Going Through Acquisition? How a Process-Based Approach to ERP Integration Can Accelerate Your ROI
Over 70% of acquisitions fail to meet their business objectives. If you’re looking for ways to avoid the pitfalls of the 70%, then read on. This article will discuss why the acquisition failure rate is so high, including some of the challenges of ERP integration during an acquisition, and we will cover how a process-based approach to ERP integration can alleviate these difficulties.
Why Most Acquisitions Fail
The hard truth is that most acquisitions fail. There is some variation in the estimated percentage, but the proportion that Harvard Business Review commonly cites is between 70%-90%. The natural question to ask is why is this number so high.
It helps to understand that failure of an acquisition can take many forms, such as when the buyer incurs a massive write-down after the deal, when much of the top talent from the seller leaves, or when the buyer goes bankrupt.
Each of these forms of failure can be the result of many different challenges that organizations commonly encounter during an acquisition. Difficulties may include when a company does not pay enough attention to the costs of the acquisition, only to the potential benefits, resulting in overpaying. Failure also often results because acquisitions simply are not a core competency of the company, even if it has a defined M&A process.
There are other challenges that typically fall under the three categories we describe below.
Integration of People
Acquisitions require that two cultures, which may be disparate, come together. One example is Google’s acquisition of Nest. The former is known for its highly social work culture, while the latter is generally more secretive, resulting in a potential mismatch.
People may also have anxiety about their jobs changing; this can be especially true if the people are not buying into the company’s plan. If this is the case, people may not stay. This loss of the seller’s top talent was also a problem for Google during the acquisition of Nest.
Integration of Processes
The challenges of this aspect of integration can be seen when considering the new reporting requirements that companies can expect to undergo during acquisition. Their current processes may no longer support the acquiring company’s requirements. When the company tries to come up with a plan to remedy the issue, it might not do so as a cohesive team. This can leave the IT team to bear the burden, regardless of whether such planning is their core competency.
Integration of Systems
Poor systems integration is a common challenge, and it is the one that we’ll focus on. Systems integration challenges may result in issues such as spotty data or redundancies, potentially hindering ROI. For this reason, an organization may want to just leave the existing systems as they are, without trying to integrate them. However, when the organization tries to run more than one system, there will be different databases and hardware to support them, and therefore more spending on infrastructure and personnel to maintain them. If the company does decide to integrate, it will likely have to ask, “What are the systems and software to keep, and which ones should we retire?” “Can we standardize operations on one system and maintain functionality?” “Who will lead the integration team?”
Even when these questions are answered, there are numerous other challenges that may ensue. The project plan can contain too much detail or too little. In either case, it will be harder for the delivery team to put the plan into action. Another challenge involves timelines. Unrealistic timelines can result in large fines if the company cannot meet the TSA deadlines.
It is also worth mentioning that acquisitions often require numerous meetings, but do not provide enough time to act upon them. This can occur when the IT teams disagree significantly or when the buyer is learning about the seller’s IT systems. The acquiring company may have to make additional effort to ensure that what is discussed in the meetings turns into action.
A Process-Based Approach to Integration
A process-based approach to integration can help solve these integration challenges.
This approach starts with understanding the company’s unique business needs, then developing client-specific best practice business solutions just right for that company. There is investment from corporate, with leadership working together across all business functions in designing the new process and systems together, with current requirements in mind.
With a process-based approach, Logan Consulting seeks to:
- Leverage standard software functionality, minimizing timely and costly customizations
- Promote knowledge transfer so our clients gain expertise and self-sufficiency
- Prescribe and execute solutions that are needs-based.
A process-based approach also ensures that we retain efficiencies around areas that provide a competitive advantage for the business. This may mean a gap between those requirements and what vanilla software provides. Our methodology ensures these gaps are vetted appropriately before implementing a customization or third-party package.
The chart below includes some of the tangible and intangible benefits of the process-based approach. Each of these benefits can help organizations achieve the ROI they want to see from their acquisition.
Undergoing an acquisition can be a difficult process with many variables involved, especially in the realm of ERP and systems integrations. To learn more about how a process-based approach can reduce the complexity of your integration process and increase the ROI of your acquisition, please get in touch with our experts by clicking here.
Is Your Accounting Software Hurting Your Business?
Top 10 Inventory & Operations Decisions Distributors Are Making Blind
2020 Nucleus Research Report on ERP Technology