Global CIO: Mergers & Acquisitions Offer Huge Opportunities For CIOs

Sep 25, 2009 (11:09 AM EDT)

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Mergers and acquisitions have been significant enablers of commercial, industrial and economic growth since before there was an economy, yet roughly 60% of all mergers fail to achieve their goals.

Why do so many of these transactions fall short of their mark, and what can be done to improve M&A results? One solution is greater involvement from CIOs, who are particularly well-positioned to understand the complex technical and operational dynamics involved in mergers and apply their experience and skills to optimize the outcomes. Here at the Center for CIO Leadership, we’ve just completed a research study that reveals just how that can happen.

In general, the closer in size and market stature the M&A partners are at the beginning of the program, the larger the impact (change required) will be during the formation of the new enterprise. Independent of size and market stature, most mergers and acquisitions cause significant changes across the most fundamental enterprise resources: business processes, organization, and technology. Let’s look at some real-world examples of how CIOs are positioned to lead the new enterprise through these changes.

At the core of any enterprise are the business processes that connect sales with customers, manufacturing with raw materials, procurement with supply-chain partners, human resources with employees, legal and compliance with regulators, etc. It is not unusual for a company to have more than one business process to enact the same unit of work: for example, multiple ways to open an account, procure assets or post cash to the general ledger.

Imagine that, for a variety of reasons, ABC Bank has four ways (business processes) to open a checking account. ABC Bank is now merging with Bank Z which, based upon its own unique history, has five ways to open a checking account. The short-term expedient would be to merge the two banks into ABCZ Bank which now has nine ways to open a checking account. This approach clearly sounds awkward, expensive, error-prone and non-sustainable over time. Furthermore, it is certainly not consistent with the vision of the newly formed ABCZ Bank to be the premier provider of banking products and services in the region.

Yet when the Operations and Technology people are around the table with the Product Management people, everyone has good reasons for why "their" version of the business process is the quickest, the cheapest, the most scalable, the most flexible, etc. Companies that follow this path to managing mergers and acquisitions most often find themselves falling significantly short of their goals. The results are typically quite disappointing in terms of achieving anticipated cost savings, maintaining customer satisfaction and therefore retention, and maintaining or growing revenue in the combined organization.

Here is a perfect opportunity for CIOs to step up into a leadership position and work with their partners in the business to not just combine but truly integrate the best parts of each of the legacy processes into a new and innovative best-of-breed process: in effect, a better way of doing business for the newly merged enterprise.

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At a CIO roundtable conversation hosted by the Center for CIO Leadership, Karl Salnoske, CIO of Schering-Plough, spoke about this very issue in the context of the recent merger of Schering-Plough and Organon BioSciences.

"By looking at the systems and the technologies that both companies had and by using a 'best-of-best' approach, we found opportunities to leverage technologies from both companies to the benefit of the new organization," Salnoske said. "This thinking helped drive new capabilities and innovation in the company. It also made employees feel more enthusiastic about becoming part of one organization because they saw the investments and hard work they had done were paying off and being leveraged across a much larger company."

Karl's remarks serve as an eloquent example of the how the key components of the new CIO Competency Model developed at the Center for CIO Leadership provide the framework for creating significant opportunity for CIOs and the enterprises which they serve. Here are some thoughts on the four key components of Leadership, Business Strategy and Process, Innovation and Growth, and Organization and Talent:

Leadership. As exemplified above, the M&A context provides CIOs with the perfect forum for moving their organizations beyond the "four plus five equal nine" mentality, and demonstrating the business value of "four plus five equal one." Leading both the IT and business teams through the integration and streamlining process will go a long way towards establishing the CIO as a credible and trusted business partner, well beyond the role of IT cost-center manager.

Business Strategy & Process. During the M&A process, CIOs have the opportunity to work with their business partners to understand and to articulate the business strategy and clearly demonstrate how the newly integrated processes can and must support that strategy. For example, a business strategy based upon organic growth will have very different implications to business processes and IT-related support requirements compared with a strategy based upon growth through acquisition. A local or regional business strategy will have different implications than an international or global strategy. Because they are among the very few individuals within the organization who have a true end-to-end view of how the core business processes could and should operate, CIOs are uniquely positioned to lead the business process integration efforts based upon a clearly articulated strategy. Again, an opportunity for CIOs to enhance their role and the perception of their role to one of business leader.

Innovation & Growth. In the IBM study called 2008 Global CEO Study: The Enterprise of the Future, 1,130 business and public-sector leaders worldwide in 45 countries spoke about how they expect to drive their innovation agendas forward. A significant theme that emerged from the survey showed that CEOs are focused upon driving business-model innovation by collaborating with customers and other third parties. It's clearly a fairly radical shift in enterprise thinking to view customers as collaborators rather than, well, customers.

This shift in business-model definition has clear implications for changes in business strategy and process and makes many new and different demands on the data and information (aka IT support) that will be needed to enable this shift in enterprise design and operation. The M&A process can be viewed as either a chance for two companies to combine into a larger one, or an opportunity for two companies to be integrated and redesigned into a greater one. Given the criticality of data, information, analytics and business intelligence to these processes, CEOs are expecting their CIOs to play major roles in the redesign and enablement of these new models. Again, this presents outstanding opportunities for CIOs to enhance their strategic value to their organizations as fully vested, growth-oriented and customer-focused peers within the business leadership team.

Organization and Talent. Clearly a sensitive and highly critical aspect of any M&A transaction is the enactment of an appropriate Human Resource plan. All too often we see cases of either a "win/lose" strategy with three suboptimal outcomes: the acquiring company is the winner and their legacy staff is retained; or, the acquired company is the loser and their legacy staff is exited; or, an equally uninformed strategy driven by an X% across-the-board cut.

None of those three common approaches maximizes the enterprise's ability to effect the kind of innovative integration and strategic alignment required for both short- and longer-term success. Here again, the CIO is in an ideal position to drive the new organizational design and development by connecting with and helping to shape the business strategy, understanding and enhancing what the new business model and supporting business processes will be, and then making an informed decision around talent and organizational needs to support the true goals and objectives of the new enterprise.

Change is hard under any circumstances and Mergers & Acquisitions, by their very nature, are perhaps the biggest and toughest changes for enterprises to endure. But since CIOs deal each day with complex end-to-end dynamics of the enterprise—including customers, suppliers and partners—they have a tremendous opportunity with mergers and acquisitions to demonstrate the broad range of ways in which they can make major contributions to business strategy and execution.

CIOs clearly have the opportunity to transform their role from manager of the IT cost center to a recognized business leader who not only delivers operational efficiencies but who also drives innovative change and enables sustainable business value and growth.

Harvey Koeppel is executive director of the Center for CIO Leadership, where he's served since its founding in 2007. Much of his career centered on leading IT innovation in financial services, including three years as CIO and SVP of Citigroup's Global Consumer Group.

Harvey Koeppel is executive director of the Center for CIO Leadership, where he's served since its founding in 2007. Much of his career centered on leading IT innovation in financial services, including three years as CIO and SVP of Citigroup's Global Consumer Group.