M&A’s are among the biggest challenges for companies and their IT organizations to navigate. They often create issues that cannot be dealt with conventional leadership and management techniques. The role of information systems in mergers and acquisitions (M&A) becomes increasingly important as the need for speed of reaction and information is growing.

1. Issue of IT integration during M&As
Amit Pawar
Katz Graduate School of Business
Fall 2011

2. Issue of IT integrationduring M&As:
M&A’s are among the biggest challenges for companies and their IT organizations to
navigate. They often create issues that cannot be dealt with conventional leadership
and management techniques. The role of information systems in mergers and
acquisitions (M&A) becomes increasingly important as the need for speed of reaction
and information is growing. Mergers and acquisitions may disrupt the operations of the
organizations involved. Executives who underestimate or disregard the costs and time
associated with merging computer applications, infrastructure or IT organizations will
face unpleasant surprises. However, if carefully planned and properly managed, the
merger/acquisition and the resulting integration process can become an opportunity to
strengthen the capabilities of the combined organization and place it in a better
competitive position.
Issue discussed in the trade press:
• M&A deals still overlooking IT integration challenge - Research finds no
integration within three months of deal completion. – www.cio.co.uk
• In general, most attention is typically given to commercial or operational issues,
which fail to consider IT or system integration challenges. M&A is rarely
discussed with the IT department, but IT integration plans can either
make or break the M&A process. - www.cioindex.com
• Determine how the CIO use potentially high integration costs to help negotiate
the purchase price down.... that's a sure winner with shareholders looking for
added value. The City tends to give a merged company only 100 days to
deliver tangible benefits, so the CIO can really improve his stock and
influence by ensuring data integration costs are factored in
accurately and by talking to the shareholder's wallet," - Gordon Lovell-Read,
CIO of Siemens.
The issue is highlighted in various consultant white papers:
 "The truth about M&As is that about half of them either fail outright
or else fall well short of the value they're expected to bring because
when viewed unilaterally, IT integration can wind up crippling rather
than enabling the new organization," says Gary Curtis, partner in
Accenture's Strategy practice.
 Many mergers don't live up to expectations, because they stumble on the
integration of technology and operations. But a well-planned strategy
for IT integration can help mergers succeed. – McKinsey Quarterly
 Seventy-nine percent of mergers and acquisition activity ignores IT
integration, according to a 2007 survey, this time by Bloor Research.
 Accenture studied 57 M&A projects in North America and Europe in the late
1990s (target companies: $100 million to $500 million in revenues) and
monitored them post-merger, paying attention to the integration efforts
surrounding IT operations and the effects on the company. The study found
58% of the companies did not get IT involved in integration planning
until after the plan to merge was announced. Twenty-six percent got
involved during the deal, and only 16% got involved pre-deal.

3. Examples that illustrate importance of IT Integration in M&A:
• Lloyds and TSB were unable to integrate their back-office systems
resulting in bank tellers unable to access a common set of banking services. The
expected synergies were not realized.
• On the other hand, the success story of Sallie Mae’s acquisition of USA
Group was the result of a successful post-merger IT integration
• The merger between Hewlett-Packard Company (HP) and Compaq Computer
Corporation (Compaq) failed as the synergies identified prior to the merger did
not materialize. One of the reasons was the complexity involved in moving
four ERP systems to a new SAP system. Ultimately, the integration
problems cost HP’s new enterprise server division $400 million in
revenue and $275 million in profits.
Most of the experts generally agree on using the following approaches to resolve the
issue:
• Drive the IT integration program based on a vision of future IT
capability: This "future vision" of IT capability led to IT stability more quickly,
which led to greater financial value of the merger.
• Involve IT early in business discussions about the deal: Companies that
involved IT leadership in the pre-deal business planning were more likely to
reach financial goals of the merger.
• Perform an IT due diligence before the deal is signed: Companies that
did realized a greater financial value and a "more successful integration
experience."
• Engage in detailed IT integration planning: Detailed planning helped
companies to identify and prioritize the activities that were "most likely to
deliver value."
• Appoint a dedicated IT integration team and manager to oversee the
IT integration: The best way to make IT integration a priority is to identify
core resources that will work full time on the integration plan.
Some experts suggested a different approach to address the issue:
• Use external staff to help execute the IT integration activities: This
helps companies fill temporary capability gaps during integration work.
• Engage in IT cultural change and human performance-related
programs: Survey respondents told Accenture the most difficult post-merger
challenges revolved around human or cultural issues - integration of cultures
and reorganization of personnel. Accenture's report notes: "Planning must occur
that is focused on the overall change journey and the methods by which people
in the organization own the changes that are occurring and embrace the work of
the new company."

4. Relevant coursework to understand the problem:
• Strategic Management
• Technology Enabled Business Transformation
• IS Planning
• Strategic Management of Acquisition and Divestment
General ideas those are useful for characterizing the problem:
If the issue is identified before merger the IT organization will be better geared up to
manage post-deal IT implementation risks.
Following steps can be taken to improve the
• Assessing the current IT environment and making necessary improvements,
• Training staff to handle specific integration efforts
• Creating proper documentation and periodically conduct a capability
assessment IT systems
• Developing integration principles and templates for due diligence and planning
Academic Research:An example of academic research activity to develop a
framework for addressing the issue is given below.
Source: University of Twente – New Zealand

5. General issue this problem is related to:
Issue: Failure of M&A’s to create value for shareholders
The primary causes of this general issue are given below,
• Flawed corporate strategy for either or both companies
• One company sugarcoats the truth, the other buys a PowerPoint pitch
• Sub-optimum integration strategy for the situation
• Cultural misfit, loss of key employees after retention agreements are up
• Acquiring company's management team inexperienced at M&A
• Flawed assumptions in synergies calculation
• Ineffective corporate governance, plain and simple
• Two desperate companies merge to form one big desperate company
• CEO of one or both companies sells board and shareholders a bill of goods
• An impulse buy or panic sell gets shoved down the board's throat
Studies that identified challenges with the general issue:
• Numerous studies digging into transactions that have totaled between $1 and $4
trillion annually during the past decade - from deep academic research to
qualitative surveys by well-connected consultancies - have come up with roughly
the same figure: around 70% of M&As ultimately fail to create any
incremental shareholder value.
• Mercer Management Consulting noted that between 1984 and 1994, 60% of the
firms in the "Business Week 500" that had made a major acquisition
were less profitable than their industry.
• In 2004, McKinsey calculated that only 23% of acquisitions have a
positive return on investment.

6. Annotated bibliography:
• Manjari Mehta, Rudy Hirschheim, "A Framework for Assessing IT Integration Decision-Making in Mergers
and Acquisitions," hicss, vol. 8, pp.80264c, Proceedings of the 37th Annual Hawaii International
Conference on System Sciences (HICSS'04) - Track 8, 2004
http://www.computer.org/portal/web/csdl/doi/10.1109/HICSS.2004.1265631
This article highlights the importance of using a structured technique to tackle the IT Integration issue.
• David Aponovich, Mar 27, 2002, “IT Integration Seen As Key to Merger Success”.
http://www.cioupdate.com/research/article.php/999541/IT-Integration-Seen-As-Key-to-Merger-
Success.htm
This article provides citation to different studies conducted on the issue and provides tips on effectively
managing IT integration for a successful M&A.
• Mohan Bhatia, 2007 “IT Merger Due Diligence: A Blueprint”.
http://www.isaca.org/Journal/Past-Issues/2007/Volume-1/Documents/jpdf0701-it-merger-due-
diligence.pdf
This article focuses on being proactive and using the IT due diligence for minimizing the complications in
the issue.
• William B. Rouse, 2006, “Enterprise transformation: understanding and enabling fundamental change” -
John Wiley and Sons
This book provides some examples and learning’s from failed M&As like HP and Compaq merger
• Laurence Goasduff, October 25, 2006, “Gartner Advises CIOs to Develop Their Approach to Mergers,
Acquisitions and Divestments” – Gartner press release.
http://www.gartner.com/it/page.jsp?id=497489
This article provides ten practices used by experienced CIO’s to manage IT integration during M&As
• AshwaniArora, Senior Project Manager - Banking and Capital Markets, Jan 2011, “System integration
during M&A: How much to integrate?” – Infosys Technologies
http://www.infosysblogs.com/oracle/2011/01/system_integration_during_ma_h.html
This article highlights the key factors that should be considered in planning the IT integration during
M&As.
• Shaun Rein, June-2009, Why Most M&A Deals End Up Badly, Forbes.com
http://www.forbes.com/2009/06/16/mergers-acquisitions-advice-leadership-ceonetwork-recession.html
This article identifies the possible pitfalls of mergers and sights different examples related to the issue.
• David F. Carr, Dec-2008, What IT Leaders Need to Know About Getting Mergers Done Right.
http://www.cio.com/article/472426/What_IT_Leaders_Need_to_Know_About_Getting_Mergers_Done
_Right
This article provides critical advice for CIOs to manage IT integration during mergers.
• W Menge - 3rd Twente Student Conference on IT, 2005 – Citeseer, “Pre-merger IT Strategies.”
The paper mentions how organizations could anticipate mergers and structure their IT to avoid problems
in future mergers.
• Stefan Henningsson, "Strategic Value of IS Integration in M&A--The Relation between IS Integration and
M&A as a Tool for Corporate Strategy," hicss, pp.221b, 40th Annual Hawaii International Conference on
System Sciences (HICSS'07), 2007
This articles specifies how absence of insight into the relation between IS and M&A hampers the
development of the scientific field and distract business professionals.
• Zhao, Jun, S.M. Massachusetts Institute of Technology, 2006 , “The IT integration of mergers &
acquisitions”
This academic research article investigates factors that influence the effectivenessof IT integration in
M&A