How IT Leaders Can Survive While Helping Mergers Succeed

Inflation and financial uncertainty have slowed corporate acquisitions. Nevertheless, nearly 80% of companies surveyed by KPMG this year said that corporate mergers would remain as a primary strategy for growth.

Acquisitions and mergers might be a primary growth vehicle for companies, but they place plenty of stress on employees and managers who wonder about the safety of their jobs, and what working under a new type of organization will be like.

There are also several departments within the company that will be called upon to do the heavy lifting for mergers, and one of these departments is IT.

IT gets involved because mergers require decisions such as whether to convert or sustain systems. The staffs and assets of two different IT departments must be blended. This brings up personnel and organizational issues. Business and IT processes must be revisited and retrained. At the end of the day, there might also be a decision as to who remains as the CIO of the surviving company.

What steps can CIOs and other IT leaders take to navigate their way through a merger?

The Birth of a Merger

Exploring the possibility of a merger starts as a discussion among the CEO and a few key people. The decision to merge is made based upon the growth potential that the target company for acquisition presents, so the COO and CFO might be brought into early discussions, but the CIO sometimes isn't included. Consequently, most decisions to merge or to acquire do not consider the costs or effort that IT is likely to expend.

It usually is only when the decision to merge or to acquire is affirmed that everyone who has been privy to the earlier merger discussions begins to realize that a major element of bringing two organizations together rest in blending their systems and processes.

At this point, the CIO enters the discussion.

Developing a Merger Plan for Disparate Systems

I have never met a CIO who was happy with the idea of learning about a merger after a decision was already made! What CIOs ideally want is a front seat at the table at the onset of merger discussions so they can realistically present the costs and effort that likely will be required to execute the merger.

Since a front seat in merger discussions isn't always possible, what a CIO must do is to develop a “can do” plan after the fact that realistically presents the costs and effort that will be needed for IT work on the merger. This will include revised timelines for ongoing IT projects that typically be delayed. The information assists management, the board, and other key stakeholders so they can understand the broader strategic picture for the company and its technology initiatives.

In a merger or acquisition plan, IT aspect must be to find ways that the two organizations can blend systems and get up to speed operationally as soon as possible.

There are several points to consider in this process.

First, what vendors does the organization being acquired have contracts with, and in what stage are these contracts?

As an example, if the vendor of a target organization’s ERP system is different than yours, there are bound to be penalties for leaving this vendor's contract early. The vendor may even prove to be uncooperative as you work to move the target company over to your system.

Your plan for each system migration should include an “exit cost” that will likely be incurred if you must leave a vendor’s contract early, as well as an itemization of any risks that could be encountered in the system migration.

Blending Disparate Systems

There are three different approaches to system blending during mergers and acquisitions:

The choice that you make depends upon many variables, such as the ability of employees to learn a new system, vendor cooperation and legal obligations, migration timeframes and costs, and the IT bandwidth required to do all of the work needed.

Pay Attention to the IT Organization

Any time there is a merger, the positions of employees in both organizations (including those in IT) are going to overlap. This creates nervousness among employees who fear losing their jobs. It can also generate feelings of guilt in employees who manage to retain their jobs, but suddenly see a colleague they worked with for a long time being excised.

IT leadership needs to step up during times like this.

If there are excess employees who must be let go, the company should be highly supportive of them. That may mean offering placement and resume services, fair severance packages, etc. The helps those affected find new positions, and it also encourages the remaining employees, who see that their peers are being treated equitably by the company.

What About the CIO?

When companies merge or acquire, there is bound to be one too many CIOs, too.

What happens?

The general rule of thumb is that one CIO retains his/her position, and the other doesn’t.

In the two mergers I was engaged in, I remained as CIO. In the first case, the other organization’s CIO transferred into a line of business management role that he had always wanted, so it was a win-win. In the second case, the other CIO was engaged in a consultative capacity for a number of months and given a severance package, plus help from the company so he could find another position.

In both cases, the persons affected were consummate professionals. They understood that the leadership expectations for CIOs didn't end with them exiting the positions, and I learned much from them about graciousness and true partnership.

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