To succeed, a merger requires the smooth integration of IT systems and services, but the task often plunges the CFO responsible for ensuring the savings into uncharted territory. Confronted by an immediate technical challenge, companies typically choose one of two questionable routes. Some, fearing costs and complexity, never fully integrate their acquisition's systems and thus gain few synergies. Others focus on the promise of synergy gains and improved performance but, in their haste, simply choose one system over another, often alienating both customers and employees.

CFOs might consider looking to IT integration in the banking sector for guidelines that can provide a better approach in other sectors. IT, underlying every process a bank performs, is particularly integral to bank operations. Moreover, banks tend to have complex operational structures, often with many brands, branches, and product sets. (The authors worked with one acquiring bank that had accumulated more than 700 branches, nearly 400 product sets, and about 300 IT systems — and was set to buy a competitor with almost as many branches, about 250 product sets, and close to 200 IT systems.) Yet even amid that complexity, it is possible to structure an approach that taps synergies, serves customers at least as well as they were served before, and achieves suitable trade-offs among internal parties. (Scott A. Christofferson, Robert S. McNish, and Diane L. Sias, "Where Mergers Go Wrong," The McKinsey Quarterly, 2004 Number 2, pp. 92–9.)

To merge these structures for maximal synergy and minimal customer disruption, it is necessary to transform the IT functions that underpin them. We have found that this process must include two sets of rational compromises. First, companies must find the middle ground between a rapid migration that captures synergies quickly and a slow one that focuses on a smooth experience for customers. Second, the merging companies must simultaneously balance the requirements of disparate interest groups within each company.

A Question of Pace
Rapid integration may garner immediate synergies, but it also typically drives away 8 percent or more of the acquired customer base. The customers who do stick around can face service disruptions or lost account information. One U.S. bank that undertook a fast-paced integration effort found itself in an even worse position. The company not only saw its customers flee, its revenues decline, and its employees' morale suffer but also soon discovered that its established application architecture could not support planned additional product features and functionality upgrades. The merged company quickly met its projected cost synergies, but the benefit was fleeting. Because of the additional costs, the merger didn't meet its targets.

Slower integration may impose less stress on customers and employees, but it can also be expensive and delay the capture of synergies indefinitely. Our calculations for one company found that every month the integration was delayed represented an opportunity cost of up to 7 percent of the targeted annual synergies. Even real costs are not always immediately apparent. One large U.S. bank, for example, sought to protect its customers and to avoid the costs of integration by keeping its own system separate from those of its numerous acquisitions. Yet it discovered that it was actually spending more on technology — to maintain and upgrade so many different systems — than its competitors were and was also inconveniencing the customers whose service it had sought to protect. Customers transferring their accounts from state to state went through the same rigmarole they would have faced in transferring to a completely new bank. With various branches still running on different systems, the bank's acquisitions generated neither significant customer benefits nor the optimal synergies.

To manage the trade-offs, companies must manage integration with one eye on the synergies they want to realize from it. In other words, they must quickly identify target products, systems platforms, product gaps, migration routines, and specific customer sets — and then create a detailed and comprehensive migration plan for the integration team to follow meticulously. The result should be a complete overview of the way a company plans to get from today's environment to the future one. The best plan will explain in detail how the company will realize every anticipated source of synergy (Exhibit 1).

A Question of Leadership
As difficult as it is to get the timing right, sorting out the needs of separate and powerful interest groups can be even tougher. In retailing, for example, such groups include the merchants who create promotions, the information technology staff, and the operations employees who manage the customer interface — with all of them jockeying to manage or influence the integration process. In banks, these groups include business units, product specialists, and IT, but most banks simply relinquish control to the tech specialists in IT. Not surprisingly, tech specialists tend to push for the best solutions from an IT perspective; indeed, important business decisions about the combined entity's product offerings may be based on how easy or difficult they are to implement technologically. In contrast, a business unit that takes the lead may become overly protective of its customers by limiting any changes that might affect them or its business practices — and not worrying about the enormous technology costs it may be incurring.

• 1
• 2
• 3
• next »