When Spanish utility giant Iberdrola announced last June that it would acquire Maine-based Energy East for $4.5 billion, it signaled a potential surge in major foreign owners buying into U.S....
Before the Utility Merger: Thinking Through IT Integration
The way senior tech executives and business managers define success has changed.
Alignment of the business and the information technology (IT) functions within a company is critical to the effectiveness of any strategic initiative. This alignment is particularly crucial in the realm of mergers and acquisitions (M&A). We estimate that IT enables 60 percent of post-merger transactions.
Three years ago, our research identified a number of best practices in IT integration, as they affected M&A execution. 1 These practices included involving IT in early business discussions about the prospective deal, performing pre-deal IT due diligence, and driving IT integration from a vision of future capabilities. These best practices have not changed (see Figure 1) .
What has changed, according to our new survey, is the way senior IT executives and senior business managers define success in a merger transaction. With so much at stake in any merger, the distinctions between these two important management constituencies are critical. They point to what might be called an “alignment gap” in M&A execution.
We define “alignment” between IT and business as agreement in four key areas:
- Definition of business objectives;
- Definitions and performance metrics for those objectives;
- Articulation of the vision of the role of IT, and;
- The goal of IT investment.
In reviewing strategic IT initiatives, we analyzed organizations with a high degree of agreement in these four areas; those with major disagreements we refer to as “weakly aligned.” Given the need to continuously verify working hypotheses with formal field research, our new survey was designed to illuminate the extent and contours of the alignment gap.
In February 2005, we conducted 334 interviews, equally divided between major companies in the United States and Europe. For each company, we interviewed both senior business executives (54 percent of the total survey base) and IT executives (46 percent). Those who identified themselves as “IT executives” held titles including vice president, director, and CIO. Those in the category of business executive held titles such as vice president, executive vice president, or other senior management equivalents.
IT always has been a highly “cultural” profession, with the specific enterprise culture developing around specific business practices, just as it does in other functions. This might initially appear counterintuitive. In business, culture is typically classified as a “soft” factor, often grouped alongside equally difficult to quantify attributes such as morale or corporate reputation, while cultural traits tend to be associated with corporate functions having a high quotient of intangible value, such as R&D, or in functions where significant face-to-face interaction is integral, such as investment banking. IT, on the other hand, seems the archetypal quantifiable discipline, measured by established “hard” key performance indices.
Our survey, in fact, shows that IT “cultural integration” is an important success factor in post-merger integration, although an unevenly acknowledged factor. When