Posted: May 25th, 2022
Management — “Managing IT in the Merger and Acquisition Game
Managing IT in the merger and acquisition game
Managing IT in the merger and acquisition game
What are some of the risks involved when one firm acquires another firm’s IT infrastructure?
It is an oft-observed truism in business that mergers often fail — in fact, it is frequently said that if analysts were to predict that every merger would be a failure, their success rate would be quite high. As well as more traditional barriers to success, such as the desire to merge corporate cultures, the need to harmonize firm IT infrastructures can present additional challenges to the rocky merger process. First of all, there is the question of what original infrastructure should dominate the newly-created entity: what worked for a small firm may not be functional for a larger firm. Shifting a large amount of individuals over to a new system can create anger and resentment, particularly if the merger was not popular to begin with: massive retraining may be required. Learning new procedures is a challenge, and all of the IT infrastructure can become more vulnerable to viruses and system incursions, if people with a lack of expertise are using the software. Delays can alienate customers and cost the new firm both time and money. And the new system may not be appropriate for the newly-created entity as a whole, as every merger creates an entirely new infrastructure.
Q2. Why do firms often fail to take the target firm’s information systems and IT infrastructure into account when purchasing other firms?
Although CIOs are gaining in power, they still often do not have the clout of CEOs and other managers in deciding whether a merger is desirable. A strong and effective IT system is part of a firm’s intellectual capital. Acquiring a firm with an unsound infrastructure is equally as problematic as acquiring a firm with excessive levels of debt and other problems. While it is not always an automatic ‘no,’ the costs of bringing the merged firm up-to-date, technologically, must be calculated within the costs of the merger as a whole. Viewing IT as such a critical aspect of firm value, along with brand name cache and more traditional assets is not at present part of corporate culture, although it must become so in ensuing decades
Q3. On the Web, explore the IT/IS integration issues raised by Kellogg-Keebler
In the 1990s, the once-venerable brand of Kellogg cereals was facing intense competition from its rivals both in the market for cereals as well as for other snack foods. Keebler was the second largest cookie-and-cracker manufacturer in the United States. Kellogg was attracted by Keebler’s direct-store-delivery (DSD) system which involved daily, fresh deliveries to stores. While analysts feared that the merger would dilute earnings per share calculations, the acquisition of Keebler would give Kellogg a system conveying a critical edge over its competition in the snack food industry (Case example, 2010, Mastering the Merger).
The unusual aspect of the Keebler-Kellogg merger, and one of the reasons for its success, was that Kellogg took an active interest in Keebler’s IT infrastructure and systems when contemplating acquiring the firm. In fact, Keebler’s DSD was the primary reason for Kellogg’s interest. Kellogg showed an astute understanding of intellectual capital and value and immediately used Keebler’s systems to market its own products. This was why the merger was called a ‘reverse merger’ by industry analysts. The larger firm used the adaptability of the smaller firm, rather than tried to make the smaller acquisition conform to the larger firm’s standard operating procedures. While there was an initial culture clash between Kellogg’s more corporate and standardized approach to human resource management, the use of innovative technology was strong enough to ensure that the merger was a success (Case example, 2010, Mastering the Merger).
Case example: The Kellogg Company and Keebler. (2010). Mastering the Merger. Retrieved August 9, 2010 at http://www.masteringthemerger.com/masteringthemerger/case_example_kellogg.asp
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