Lack of attention to post-M&A integration issues plus prevalence of proprietary software leaves businesses exposed to project overruns and failure
11 June, 2008 – Mergers and acquisitions are still failing to meet projected benefits due to enterprise application software being increasingly expensive to change and support.
The global buyout frenzy reached an unprecedented peak in 2007 as the total deal value topped at U.S. $4.83 trillion globally, an increase of 27% from 2006 when the previous record was set (source: Dealogic). Despite that, the success rate of those buyouts remains abominable. For example, a 2007 study from Hay Group revealed that over 90% of European corporate mergers and acquisitions fall short of their objectives.
In addition to traditional reasons, such as clashing cultures, mismanagement or a flawed strategy, IT now also takes the blame for failure. This is hardly surprising - in a recent TEC survey, over 75% (source www.technologyevaluation.com) of managers worldwide admitted that they do not always consider the operational impact of applying change to their enterprise applications when making a strategic business decision.
According to Ton Dobbe, VP Product Marketing at Unit 4 Agresso, this profound lack of attention to what happens post-merger is the root cause of the problem. "Enterprise applications are a known factor. It's quite possible to investigate during due diligence how much effort application change and systems integration will take. Therefore, IT systems should never be a valid excuse for a failed merger or acquisition but they are."
When enterprise applications are not adapted timely and properly to the post-merger situation, the combined organisation typically runs into the following problems:
Lack of information – disparate ERP and business intelligence systems make it impossible to compare the performance of various business units and generate reliable management information
Lack of synergies – because processes and departments cannot be integrated effectively, expected synergies aren't realised
Lots of extra work – as long as the IT systems are not up to the task, a great deal of manual effort (checks, retyping, etc.) is required to create a semblance of integration
Fraud and creative bookkeeping – because proper governance controls are missing, it becomes relatively easy to manipulate data, for example to meet earn-out criteria.
"The expected benefits of a merger - shareholder value and economic scale, mostly - are often lost due to inadequate post-merger adaptation of enterprise applications", Dobbe continued. “Legacy ERP systems in particular are very difficult and costly to change. It's typically companies that are in rapid change mode that suffer from this. Such companies should seriously consider migrating to new alternative solutions that embrace post-implementation agility. The cost of doing nothing will easily exceed the cost of such a switch."
Agresso is a $480 million enterprise resource planning (ERP) company, listed in the Netherlands as Unit 4 Agresso (Dutch Stock Exchange EURONEXT-U4AGR) and one of the top five providers of ERP solutions for professional services and public sector organizations. Agresso offers a uniquely integrated data/process/delivery architecture designed specifically for Businesses Living IN Change (BLINC) ™. Agresso is known as "The ERP Market's Definition of Agility" as it allows an unlimited amount of ongoing, post-implementation changes without the typical external IT costs and intervention that nets billions of dollars in revenue to the market leaders. Over 2,750 companies and organizations in 100 countries deploy Agresso Business World for both operational support and strategic management. The company’s role-based, Web Services and Services-Oriented Architecture (SOA) enabled solutions include: Financial Management, Human Resources and Payroll, Procurement Management, Project Costing and Billing, Reporting and Analytics, Business Process Automation, Field Services and Asset Maintenance, and CRM.
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