There's a terrific article in McKinsey Quarterly about how so many acquisitions often fail to deliver on anticipated synergies because the integration of technology and operations wasn't given adequate consideration during the due diligence stage.
One of the main reasons for the disregard for technology and operations integration is that executives from the two functions (sometimes operated as one) often aren't included in the due diligence process, as noted in the McKinsey article. In McKinsey's work on post-merger management, it has found that 50 to 60 percent of the deals that were expected to yield synergies are "strongly" related to IT but that most IT issues weren't fully addressed during the due diligence or the early stages of post-merger planning.
I find it somewhat baffling how IT and operations integration continue to be neglected on an ongoing basis by so many M&A teams. Technology and operations are the engines that keep organizations running. Evaluating how best to mesh these activities and systems together in order to achieve anticipated synergies and deliver shareholder value should be front-of-mind for CEOs and other organizational leaders.
In addition, as McKinsey notes, successful IT integrations deliver 10 to 15 percent of the anticipated cost savings in mergers and acquisitions. Depending on the type of company being acquired and the amount of redundancy or costly legacy systems that can be retired, the savings can often well exceed this.
There are a few reasons why IT is often the overlooked stepchild in M&A planning. One of the main reasons is that once a deal has been finalized, senior executives often move onto the next set of business challenges. This is especially true when an acquired company is retained as an independent operating unit. It's an out-of-sight, out-of-mind type of thing. If the acquisition continues to meet its revenue and margin targets, then IT and operations integration continues to get pushed aside and islands of technology persist.
Adding to the IT integration neglect is the fact that most IT organizations are short-staffed and hard-pressed to carry out complex systems integration efforts, particularly when most of their time is consumed with putting out fires each day and tackling other projects that business leaders have prioritized.
There's at least one other key reason why IT integration fails to be completely fulfilled and it has to do with fiefdoms. Many multinational banks and other types of companies that have acquired regional companies often discover that they never truly eliminate all of the islands of technology that result in acquisitions. One reason for this is that regional business managers are often able to make a compelling case for retaining certain unique databases or other systems that are vital to their competitive positioning.