Reconcilable Differences

The health-care company had been planning to install a state-of-the-art system, which would have been all but guaranteed to slash operational costs. It had completed the preliminary research, selected a system and begun the implementation process.

Then those best laid plans were derailed by the company's takeover in a merger, as the integration team decided to rip the capital out of the implementation budget so as to show an immediate post-merger saving. The result was unfortunate in the extreme: the new entity stayed on a system that was older than the company that was acquired, and which had not kept up with the times.

"They chose to disregard their research and stayed on a system that was older in nature and less capable, and as the marketplace evolved around them they were not able to keep up, which resulted in loss of market share because they couldn't offer the products and services that the market was requesting," says Michael Ackerman, enterprise architect and principal consultant with US IT architecture company Comsworld, who has seen it all far too many times before.

"They couldn't offer the new insurance products because the systems wouldn't support it, which means they were behind the eight ball when they finally got around to doing it themselves, because they were using growth to generate profits."

Ackerman says it is a familiar story after many a merger: best practices - including those in IT - are frequently locked away and left unexamined unless a champion from the acquired company is in a position to demonstrate the value they can bring to the new company. The result is predictable and frequently seriously detrimental: the acquiring company only puts its own leaders in key roles and ends up getting what it knows, which may well not be the right thing for the new, larger company.

"Many organizations are solely using the acquisitions for growth yet not always looking at the human capital or the best practices that can sustain long-term growth," Ackerman says. "When you look at that in regard to the acquired company's job of trying to reach synergistic savings for the benefit of the Australian Stock Exchange or Wall Street, as they're trying to make the analysts happy they're doing it with a short-sighted focus on trying to push savings out the door. Normally the first thing they do is let people go because that is the largest variable cost, so a company is traditionally acquired for its product base or their customer list and they're missing out on the human capital element.

"When you look at that from an IT perspective, because IT is one of the areas like tax and finances normally considered highly redundant, they're missing opportunities."

Ackerman points out two companies in the same industry may end up focusing on entirely different areas as they develop their best practices. For example, company A may be totally operationally focused, having driven all the expense out of running the IT infrastructure operations and streamlined them to the point where they are world class. Company B, meanwhile, may be using virtualization to drive the cost out of infrastructure procurement and to lower the TCO, which in turn helps it reduce the time it takes to get new products to market. Unless those relative strengths are taken into account if these two companies were to merge, the new entity may not even realize the need to factor in the lost opportunity costs of letting people go and of ignoring new-found technological strengths acquired in the merger.

The same applies to strategic and tactical efforts. By combining two groups and tapping into their combined potential a company has just doubled their brains trust. If half of them leave, it will have retained the material assets acquired by the merger, but lost the mind share and human capital that made the company successful.

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