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Utility M&A: Betting on the CIO

Presenting 5 critical factors in realizing merger-related savings.

Fortnightly Magazine - March 2007

depend upon each other to achieve their integration targets. However, the IT team’s job is usually more complex, requiring far more parts and a multi-year effort. This requires extensive planning and well-defined implementation plans, as part of a well-defined and enforced process.

The business team’s transformation mainly involves process and organization. As a result, they often assume the need to follow a rigorous integration process is less important. This leads to a snowball effect. By de-emphasizing the integration process, they deliver their business requirements to IT too late, which leads to implementation challenges downstream, which in turn causes delays and added costs. For the business and IT teams to deliver value, they must work together to approach the integration process with the same rigor and commitment.

One strategy is the creation of a strong, business-savvy IT team led by senior people with experience and credibility. This kind of leadership enables IT to partner with the business teams effectively and encourages the use of integration planning tools. The resulting collaboration ensures that expectations are aligned, process discipline is maintained and expected results are achieved.

Critical Factor #3: Develop an Achievable Vision

Normally, the CIO is responsible for creating the IT vision. By laying out an unachievable set of objectives, the CIO and the IT team are set up for failure.

A case in point, when developing the IT vision, CIOs might identify high levels of outsourcing as a desired integration outcome. Unfortunately, they typically underestimate the level of effort and the widespread changes associated with wholesale outsourcing.

When setting the vision, CIOs should keep in mind the ability of the organization to absorb change and maintain focus and its appetite for technology investment. The vision should clearly identify the role of the IT organization in the new company. It should be focused on enabling the future direction of the company, whether its focus is on operational excellence, customer intimacy, or the development of a platform for growth. And last the vision is one in which the CIO can get the IT resources of the new organization rallied around a common goal.

Critical Factor #4: Set Realistic Targets

During due diligence, senior management develops targets that are handed down to the IT integration team for execution. As with any major transactional process, the IT team is given dollar savings, CTA, and headcount reduction goals.

The complexity of IT integration, the short timeframe and the lack of complete information during due diligence makes providing target estimates especially difficult. Platform choices and other decisions can lead to vastly different cost realities. As a result, actual costs often deviate from initial due diligence estimates.

To achieve successful integration, the company must develop realistic IT targets. To ensure they are realistic, targets developed during due diligence should be developed by experienced personnel utilizing a proven methodology and should be refined during the actual integration when a more detailed analysis of the facts is available.

Critical Factor #5: Manage Change and Communication

The changes that IT makes during a merger fundamentally alter the way people do their work, yet