Four Technology Integration Challenges to Tackle when Acquiring a Business
Businesses often turn to mergers and acquisitions (M&A) activity to strengthen competitive advantage, gain synergies, and increase market share. M&A activity can fuel growth at rates organic growth cannot, but several studies estimate over two-thirds of acquisitions fail to realize their intended value. Failures may occur because of post-deal integration challenges, and success or failure may depend on a company’s approach to technology integration.
The business applications, technology landscape, and system configuration are often the crossroad where strategic process decisions are made when combining multiple organizations. To ensure success in any business transaction, IT should play a strategic role—with an integration strategy shaped by a clear understanding of current technology assets, liabilities, and key risk areas that affect day-one planning and ensure effective post-deal implementation efforts.
Here are common technology integration challenges companies should keep in mind when preparing for an acquisition:
Set the vision paired with an accurate scope
Tip: Create a clear vision for IT integration that is communicated to the stakeholders.
Unify all data and systems critical for integration
Tip: Engage comprehensive data and system experts to guide you through this process to ensure connectivity, scalability and ”right-sized” solutions.
Ensure compliance and address risks with governance
Tip: Assess the compliance and regulatory impacts on combined business during due diligence process to outline a clear approach for integration.
Manage the change by communicating early and often
Tip: Provide intentional, proactive communication and engagement with relevant stakeholders across their change journey.
(1) Avoid rework by setting a clear vision—paired with informed scoping
Planning is paramount to the success of any business integration, and properly scoping a technology integration is one of the most common planning challenges. Proper vision—best informed by an initial IT due diligence assessment—can ensure a more holistic picture of a company’s critical assets and liabilities.
Sufficient scoping can also mitigate against timely and costly technology-based risks. By contrast, insufficient scoping can lead to project delays, missed milestones, budget overruns, extensive redesigns/rework, or significant external implications that impact a company’s performance—all areas that could affect customers, suppliers, and other stakeholders. Technology integration should be considered as part of any day-one planning effort, and implications should be contemplated as part of the integration budgeting process or as part of the deal structure.
Software implementation efforts are often one of the most complex and expensive areas when defining scope for business integrations. Even in large or leading organizations, software implementation efforts commonly have teams that lack internal knowledge of the current operational environment, are understaffed, and have misaligned goals. To address this, companies may need to rely on an integration advisory leader capable of mapping out comprehensive solutions and using industry best practices.
Another related challenge occurs when proper integration governance practices are not implemented. A lack of governance leads to cross-functional silos that make key decisions based upon different strategy and operational assumptions, which can add time, cost, and decreased integration efficiency and effectiveness. Therefore, it is essential to create proper governance controls via integration management office (IMO) teams and to align early on overall integration vision and planning.
(2) Data, united: understand how data integration efforts will impact key systems such as ERPs
Data-related processes and practices are often inconsistent between companies, regardless of whether data is stored on-prem or in the cloud. In acquisition scenarios, significant data quality and interoperability issues take critical time and cost investment to reconcile and rectify. Disparate data formats and sources, low-quality data, and data silos all significantly impact the time and cost associated with technology integration.
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Steps to an ERP transformation
Improper planning related to data integrations often leads to significant project run-off costs. Unexpected costs for necessary technology-related initiatives can then eat away at post-acquisition profitability and other forecasted synergy targets. These types of issues are often particularly found in enterprise resource planning (ERP) systems. Historically, ERP systems are notorious for their migration challenges and costs, especially if the integration scope (and any applicable data associated with it) is not fully understood in advance.
Data amalgamation means all of an organization’s data sources, storage, business applications, visualization, and other methods of analysis are integrated and accessible to/usable for stakeholders. To ensure professionals are equipped with the latest information across their organization to make—and execute—strategic and operational decisions, it is crucial to understand how data flows through the different business applications. During business transaction scenarios, ineffective data amalgamation leads to data integrity issues and hampers the ability for an organization to function as intended.
(3) Address risks related to compliance, regulation, and ongoing governance
Compliance and regulation challenges commonly arise with the integration of two organizations. Often, the businesses do not maintain the same levels of technology compliance and regulation, pre-merger. Since a lack of definable technology processes and controls may exist, they become exacerbated with the complexities of the integration process.
Technology compliance is a vital component of managing institutional, operational, and reputational risks. Incomplete IT integration introduces security vulnerabilities that could impact the ongoing operations.
Moreover, regulatory certifications (such as FDA, ISO, or others) are not always transferable. It is important to confirm regulatory oversight requirements prior to close and to communicate with governing bodies as a part of integration planning.
In recent years, there have been dramatic changes in the compliance and regulatory space, often with significant technology-specific implications. Companies have struggled to maintain their data architecture to the standards required in the evolving compliance landscape. This issue is further complicated in the global economy, where various geographies often have diverging standards and reporting requirements.
(4) Communicate early: all stakeholders need comprehensive communications and change management across the journey
Post-merger integrations have many moving components which uniquely impact various parts of an organization, both internally and externally. In many ways, technology has become the backbone of workplaces, as users rely on various systems and platforms to perform daily job responsibilities—from simple email communications to complex analytical tools. This means it is critical to understand how IT integration change impacts each stakeholder and establish clear change management frameworks to guide stakeholders through their change journeys.
Early communication and dissemination of change information should be an integral part of any technology integration. Nevertheless, organizations and leadership often make siloed decisions and communicate too late in the process. Change is difficult, and stakeholders need to understand the vision, the impact to users and approach for the implementation of any technology. To guide a clear understanding of the reasons for a new or modified technology implementation, it is important to build an impactful change story for each stakeholder.
Without focusing on the people and process implications for technology change, IT integration can lead to missed milestones and rework, budget overruns, and failure of key business objectives. Also, stakeholders can become frustrated or deterred by the IT changes that affect their everyday routines. Dissatisfied stakeholders can negatively impact the long-term success of an organization or its ability to realize intended value from an acquisition.
Integration comes at the end of a deal cycle that can be long and complex. Maintaining focused, intentional momentum—and augmenting the team with IT integration specialists where needed—will allow business leaders to address unknown challenges that always arise during acquisitions and related integration phases. Planning for the common IT challenges outlined above can ensure success for all stakeholders, helping businesses avoid failure during the integration stage and ultimately realize the intended value of an acquisition.