M&A Mistake: Too Many CIOs Arrive Late to the Dance

There’s probably no greater indication of a CIO’s strategic importance to his company than what happens at the time of a merger or acquisition: Is the CIO a key player during pre-deal negotiations and analysis? Is his expertise sought on whether back-office IT consolidation will be able to produce the desired “synergies”? Does the board ask for his risk analysis on whether key ERP, CRM, BI or supply chain systems will be harmonious or disastrous?

Or is the CIO relegated to afterthought status, as in the CEO wondering: “I guess we should ask Gene if he can actually pull this off?”—after the deal has been consummated.

[ Just how good is Oracle at M&A? Read Oracle’s Decade of Acquisition: Innovative or Just Well-Financed? on CIO.com ]

Unfortunately, even in 2010, when businesses know full-well how critical IT is to their success, the latter scenario happens more often than not.

That’s according to a new Forrester Research report, A CIO’s Guide to Merger and Acquisition Planning.

With a few exceptions, CIOs are still playing the part of Cinderella at the M&A ball, relegated to mop-up duties, writes analyst George Lawrie. And IT’s presence typically vanishes like Cinderella’s pumpkin.

Strategic M&A expertise has long been a skill set desired by CEOs and most needed by CIOs. And perhaps the Great Recession’s credit crunch and paralyzing economic consequences pushed “M&A Capabilities” down the to-do list for many companies.

But as global financial markets continue to improve, companies are likely to see new corporate restructuring initiatives and “distress investing” strategies, notes Lawrie. IT’s presence during such significant proceedings seems appropriate and smart.

And yet IT leaders interviewed by Forrester for the report still say that “the deal team, in any corporate restructuring, often omits significant IT involvement until the deal is closed.” Lawrie contends that too many businesses “take IT integration lightly.”

The Consequences of IT’s M&A Absence

This can mean several dire consequences for the business, starting with a failure to take advantage of longer-term opportunities to negotiate consolidated terms with common IT suppliers, R&D opportunities or best practices, Lawrie writes. In addition, he points out that businesses toil (or fail outright) to get those highly desired enterprisewide views from the assembled IT systems because they are “mutually incompatible.”

One executive interviewed for the report, Lawrie adds, “estimated that the potential benefit of post-merger IT harmonization delivering common processes and systems was up to 10 percent not merely of operating cost but of operating profit, a truly huge impact on shareholder value for his firm.”

Like Cinderella’s arduous day to day existence, post-merger life in IT is no picnic, either. “Although their ugly stepsisters in finance and line-of-business leadership usually banish CIOs from the glamour of the M&A pre-deal ball,” Lawrie writes, “they still expect IT to sweep up on deal day plus-one.”

CIOs and their IT staffs are left to struggle, “juggling business-as-usual support with a poorly estimated integration project workload,” Lawrie writes, and “cleaning out the stables with a toothbrush while wearing a blindfold.” The latter metaphor refers to an all-too-common problem:

To augment shareholder value, restructuring must reduce operational expenses. Typically, CIOs will have some form of inventory of IT assets and skills from the firm being acquired. However, our interviewees told us that most CIOs have too little detail and insufficient support to develop a practical integration program before the deal is closed. But this doesn’t stop line-of-business colleagues from asking them to undertake the unknown amount of integration work with the staff they already have.

To top it off, CIOs have to deal with “us versus them” organization disconnects among factions fighting over future technology strategies and application roadmaps, and other administrative headaches.

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