Given the shaky economy over the last several years, many companies have encountered speed bumps in their attempts to continue their organic growth. In order to mitigate these economic headwinds, a fair number of companies have turned to merger and acquisition activities to reignite stagnant growth caused by maturing markets and skittish customers.
While M&A activities can provide a strategic platform for future growth, the bad news is that they can also accelerate the operational and enterprise software challenges experienced by any organization that is growing or changing. Even though most companies are likely to outgrow their ERP systems as they evolve over time, a merger or acquisition more often exacerbates and accelerates this natural occurrence. In these cases, you now have two companies that are typically different in many ways, including in their respective operating models and ERP systems.
Many companies turn to us for help because they have been blindsided by these issues. However, these risks don’t need to be a surprise or even disruptive to a merger or acquisition. Here are a few pieces of advice to help prepare for the potential challenges of combining entities . . . and ERP systems:
Standardize business processes first. While it may be tempting to jump into the “Which software are we going to keep for the combined entity?” discussion right away, it is important not to put the cart before the horse. In order to determine which systems will best support the merged organization going forward, it is important to understand how the business is going to run going forward. Otherwise, the decision of which systems to keep and which to retire will become driven more by internal politics and less by tangible business requirements and needs. For example, a large portion of our client base request our assistance standardizing operations and facilitating business process reengineering before we ever start evaluating or implementing specific ERP systems.
Define the best ERP strategy for the new organization. To take even one step further back, it is equally important to define the overall ERP strategy going forward. How much will the two companies standardize operations? Will they remain independently operated? Will there be some areas that are shared across both organizations, such as HR or finance? These and other strategic decisions should be made well before potentially premature discussions about the ERP software. We generally find that recently merged organizations are well served by leveraging our broad-based experience to help define these initial ERP and IT strategies.
Recognize that organizational change management will be even more difficult than with most ERP implementations. Regardless of the answers to the above two areas, we find with our recently merged clients that organizational change management is even harder than with most ERP implementations. In addition to “typical” enterprise software challenges, employees at combined entities have many unique stressors and potential sources of resistance to ERP implementations, such as new roles and responsibilities, uncertainty related to job security, new reporting structures, and a host of other issues that serve to further complicate or even derail an “out of the box” organizational change management initiative. An effective organizational change management program – such as the ones we offer our clients – will account for these and other sources of organizational resistance.
Make the above process repeatable and scalable. Several of our clients have found great success by assuming that this won’t be the last merger or acquisition that they go through. As a result, they document standard business processes, develop a corporate ERP center of excellence, and facilitate other activities that make merger integration much faster and more effective the next time around. Companies that employ this sort of mentality are more likely to have successful ERP implementations at their newly acquired entities in the future.
Mergers and acquisitions are solid strategic maneuvers for many of the companies that leverage this approach to long-term growth. However, ERP implementations are typically the last thing on executives’ minds when they head down this path. By going into the process with eyes wide open, management teams will be much better prepared to leverage ERP systems to get the most return on investment.
Learn more by watching our free, on-demand webinar, Business Process Reengineering: A Key Component of ERP ROI.