In many instances, hybrid solutions and workarounds that were supposed to be \n\ntemporary tend to calcify and become permanent.\n\nBlatman has seen the consequences in a series of recent consulting engagements where \n\n"companies are asking us to help them consolidate systems that are the results of \n\nacquisitions that happened years ago, but the integration was never done."\n\n"The back office is where you tend to lose momentum," Hackney says. In the short term, \n\nsystems that aren't visible to the customers can operate in parallel without any dramatic \n\nconsequences. The pain comes later, when the business must meet some broad requirement like \n\ncompliance with the Sarbanes-Oxley Act, which requires programming changes to be made in \n\nmultiple systems that serve the same function.\n\n"The other place it hurts you is with your next acquisition," which will need to be \n\nintegrated into multiple back-end systems rather than a unified one, Hackney adds. "If the \n\npossibility exists that you're going to be doing another two or three acquisitions, that's \n\ngoing to become unmanageable at some point if you don't do the integration."\n\nOne obstacle to speedy integration may be the aversion IT managers have developed to "big \n\nbang" integration projects that often fail. Jan Brecht, VP of IT management and CIO for the \n\nAmericas with Daimler Financial Services, was advised by consultants to take an incremental \n\napproach to spinning off Daimler Financial's operations after Daimler and Chrysler decided \n\nto split up in 2007. But with the support of his CEO, Brecht successfully squeezed it down \n\nto eight months, rather than the recommended two years.\n\nAlthough this was a divestiture rather than a merger, the scope of the challenge was \n\nsimilar, involving a transition for all Daimler Financial's systems away from Chrysler's \n\napplications and data centers. The incremental approach would have been the safer course, \n\nBrecht says, but it came with trade-offs. During the transition, Daimler would have had to \n\nmaintain temporary interfaces between the new systems it was phasing in and the old Chrysler systems, and those interfaces would have introduced \n\ntheir own complexities. Brecht ultimately decided the cost of that hybrid solution \n\noutweighed the risks of the alternative.\n"If you're determined to do it as fast as possible, while having enough contingency plans in \n\nplace to manage the risks, then you can dare to do a big bang," Brecht says. Making it work \n\nrequired a tightly coordinated plan in which many tasks that are usually performed \n\nsequentially, such as development and testing, were instead performed in parallel (with \n\nincremental testing of functionality as it was delivered). \n\nThe team also went through five practice launch events before the official "go live" and \n\ndrew up 14 contingency plans for potential problems they anticipated. For example, before \n\ngoing live on the newly separated system, data had to be ported over from Daimler Chrysler \n\nover a Saturday night. If testing revealed problems with data accuracy, the first \n\ncontingency was to retest and reextract the data up until a deadline of Sunday at noon. If \n\nthat didn't work, the next backup plan was to abort and go back to using the DaimlerChrysler \n\nsystems for one week, then try again.\n\nLike Blatman, Brecht says that in a merger, he would be wary of temporary solutions that \n\nbridge between the systems of two firms rather than combining them. For example, if IT does \n\ntoo good a job of providing management with a unified business intelligence view that \n\nobscures the lack of integration between the underlying systems of merger partners, the \n\nfunding to complete that integration may never materialize, he says.\n\nArchitect for Success\n\nIf you're trying to figure the odds that a merger is in your future, the fact that we're \n\nheading into a recession actually has a mixed impact. Particularly in combination with tight \n\nfinancing, a poor economy saps the confidence and ability of firms to execute these \n\ntransactions, says Tayo Olatoyan, a senior research analyst with the FactSet Mergerstat \n\nservice.\n\nAccording to FactSet, there were 295 mergers between U.S. companies in November, down 38 \n\npercent from the peak of 653 in July. During this period, the dollar value of those deals \n\ndropped 98 percent. A similar pattern unfolded during the last recession, which started in \n\nthe wake of the 9\/11 terrorist attacks and stretched into November \n2002. The total number \n\nof merger transactions for 2008, as of late December, looked likely to drop about 32 \n\npercent, compared to 2007.\n\nOn the other hand, when mergers are driven by desperation (or, in the case of some financial \n\nservices companies, the promise of a big tax break), things can happen suddenly. Whether or \n\nnot you see a merger coming, you can increase the chances that you will be successful by \n\nbeing prepared.\n\nFor example, you might be able to make your systems more merger-ready by embracing \n\nservice-oriented architecture (SOA), a network-centric approach to defining modular \n\ninformation services that can be recombined to create new applications. Because it \n\nanticipates the need for integration, SOA is supposed to make it easier to connect systems \n\nfrom two different companies so they can function as one.\n\n"I think a CIO today really has to be planning and designing and developing their \n\narchitecture to accommodate merger and acquisition activity," says Beery. SOA is "one good \n\noption" for pursuing that goal, he says.\n\nBeard notes that SOA would be more useful if both parties to \n\nthe merger had embraced that style of integration than if only one had. That's part of the \n\nreason why, if you can, it's so important to find out early what a merger partner's systems \n\narchitecture looks like and how up to date it is, he says. Beard sees potential merger help \n\ncoming from other recent technological innovations, such as software as a service and cloud \n\ncomputing, because the merged organization can more easily tap into an externally hosted \n\ncustomer relationship management application or storage utility than it can integrate \n\nin-house systems.\n"You can use these solutions and not have to bring them into a data center that may already \n\nbe constrained," Beard says.\n\nDeloitte's Blatman says the client who impressed him most with its acquisition prowess made \n\ntechnical architecture part of a broader strategy, which also involved developing several \n\nstandardized "playbooks" for handling different sizes and types of acquisitions. "They asked \n\nthemselves, 'If we're going to continue to grow by acquisition, what do we do with our IT \n\ninfrastructure to make it \nacquisition friendly?'" he says. Among other things, the \n\ncompany's approach led to a decision to phase out proprietary software \napplications in \n\nfavor of commercial packages. One reason: It tends to be easier to import another company's \n\nbusiness data into a more broadly used commercial application than a homegrown one, Blatman \n\nsays.\n\nPut People First\n\nIntegrating technology is important, but it's not the main reason mergers succeed or fail, \n\nargues Seel of California Mortgage and Realty. "To state the obvious point that gets ignored \n\nall the time: Mergers are about people. I've seen that obeyed to great success and I've seen \n\nit ignored at great cost."\n\nOther key factors Seel considers obvious but which "in the heat of battle we tend to forget" \n\nare how well the merger team bridges corporate cultures and pays attention to customer \n\nneeds.\n\nWhen Seel worked at Bank of America during its merger with Continental Illinois, he learned \n\nquickly how vehemently many at Continental Illinois opposed the deal. During a visit with \n\nthe Continental Illinois team in Chicago to work on IT integration and related aspects of \n\nthe merger, he identified one influential, midlevel customer service executive who was \n\noutspoken in her opposition. A key turning point in the merger process came when he, \n\nsomewhat nervously, took her to lunch.\n\n"I made her aware that she had enormous influence and that she had a choice of how to use \n\nthat influence. It was about an hour-long conversation, and at the end of it we went into a \n\nmeeting, and from then on she was talking about, 'Here's how we're going to make this \n\nwork,'" Seel says.\n\nLater, during Bank of America's acquisition of FleetBoston, Seel recognized that the IT \n\nstaff had been given very little information about how they fit into the merged IT \n\norganization. To bring them into the fold, he asked them how they saw their role. "I asked \n\nthem to tell me: What are you proud of? Tell me what you think you bring to the table. And \n\nthey were still talking about that years later."\n\nOf course, the problem with easing employees into a merged organization is that they already \n\nsuspect, with good reason, that some of them will wind up losing their jobs. That can be a \n\nterrible distraction, says Steve Terry, CIO and senior vice president of customer operations \n\nwith Beneficial Financial Group. "So what you want to do is find the keepers and the people \n\nwho are going to be set loose," he says. "The sooner you do that, the sooner the acquisition \n\nis going to be successful."\n\nUnfortunately, when everyone is under pressure to do more with less, you can't offer even \n\nthe survivors very many assurances that their jobs will be \n\nsecure for more than a few months, Terry says. But you should try to offer whatever \n\nconditional assurances you can, he says. "You may be able to say, 'This is the team for the \n\nnext six months, and if we do everything we can to be successful\u2014and we can do \n\nit\u2014then there should be no more layoffs.'"\n\nWhile Terry has definite opinions on how to manage mergers and acquisitions, Beneficial's \n\nstrategy has been to avoid them. "We had some very significant conversations about how we \n\npursue growth," he says. Their analysis of the cost of acquisitions led them to a strategy \n\nof organic growth through new products or geographies. "It turned out to be a good education \n\nfor my peers to understand the cost of technology if we take on something different than \n\nwhat we have," he says.\n\nIn particular, he underlined the challenge that would come with absorbing another company's \n\npolicy management system and possibly having to run it in parallel for years if they could \n\nnot find a single system to model the logic behind both firms' insurance policies.\n\nThe business world would be a better place if that kind of analysis were more common, Terry \n\nsays. "I believe the CEOs and CFOs who come to value IT's contribution as a deal maker or \n\ndeal breaker will make much wiser investments of corporate capital."