IT management in merger and acquisition operations

Management -- "Managing IT in the Merger and Acquisition Game

Management

Managing IT in the merger and acquisition game

Management

Managing IT in the merger and acquisition game

What are some of the risks involved when one firm acquires another firm's IT infrastructure?

It is an oft-observed truism in business that mergers often fail -- in fact, it is frequently said that if analysts were to predict that every merger would be a failure, their success rate would be quite high. As well as more traditional barriers to success, such as the desire to merge corporate cultures, the need to harmonize firm IT infrastructures can present additional challenges to the rocky merger process. First of all, there is the question of what original infrastructure should dominate the newly-created entity: what worked for a small firm may not be functional for a larger firm. Shifting a large amount of individuals over to a new system can create anger and resentment, particularly if the merger was not popular to begin with: massive retraining may be required. Learning new procedures is a challenge, and all of the IT infrastructure can become more vulnerable to viruses and system incursions, if people with a lack of expertise are using the software. Delays can alienate customers and cost the new firm both time and money. And the new system may not be appropriate for the newly-created entity as a whole, as every merger creates an entirely new infrastructure.

Q2. Why do firms often fail to take the target firm's information systems and IT infrastructure into account when purchasing other firms?

Although CIOs are gaining in power, they still often do not have the clout of CEOs and other managers in deciding whether a merger is desirable. A strong and effective IT system is part of a firm's intellectual capital. Acquiring a firm with an unsound infrastructure is equally as problematic as acquiring a firm with excessive levels of debt and other problems. While it is not always an automatic 'no,' the costs of bringing the merged firm up-to-date, technologically, must be calculated within the costs of the merger as a whole. Viewing IT as such a critical aspect of firm value, along with brand name cache and more traditional assets is not at present part of corporate culture, although it must become so in ensuing decades

Q3. On the Web, explore the IT/IS integration issues raised by Kellogg-Keebler

In the 1990s, the once-venerable brand of Kellogg cereals was facing intense competition from its rivals both in the market for cereals as well as for other snack foods. Keebler was the second largest cookie-and-cracker manufacturer in the United States. Kellogg was attracted by Keebler's direct-store-delivery (DSD) system which involved daily, fresh deliveries to stores. While analysts feared that the merger would dilute earnings per share calculations, the acquisition of Keebler would give Kellogg a system conveying a critical edge over its competition in the snack food industry (Case example, 2010, Mastering the Merger).