Beware The Merger Boar

Dec. 21, 2004

Most people like to know what theyre getting when they buy something. When they dont, theyre buying whats called "a pig in a poke." From the buyers standpoint, this generally is something to be avoided. Yet thats the way most companies treat information technology during a merger or acquisition. Few, if any, deals are struck with any thought to what systems are used to run the acquired business. Often this is the reason that little pig in the sack turns into a boar with a set of nasty tusks. Trying to make these key business systems mesh smoothly is critical to the success of any merger. Usually, the successful integration of IT operations lies in wise, careful planning. A few years back BankAmerica Corp. mounted one of the banking worlds biggest mergers ever with California competitor Security Pacific Bank. BankAmerica was able to make a surprisingly smooth transition of customer accounts, largely due to extensive planning. Major transitions to new systems were done over weekends. In most cases, major systems run at data centers were gradually merged into the better one of the two banks systems. By contrast, at about the same time, Chemical Banks merger with Manufacturers Hanover Trust ran into numerous glitches, mostly related to ATM systems. And recently, the marriage of Union Pacific Corp. (UP) and Southern Pacific, two railroad giants in the western and southwestern U.S., has been a nightmare for shippers, leading to severe bottlenecks and gridlock on the rail lines and in container ports from Houston to Los Angeles to Oakland. Some, but not all, of the trouble was due to incompatible computer operations. "The two computer systems didnt talk to each other and werent interchangeable, resulting in a lot of confusion, because UP didnt know where the trains were," says Kenneth Koss, director of the California Public Utilities Commissions Rail Safety Div. UP claims that it has "substantially eliminated the congestion," although the company admitted the switchover of Southern Pacifics computer systems to its own caused "some temporary dislocations." But Koss and shipper trade groups say that as of mid-August, UP continued to experience merger-related slowdowns and snafus. Thats not to say mergers and acquisitions have to be fraught with difficulty from a systems standpoint. In fact, some manufacturers have even discovered an IT opportunity in their acquisition poke. Take Rawlings Sporting Goods Co. Inc. After carefully weighing a number of options for handling the computer operations of both units, the St. Louis-based manufacturer of baseball gloves and bats decided it would be prudent to use its acquisition of Canadas Victoriaville Hockey as a proving ground for a new enterprise resource planning system from J.D. Edwards & Co. Similarly, the IT-related challenges served up by divestitures and spinoffs can be turned into positives by the companies that are spun off. For example, when Magnequench International Inc. was spun off by General Motors Delphi business unit, the Anderson, Ind., magnet manufacturer had a matter of months in which to create its own systems. While Magnequench had its own manufacturing systems, human resources had been provided through GM. Rather than act hastily, Magnequench executives hired consulting firm Arthur Andersen "to assist us with analyzing our needs and selecting an appropriate HR system," says Lissa Julius, vice president of HR at Magnequench. That analysis included taking a hard look at half a dozen different software packages before settling on one that fit the firms needs best. In just 75 days, Magnequench installed an HR management package from Personnel Data Systems Inc., a Blue Bell, Pa., software maker, to run both payroll and benefits for 310 employees. Whats more, while nearly 40 people at GM were involved in managing Magnaquenchs HR function, which ran on a mainframe computer, just two people are needed at Magnequench to support the entire HR system. The lesson is that while every poke is different, solid planning is the best way to ensure that whats inside wont gore your business.

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