Presenting 5 critical factors in realizing merger-related savings.
Eduardo Alvarez is vice president, Donald Dawson is principal, and Samudra Sen is senior associate at Booz Allen. Contact Dawson at email@example.com.
The utility industry has seen a large jump in merger and acquisition activity over the last couple of years. Intensifying pressures to achieve scale and lower costs have driven much of this activity. And with more than 3,000 utilities still operating in the United States, the industry can expect M&A to thrive for the foreseeable future, with deals growing in scale and complexity.
While estimates vary, a high percentage of all persons executing mergers have difficulty effectively executing the integration. The IT expense alone of utility mergers can cost a quarter of a billion dollars or more. So what makes the risks worth taking? What are the barriers to success? And how can these barriers be overcome?
One of the single greatest challenges is the integration of information technology (IT). IT touches almost every aspect of a utility’s daily activities, from basic hardware and software to business processes and security practices.
Simply put, poor execution in IT can delay the integration of processes/operations, consume a lot of time and effort in platform standardization, and lead to tremendous cost overruns, resulting in inflated cost to achieve (CTA), lost value, and lengthy delays. Handled well, however, IT is an opportunity that can save a utility and its stakeholders millions of dollars, valuable resources, and countless manhours while establishing a platform for future growth.