FINspeak

Merging isn’t as easy as “you have a strong balance sheet, I need a strong balance sheet, let’s get together”.  Departments need to be reorganized, redundancies eliminated, and synergies realized.  A complex affair indeed; it is no wonder that 70% of mergers fail to achieve their anticipated value.

Merging IT inevitably becomes one of the more difficult post-merger tasks.  The challenge for the acquiring CIO is to maximize synergies while minimizing customer disruption.  The ideal (idyllic?) end result is an IT system fully aligned and integrated with the business side of the bank. In short, there has never been a better opportunity for these organizations to demonstrate the value that true Business-IT alignment can bring, both in terms of operational efficiency and speed of response.

There are number of different approaches to take.  Some companies elect for the “let’s get to it” rapid integration.  This can often be a dangerous approach for banks to take, as customer-facing functionalities may experience down-time.  According to Mckinsey Quarterly, rapid integration typically drives away 8% of the customer base.  For a large bank with millions of customers, this is an unacceptable scenario. As a result, this approach is more suitable for smaller organizations (with more back-end operations) merging with larger organizations, rather than two large organizations with mission-critical customer-facing applications.

The flip-side of the speed coin is a slow integration.  This often entails running systems parallel to one another.  Though a slow approach eliminates any potential customer service problems, it also racks up high maintenance and support bills.  Redundancies are never friendly to the bottom line, and running numerous IT systems can be incredibly expensive.

Others find a middle ground and use a phased approach.  The first, or “keep the lights on”, phase integrates blatantly redundant applications, while running customer-oriented systems in parallel.  While this occurs, a team conducts a comparison of systems across the two organizations, choosing which are best suited for the newly merged organization. In the next phase, data is migrated to the application system being retained and the future roadmap for the consolidated system is determined based on the strengths/weaknesses noted in the systems in their stand-alone versions in the pre-merger days.

Any successful integration is generally predicated on strong leadership and planning.  All stakeholders need to be involved and a committee should be formed including representatives of each business unit and the IT department. Before any integration is undertaken a blueprint will need to be developed which targets desired synergies and weighs the costs of achieving these synergies. 

I’m sure much will be learned following this latest batch of mergers, and it should be interesting to see which approach each newly integrated institution elects to use. Whichever approach they choose to take will have its fair share of challenges both on the business and IT side, and only successful stakeholder management can help to overcome them.

CFO.com has an interesting write-up on post-merger IT integration.