Post merger integration remains challenging

The integration phase subsequent to mergers or outsourcing deals is a huge challenge. Its success often decides about the failure or success of a merger. For many years already, noventum consulting has been supporting the manifold planning and operational aspects of this critical project phase from the IT perspective.

noventum has supported providers in the IT, finance, insurance, energy, and other industries in the post merger phase, as well as the customers of the providers and company groups that streamlined their organisations by consolidating subsidiaries. Since the founding of the consulting company noventum, its consultants have been active in this field. That's reason enough to ask Carsten Fröning, director, and responsible for the topic of "Post Merger Integration" about his experiences and perspectives. Carsten Fröning himself has been working as a consultant for noventum consulting since 1997.

novum: Mr. Fröning, in its consulting portfolio, noventum is differentiating between the issues before, during, and after a merger. Why this separation?

Carsten Fröning: Positively speaking, the whole operative apparatus does only start to get into motion after the contract has been signed. The question who should be participating in the implementation of such a project and who should bear responsibility often is only the result of planning sessions carried out after the contract's conclusion. That is one of the reasons why we so intensely focus on this "post merger" phase in our consulting portfolio. By now it has also been established that the PMI phases contain their own risks for the success of the merger. With a bundle of services that we consider to be a Business Solution when taken together, our focus is on the post merger phase.

Targetedly supporting the post merger phase with special services

novum: Which services to you provide?

Carsten Fröning: At noventum, we have separated the Business Solution into the following solutions:

• Planning of the PMI as part of the IT strategy
• Project management in the PMI project
• Merger of commercial systems
• Technical merger of systems/transition & transformation
• Adjustment of all IT processes and setup of a new IT organisation
• Change management/communication

These are by far not all areas or contents of a post merger integration project, but those are the ones that are a the core of IT and which are the topic of the noventum service. Another common term for this is "IT integration in the PMI project".

novum: Do mergers take place in different ways in each industry? How much methodology can you gain from your experience with this topic? Are there any particular challenges in each case?

Carsten Fröning: We do, of course, have very different reasons for mergers in our target industries of IT service providers, the financial sector, the insurance industry, hospital companies, or power companies. In the Sparkassen-Finanzgruppe, the IT service provider Finanz Informatik was created through multiple mergers and within the Finanzgruppe cooperative, the merger of IT service providers is palpable. In the IT service provider industry, outsourcings quite often lead to the takeover of IT departments of service providers already active in the market. As such, the merger project becomes an annually recurring task, without it becoming routine.

In other industries, the influence of the legislation and deregulation becomes apparent. As such, in the power industry a wave of unbundling projects has taken place which in turn led to merger projects. At first, the parts of the company that are to be demerged are spun off and then quickly merged with other partners. And, last but not least, there is the classic merger, in which a company takes over a competitor that is acting in the marketplace, something that occurs in any industry. Across the industries, each project poses particular challenges that have to be taken into consideration in the project planning and risk assessment.

The reasons for a merger are numerous – the processes themselves are similar to one another

novum: You are offering multiple solutions within PMI; can you tell us something about what these solutions have in common or where they differ?

Carsten Fröning: An essential differentiating characteristic is the factor of time. The harmonisation of a commercial system typically takes place very quickly, meaning within one fiscal year effective the turn of the year. For this, individual components such as the commercial planning often have to be established already in the fall prior to the merger. The setup of a target IT structure takes several years and has an interesting aspect: While the customer is setting up the new architecture and gradually rolling it out in annual steps, the old platform with its architecture still needs to be operated until the last end customer has been integrated onto the new platform. As such, we are talking about timelines of two to five years that must be managed in the project. The adaptation of the IT organisation and processes typically is carried out not at a specific target date and also not only upon establishing the new target IT structure, but rather from the point in time the landscape is operational for the first end customer. And IT operations process are – after all – actually constantly being optimised and adjusted.

What is common to all PMI projects is the emotional stress for the merger partners, which – of course – is more pronounced if no experience with fusions exists. Which, after all, applies to all parties involved.

novum: Does this uncertainty have an impact on the efficiency of projects?

Of course. Employees who do not know whether they are part of the new business strategy quickly develop thoughts of moving on which, as part of the merger project, can gain extremely critical importance. For this, a clear, structured communication by the executive management of the merging companies is helpful.

novum: Looking back, what has changed in the PMI field? Are there trends?

Carsten Fröning: As early as 15 years ago, we have brought commercial systems onto a joint platform in merger projects, conceptualised and set up target architectures for the business, and established IT processes and IT organisations. These challenges can be mapped well with standardised service offers. What has changed is that the areas of change management and communication have become more and more important. Just a few years ago, the influence of these topics could not yet be felt as distinctly. But in times of a lack of qualified personnel in the ITC industry and discussions about employer attractiveness, the topic of change management and communication has gained a position of considerable value in the context of PMI projects.

Nowadays, the human element receives considerably more attention

novum: Change & communication – that does not sound like IT management?

The focus to gain economic benefits from the mergers in the sense of "economies of scope" does still exist. Our solutions, that we work on, are very much IT-related. But in most of the current projects, our customers' executive management asks the question "What can I do to maintain the innovation power and the identification of the employees with the new company?". As part of the merger, this topic cannot be provided with enough attention. This topic is relevant to all solutions but has - in the meantime - become its own discipline. Employees are the most valuable resource of a company and must, particularly in a merger, be treated well and informed well, if executive management wants to retain them in the company.

novum: What happens if the rules of change management and communication are not adhered to and how can a consultant help with this task?

Carsten Fröning: I'd like to provide you with an example: As part of a project, I had been tasked with the consolidation of two SAP landscapes. As part of the system selection, which we refer to as Fit-Gap Analysis, the one SAP department told the other "Our system is so much better than your implementation." Along with this verbal derailment came an escalation that considerably hindered the specific project work. The other party addressed was a SAP unit with more than 100 person years of professional experience.
As external consultants, our task then was to neutrally present the suitability of the systems and to contribute to the de-escalation via suitable communication. We then specified, as official version, that both houses had a system that had supported the requirements of the process owner well and that the project team should focus on setting up a new solution. Specifying this communication was a task for executive management, while maintaining the communication in the ongoing project was a function that could be carried out well by a third party.

Personal experience and documented solution approaches are the capital for future projects

novum: What is your outlook on the next 15 years for the topic of PMI? What's your perspective?

Carsten Fröning: For our customers, I anticipate that the motivation to carry out merger projects will continue. That is because the underlying goals such as to gain economies of scale or to integrate competitors will continue to exist. Also, external influences on the markets, such as deregulations, will continue to be a constant factor. From the service provider's point of view, we will see a further standardisation of the solutions. Some of our consultants have carried out more than 10 PMI project in the past 15 years. These insights result in two effects: A trove of experience gained by the consultants, and well documented solution approaches. As such, we feel that we are ready for and looking forward to the next 15 years of PMI.