ITMA-IT Integration in Mergers and Acquisitions

This study aims to identify key information technology (IT) integration issues experienced during mergers and acquisitions (M&A) in the financial services sector. The study proposes an approach to increase the efficiency of such transactions. A comprehensive literature review and case study of a leading financial services organisation is undertaken, comprising of interviews with high ranking IT and business leaders. This research identifies the blueprint for a best practice framework, which Chief Information Officers (CIOs) and IT practitioners can employ to guide execution of their own M&A integration programme.

Global mergers and acquisitions (M&A) deals in the financial services sector increased 21% in 2014 to £214.9bn (Ernst & Young, 2014) representing one of the most challenging enterprise transformations in the corporate world.Typically, 25% of total M&A integration effort comes from IT (Gartner, 2015), this means that Chief Information Officers (CIOs) are now playing an increasingly important role in successfully and swiftly delivering the expected business benefits and shareholder value.Delivery at pace is a core capability and focus area of this study, as information technology (IT) integration is often a key dependency in terms of M&A business benefits realisation.
The objective of this study is to help CIOs manage the process of IT integration as quickly and efficiently as possible during an M&A event in the financial services sector.Based on key findings from the associated case study we conclude that delivery at pace is about doing the right things at the right time.A systematic literature review of industry publications and best practice frameworks is complemented by a case study of a leading Financial Services organisation, which completed a £250m acquisition in 2015.High-ranking IT leaders and subject matter experts are interviewed to identify critical success factors including; organisational alignment for delivery at pace, motivating teams, regulatory, technology and data considerations.This case study is useful as it represents a successful transaction within a large corporate environment and is reflective of a broader number of cases.
The tangible result of this study takes the shape of a refined IT integration framework, providing easily digestible guidance for those faced with rapid execution of this complex and challenging programme of work.The ITMA framework applies to a broad range of IT integration scenarios and can be adapted for immediate use.M&A IT integration is a complex programme of work for which very few all-encompassing best practice frameworks or terms of reference exist.Due to the multi-faceted nature of M&A IT integration the findings of this study have been grouped into the following categories, which are believed to represent the most pertinent CIO level considerations:  Strategy.Aligning the business and IT to turn boardroom discussions into operational and equitable reality.
 People.Embracing leadership and communication, whilst developing a holistic plan for cultural integration. Control.Navigating the numerous regulatory, information security and governance standards required when merging companies.
 Delivery.Delivering the benefits of M&A through effective due diligence, synergy realisation and post-merger integration.

The Impact of Failure
The answer to the question 'why do M&A deals fail?' is the subject of extensive research.In the broadest sense it could be argued that it's easy to buy but hard to perform an M&A (Weber et al., 2013) or one might question the leadership capability of the acquiring or target companies (K.Dunbar, 2015).At a more definitive level much of the supporting research points towards cultural integration issues, inadequate due diligence, theoretical valuations, limited or no involvement from the owners and post-merger integration (Investopedia 2014b).The latter indicates a lack of knowledge for management tools or best practices to guide senior managers through this complex programme of work.
Numerous case studies highlight how badly things can go wrong during an M&A transaction.The impact of failure is lasting; not only financially, but in terms of reputation and on-going regulatory scrutiny.In the case of RBS, they were fined £56 million for the 2012 system outage (BBC 2014), the bank set also aside £125 million in compensation funds and docked £6 million in bonuses from staff.In a powerful statement from Andrew Tyrie (Conservative MP), these types of issues "erode the public's trust in banks" (Guardian 2014).CIOs are becoming increasingly aware that their accountability, their actions and their diligence is paramount in protecting far more than their own personal brand.

Landmark M&A Case Studies
Success and failure is common place in the world of M&A and analysts are keen to put forward their synopsis of 'why' individual cases went well, or went so badly wrong.One thing that can be guaranteed however, is that no two cases are the same, each will vary in terms of scale, complexity and internal or external factors.In reviewing M&A case studies it's often easy, with hindsight, to see how problems manifested themselves and suggest how risks could have been mitigated.However, in the absence of a framework or model for integration, it's also easy to see how things were missed and costly mistakes were made.Below are just two examples of M&A transactions, in recent years: Deutsche Bank -Bankers Trust.When Deutsche announced plans for a $10.1bn takeover of the Bankers Trust (NY Times 1998) they had to act fast to integrate a combined workforce of 20,000 staff across two cities.A study from the Concordia University (Appelbaum et al. 2009) considers the acquisition a success due to an effective strategy.This is due in part to an integration team formed of key executives, in charge of closely monitoring the merger and keeping everyone well informed.The team consisted of division heads, human resources heads and the CEO.
Bank of America -Merrill Lynch.When Merrill Lynch was acquired by Bank of America in 2009 they were tasked with integrating two broker-dealers housing two separate investment banks.According to Kateri Zhu (2014) decisions relating to organisational structure and leadership languished for over 4 months, causing fear, doubt and divide.In this case, lowercase lack of consideration for people and communication cost the group significantly in terms of productivity, fiscal gains and subsequent lawsuits.

The Need for a Best Practice Framework
CIOs often find themselves in the challenging position of having to manage complex M&A related integration programmes with no reference point or model to guide them.Leading authors and industry specialists Dr.
Michael McGrath (2011) and Jan Roehl-Anderson (2013) suggest the lack of a specific 'best practice framework' covering IT integration in M&A in the financial sector.This is concerning as structure and clarity are vital in managing the executive's often-heightened expectations of time, cost, quality and risk.
The list of CIO level considerations is as vast as the number of stakeholders who need managing during this time.
Including, but not limited to; the business will want to know how IT defines success and how they can best work together.IT leadership teams will want to understand the best approach to due-diligence and how technology can quickly enable the business.Programme management must be guided on how governance frameworks can be configured for optimum engagement and enablement.Finally, participation and morale must be positively influenced.This is a tall order for any CIO turning their hand to M&A integration for the first time.Whilst there is no such thing as a fool-proof checklist this research aims to arm CIOs with a toolkit for this challenging programme of work.

Research Design
This study sets out to identify the key focus areas and best practices associated with fast and effective M&A related IT integration.As the authors have practical experience of this field, the study adopts pragmatism and  (Sitkin & Pablo, 2004) suggests that leadership in M&A deals is often ignored or even denied, possibly due to the lack of a credible framework or best practice to support the discipline.Sitkin & Pablos research concurs with Dunbar's suggesting leadership implications are huge in terms of M&A success or failure, specifically the collective leadership capability of both the acquirer and target companies (see appendix Fig A3).They do, however, elaborate on the fact that little attention has been paid to theorising about or studying leadership.This position has changed somewhat since the paper was written in 2004 following the works of Dunbar, McGrath, Roehl-Anderson and AON Hewitt (Dunbar, 2014b;McGrath, 2011;Roehl-Anderson, 2013;Hewitt, 2011).

Company Culture
According to many sources, an analysis of the cultural differences between the two integrating companies should be conducted during the due diligence phase (Hewitt, 2011;Capgemini, 2015;Sitkin & Pablo, 2004).Often this is not the case.In one of the most noteworthy research reports in this space, Culture Integration in M&A by AON Hewitt (2011) they suggested (from a study of 123 global organisations) that 58% of respondents did not have a specific approach to assessing and integrating culture in a deal.They go on to suggest that the consequences of poor cultural integration are direct drivers of deal failure.
Despite the worrying connection between culture and M&A success and potential consequences, many companies fail to track metrics relating to people or cultural integration factors.Similarly to the leadership aspect outlined by Sitkin & Pablo, cultural alignment appears to be an area that is either ignored or denied; none (0%) of the businesses responding to Hewitt's survey reported that their cultural integration practices were effective (Hewitt, 2011).

People Management
McMorris (2015) suggests that employee engagement is critical during post-merger integration, "If staff are fully immersed in the changes they will have the knowledge to lead the united company in the new direction" and having advocates for the new organisation internally is likely to be highly advantageous to any leader wishing to cover the cultural integration challenges listed previously.A webinar hosted by US M&A specialists FirmEx (Sherman, 2013) outlines some of the key post-closing M&A employee issues, which include expectation management (what's expected of me?), rewards management (what's in it for me?) and job security (what's going to happen to me?) CIOs are wrong if they think even the most senior members of their teams are not thinking these thoughts, and it is their responsibility to fill these voids with clear and consistent information at all levels, even if some of the data shared is bad news.

Dealing with Staff Reduction
Often two into one simply doesn't go.Just as the best employees need to be secured as part of the new organisation, staff reductions also need to be considered and managed professionally.The HR considerations are too vast to list here, but the process must be seen to be fair and reasonable (McGrath, 2011) and act fast to address employee concerns (Roehl-Anderson, 2013).CIOs might offer monetary bonuses to keep remaining employees happy and prevent a mass exodus that would impair the new organisation's ability to operate (Chandra & Satyam, 2009).

Communications
"You cannot over-communicate when it comes to an M&A integration project" is a view expressed by Polley (2015), and one that is contested slightly by McGrath (2011) who advises CIOs to err on the side of caution and not swamp users with volumes of trivia and minutiae -'clarity is the order of the day' and something he considers the most important section in his book.Poor communication is however likely to have an adverse impact on confidence levels expressed by the executive committee and confidence in the IT teams ability.This only serves to add pressure and increase chances of failure.Polley explains that keeping staff and users updated with progress and plans is critical during a potentially disruptive period for the business; if users are in the loop, they are much more likely to be understanding and co-operate.
Communication is not the most complex of post-merger integration deliverables, but very often it misses its target.Once the deal is closed the CIO should take the opportunity to communicate the deal objectives and company strategy; it is time to communicate and lead the change (Capgemini, 2015).According to McMorris (2015), leading this process successfully comes from carefully aligning employee engagement programmes with a multi-layered strategy built around communications.Intranet pages and collaboration portals can be used to share success stories and create a positive feedback loop (Hughes et al., 2013).Failure to communicate when a change occurs, or is about to occur, can result in anger or resistance (Schied, 2011).
According to AON Hewitt, high-performing M&A integrators rank communication and change management as their top two highest priorities, ahead of retention of leadership and key talent.This view is shared with Shernam (2013) who considers communication as 'hypercritical' and recommends that CIOs treat mergers as the beginning of a marriage; considering what is required to build a successful relationship.

Establishing an M&A Change Programme
M&A change programmes must be set up for success.This means adopting the right approach from the start and managing a properly structured process through to the realisation of the envisaged benefits (Mayes, 2013).As discussed previously, senior management commitment is paramount as nobody can champion a great business alone; this is particularly evident during a merger or acquisition.It is therefore wise to establish an advisory board that includes major stakeholders, heads of department, internal staff and an outside specialist to guide the process (McMorris, 2015).Roehl-Anderson (2013) notes the importance of selecting the right members of the C-suite to engage in execution of the transaction, suggesting key executives who have been involved in due diligence and who will remain in place after the integration has completed.

Effective Programme Management
The importance of programme governance.Once a coherent business IT strategy is defined CIOs must define how people and processes come together within a governance structure to deliver critical components on time and within budget.Failure to do so can be draining from a personnel and financial perspective and can quickly spiral out of control if the businesses have not outlined what they wish to achieve (McMorris, 2015).Many of the most noteworthy publications on M&A IT integration concur that programme governance is imperative to the objective and results of any merger or acquisition (Roehl-Anderson, 2013;McGrath, 2011;Deloitte, 2013).During these failure-intensive programmes of work, it is clear that project management controls are a mandatory component, helping prevent or reduce failures to an acceptable degree.CIOs need to take a firm lead in managing time, quality and costs constraints that pull on a project in various ways.
Roles and responsibilities.Clarity around who is accountable for specific tasks is key to any successful project, even more so when complexity is heightened or there is uncertainty about the future organisational structure.In a report entitled IT integration for M&A (2012), leading storage vendor EMC outlines two key work streams under the executive steering committee: an operations committee and an integration management unit (IMU).The former is responsible for resolution of issues and providing direction.The latter is responsible for coordination of activities and cross-functional problem solving and typically takes on responsibilities such as planning, monitoring progress, communications and on-going analysis and optimisation.Underpinning this fairly typical arrangement are functional integration teams from customer legal and HR etc.
Keeping track.M&A IT integration programmes can be long and challenging beasts.Due to the amount of upfront planning, design, build and testing activities, it can easily feel like little ground is being covered.Technologists with creative minds also need to feel like they are on a journey and get satisfaction from sense of achievement (Glen, 2003); this can be enabled by a clear and logical change agenda.Weekly project review meetings are imperative as It is almost inevitable that plans will stray if they are not being closely managed (Hughes et al., 2013).
Live by lessons learned.Each M&A integration programme is unique, but many share common themes and there is much to be learnt from previous experiences, both positive and negative.Examples of lessons learned include implementation of the incorrect strategy, unforeseen Day-100+ issues and the implications of poor cross-functional engagement.

Regulatory Considerations
The compliance department within a brokerage firm, bank or financial institution has an obligation to ensure it complies with all applicable laws, rules and regulations (Investopedia, 2016;Protiviti, 2012).Financial services companies face rigorous scrutiny under legislations such as the Gramm-Leach-Bliley Act (GLBA), Fair Credit Reporting Act (FCRA), Payment Card Industry Data Security Standard (PCI-DSS), EU General Data Protection Regulation (GDPR) and Sarbanes-Oxley Act (SOX) or 'J-SOX' as it has been unofficially coined for Japanese businesses.
Using Sarbanes Oxley as a case in point, there are two types of IT controls: IT general controls and applications controls.IT general controls are key controls embedded in standard IT processes, which provide a reliable operating environment.IT general controls fall into the categories described in Figure 7 below and are subject to stringent annual audit and reporting requirements., 2014).Risk management must be performed in parallel with robust change management disciplines, similar to those outlined by ITIL (Axelos, 2015a).

Due Diligence
At its most basic, due diligence is the methodical and measured evaluation of every aspect of a business' corporate life (MerrillCorp, 2016;Ernst & Young, 2011); a process that involves exchanging and reviewing sensitive information, including legal and commercial documentation, personnel files and company accounts.
From an IT perspective this could mean infrastructure design documents, historical service reporting or details of the application portfolio.
Too often, however, key information and the opportunity to learn from it is missed.A McKinsey study on post-merger management found that 50% to 60% of the initiatives intended to capture synergies were strongly related to IT, but critical IT issues are not fully addressed or understood during the due diligence phase (Chandra & Satyam, 2009).

Critical Pre-Deal Steps
The most successful IT integrations have one thing in common; detailed planning.To deliver a programme of work, at pace, it is imperative that CIOs and senior IT leaders prepare as best they can, with a strong focus on the following eight areas.
1) Know your systems.IT leaders must have an explicit knowledge of system architecture and what the most important systems are.With this information a detailed map of both companies infrastructure can be produced to begin planning the integration and making pragmatic decisions.The process must be transparent, realistic and involve all areas of management (McMorris, 2015) 2) Rationalise and prioritise.In a classic CIO.com report, Stephen N. David (Procter & Gamble and CIO-100 honouree) was quoted as saying that "75% of IT integration effort is determining which systems to keep, what data is important and how much integration is actually needed" (Worthen, 2002).This links critically to planning and communication of the integration strategy 3) Communicate the synergy case.As well as understanding the strategic rationale for the deal, IT teams needs to understand the desired synergies and the expected level of IT enablement.At this stage the technical detail is not important, however it is imperative to understand the approach for driving out synergies 4) Decide on a dominant side.It is not uncommon for executives from acquiring / acquired companies to form a new C-suite to help bridge the cultural gap.It is crucial however that one of the two entities emerge as the driving force behind the integration with a single person ultimately accountable (Worthen, 2002) 5) Prepare a migration strategy.Legacy systems can add significant complexity and cost to an integration programme.IT leaders must quickly understand the constraints, risks, compliance factors and skills required in migrating data to a new platform 6) Transitional Service Agreement (TSA).Continuity of business is critically important during the integration.It is therefore imperative that the level of support needed post-deal is understood, negotiated and agreed via a formal TSA.
From this it can be seen that knowledge, direction, communication and leadership appear to underpin successful IT integration programmes.Less obvious considerations, such as longer term planning and commercial formalisation, should also receive comparative focus at this time.This is where a programme is effectively set up for success or failure.

Integration Planning
According to Chandra & Satyam (2009), overachieving organisations demonstrate three critical success factors (CSF) in achieving fast-paced IT integration.First, they address any issues within their own IT infrastructure before initiating any deals.Second, they adopt service-orientated architecture (SOA) to enable simplified and

Synergy Capture
Referred to as the concept that the value and performance of two companies combined will be greater than the sum of the separate individual parts (Investopedia, 2015;Deloitte, 2013), synergy gains stemming from operational improvements are often the reason to justify a merger.Based on the $4 trillion worth of M&A deals completed globally in 2015, annualised publically announced cost synergies are estimated to be 2.9% in the financial service sector (£140bn).Further estimates suggest that if all of the global costs synergies were to be realised and sustained, this could add an estimated $1.5-$1.9trillion to the value of these companies (Deloitte, 2016).In an example outlined by Capgemini (2015), this could be realised as a 35% reduction in application maintenance costs, 25% datacentre costs, with a further 20% desktop savings to be made.CIOs are therefore under increased pressure to think strategically and dispassionately about how they can realise the 50%+ of synergy savings enabled by IT, which include lower infrastructure costs, reduced IT headcount and increased volume discounts for IT procurement (Sarrazin & West, 2011).

Summary of Findings
Below is a selection of case study interview responses.For full list see appendix B. Respondent D. "…we really were flat out.In terms of synergies we were more concerned with building enterprise class solutions as opposed to rationalising kit" Respondent F. "It was nice to be in a position where the focus was on integration and growth, rather than consolidation and cost reduction" Summary.'Speed of integration' received the highest average score for perceived level of success and achievement, followed by customer satisfaction and increased innovation.This reinforces the importance of 'delivery at pace' and its relationship with the other listed success factors.In this case, the absence of a strong focus on cost appears to have allowed the integration team to focus on timeliness of delivery without impacting the customer experience; scoring for 'increased innovation' further supports how this was achieved.Summary.With the exception of ITIL, which had been matured within the ITSM space, it was clear that neither Company Y nor Z had a great depth of exposure to best practice methods.However, Agile was introduced to great effect, providing fast and effective benefits realisation; making it well suited to M&A IT integration.

Delivery -Getting The Job Done at Pace
Delivery at pace Q5.What emphasis was put on 'delivery at pace' and to what extent did this affect integration quality?(Please select and comment) Delivery at pace was of paramount importance, integration was delivered quickly with high levels of quality Delivery at pace was of paramount importance, integration was delivered quickly with certain quality compromises Delivery at pace was of paramount importance, integration lead times were delayed due to quality issues Delivery at pace was not a primary driver, integration was delivered in normal timeframes with high levels of quality Result: 100% of respondents agreed Delivery at pace was of paramount importance, integration was delivered quickly with certain quality compromises Respondent F. "There must however be a trade-off for certain aspects of quality or maturity, and a realisation that in some cases it may not be perfect" Respondent D. "Delivery at pace is about doing the right things at the right time.There are a number of moving parts so the chances of getting something wrong increase.You work on the basis that you might not get everything 100%" Summary.100% of the respondents agreed that 'delivery at pace' inevitably comes with risk and associated trade-offs in terms of quality.Respondent A clarified how risks were mitigated via use of an operational readiness tracker, which served as a checklist for business preparedness, testing, comms and documentation etc.; the basis on which go/no-go decisions was made.

Conclusion: A Framework for IT Integration in M&A
Businesses with a clear strategy for growth and a desire to 'deliver at pace' can achieve rapid operational efficiencies and costs synergies through M&A, if IT integration is properly planned and executed.With limited experienced resources available in the market place, CIOs continue to rely on expensive subject matter experts and specialist consultancies to help navigate the challenging terrain.ITMA offers a cost-effective solution in the form of a logical framework for IT integration in M&A, which can be used to guide the programme of work and develop teams.
score the following corporate metrics to indicate the perceived levels of success and achievement during the M&A? (100% is equal to full benefit realisation) Fig : Leading thro Fig A Leadership and CIOs must get the basics right and build solid foundations on which to develop.
The Neglected Importance of Leadership in Mergers and Acquisitions by Dr. Sim Sitkin and Dr. Amy Pablo All effective M&A integration programmes start with a strategy and foundation based on risks.Typical risk based frameworks include ISO27002(ISO 2005)and The Risk IT Framework (ISACA, 2012), which builds on COBIT's existing risk-related components.Risk assessments are performed to support a variety of business objectives including identifying new or changed levels of risk, clarifying ownership over risk and risk mitigation activities, uncovering areas with inadequate controls, and quantifying and communicating risk levels to IT and business partners (CEB build an IT platform agile and robust enough to support future M&A operations. Respondent B. "We put on Pizza Fridays and had a 'track day' for those involved in the migration, this was great fun and brought a real sense of team spirit and achievement!""Summary.All respondents spoke highly of the incentives used by management to increase motivation and ensure on-going commitment to the long and demanding work schedule.Whilst none mentioned (or were prepared to mention) any promises of promotion, a bonus structure and 'track day' was used to boost morale and increase retention to great effect."Itwas important for us to adopt an Agile methodology as we needed to deliver short and sharp benefits, it was important for the exec to see immediate progress and that we didn't become bogged down with business cases and planning etc."Respondent F. "We've matured our use of ITIL considerably over the past couple of years, so this formed the basis for release and service operations.The benefits were obvious as it offered a commonly understood platform for contractors to integrate with".