During the past 30 years, information services have become increasingly important to companies of every size. We entered the world of data processing in 1955, as a trainee wiring IBM 407 and 604 plug boards. Since that time, the business world has benefited from mainframes; timesharing; local and distributed mini-computers, with constantly expanding power; the now ubiquitous laptop and palm top computers; and local and other types of private networks, often combining all of the foregoing advances. When we subsequently ran a leasing company, less than 20 years ago, few people in the computer industry would have predicted today's microcomputers, with more compute power on an individual's desk than the old IBM 360/40s or 50s.
Most buyers and sellers are aware that combination of computer systems is an essential part of any transaction. Most also consider that this combination will somehow materialize "in the normal course of business." This attitude is incorrect and may result in the addition of one more major perturbation during the integration phase. Along with other problems, this should and can be eliminated by proper evaluation and planning during the pre-acquisition phase. We are fortunate in having input from two expert sources in our discussion of this very important topic.
GUIDELINES is a methodology for managed information resources (IR) in mergers and acquisitions. Offered by W.J. Culver Consulting, in Vienna, Virginia, GUIDELINES was created out of more than 30 years of experience in the field of managing IR. This proprietary methodology is designed to start after the due diligence phase, to provide concise, well defined evaluations of all of the IR issues involved. The resulting reports, limited generally to 20 pages each, can provide management with objective information on which systems to keep, which ones to dispose of, and which ones to improve. Moreover, it starts the merged entity on a path of continual evaluation, feedback, and beneficial changes to its IR systems, which can be continued without outside consulting assistance.
GUIDELINES is a practical and uncomplicated set of eight management practices which can help any size company manage and control its IR, and provide clear, appropriate, quantitative data to management to facilitate answers to many often asked questions:"BUSINESS LINKAGE" establishes and maintains effective communication and linkage between the business plan and IR planning, to ensure that IR planners are clearly aware of the business needs they will be expected to support. Business planners are also kept informed and aware of business implications of the IR systems.
"INFORMATION RESOURCE PLANNING" defines the merged entity's IR plan as it supports the combined business plan. Resources are typically planned for two-to-three years following integration. A focused IR plan is prepared, in "universal" format, with graphical representation of results so that management at all levels is able to relate to it.
A "BUSINESS FOCUS" module identifies opportunities for IR to support the newly consolidated business plans; assesses the business and technology condition of the application portfolios of each entity; and determines the business effectiveness of how systems are developed and maintained for each of the merging entities.
"BENEFITS IDENTIFICATION" is an organizational process. Through review of procedures, standards, and policies, this phase of GUIDELINES identifies the planned and actual business benefits which accrue from the application of IR in each of the merging entities. Such information provides a sound basis for evaluating information plans, not only in terms of the benefits of planned investments but also for assessing each organization's historical performance in the achievement of benefits.
"ADVANTAGE IDENTIFICATION" is a structured process which facilitates identification of opportunities to utilize IR in creative ways to gain competitive advantages. Merging companies may be able to take advantage of additional IR being gained to focus on one or more innovative applications, and win competitive advantages not otherwise available. Long range benefits could be achieved by perpetuating this organizational process and allowing it to become an integral part of the merged company's IR planning process.
"EXPENDITURE FOCUS" is a formalized, strategic process, which promotes fiscal control over systems, to terminate ineffective systems and emphasize effective ones. The process measures IR effectiveness to determine if productivity has increased as a result of individual systems. It reviews physical architecture integration, to determine if new or merging equipment will fit into long-term strategic IR plans. It also reviews portfolio cost as compared with equipment age. Older systems may cost more, often as a pure function of age. Do they need replacing? When? In what order of priority? Have these costs been built into long-term IR budgets?
"SYSTEMS IMPLEMENTATION FOCUS" is a proven set of GUIDELINES controls, combined with years of experience in the design, test, and implementation of projects involving computer and communication hardware and software. These controls are predictive in nature, and relate easily to both technologists and top executives.
"REINFORCEMENT" provides an important continuing process to make GUIDELINES practices a permanent part of the merged entity's corporate culture. Through reinforcement, GUIDELINES practices can be converted into organizational habits that can be perpetuated.
In most merger or acquisition situations, the buyer is typically focused on the activities of bankers, lawyers, shareholders, and above all, on maintaining profitability. A potentially important element in such transactions that is sometimes unduly neglected, to the buyer's subsequent regret, is the real value of information systems in place at the acquired company.
In any deal where information systems (including hardware, software, manual procedures, and in-house skills) are considered part of the transaction, buyers should examine carefully the proposed use and value of these systems to the new organizational structure on a go-forward basis.
If systems hardware and software are part of the transaction decision, buyers must determine which systems will continue to be used. They should also assess the true value of these systems in terms of age, redundancy, vendor support, maintenance costs, and other variables.
This is especially true in situations in which the systems under consideration represent a significant portion of the business' assets, or where revenues are generated from systems-use, e.g. a service bureau, an electronic clearing house, or public network services (banking, travel reservations, and the like).
In some instances, utilizing parts of each system makes the most organizational and economic sense. Should that be the case, the buyer must determine whether the differing pieces can be effectively integrated, how such integration is to be achieved, and the costs involved. If the new organization is due to become operational before all systems can be integrated fully, management needs to determine interim procedures for bridging the gaps.
Buyers should not assume that because the acquired organization is engaged in a similar line of business, or manufacturing similar products, the two organizations automatically represent a good operational fit. There may be distinct differences in how the two organizations perform key business functions within accounting, manufacturing, inventory control, cash management, employee benefits, and related activities.
As a result of the M&A process, company management should anticipate making some immediate decisions on a number of key issues that may have a direct impact on customer service, cash flow, tax position, and similar concerns. Such issues can include centralized versus decentralized accounting operations, combining inventories and renumbering stock items, merging financial information to enable production of consolidated financial statements, and the like.
In addition, because a merger situation can result in severe duplication of personnel functions, the management of the buyer company must also be prepared for some tough decisions in the area of retraining or mass terminations. Unfortunately, both of these options can be costly, with the latter course of action possible affecting pension plan balances.
For any buyer, the first and most important step in managing the information systems-related aspects of an M&A transaction is to develop an awareness of this entire issue and its potential impact on the deal. If you've done your homework and achieve the best result in this challenging area, chances are you're positioned to carry out the other elements of the transaction just as successfully.