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Coupling the right Business & ERP Strategies - A Road to success in Mergers & Acquisitions/ Divestitures

 

Global businesses keep facing constant challenges both within and outside such as Changing customer behavior, Technological disruptions, Dynamic geo-political landscape, Intense competition, Financing difficulties, Dynamic workforces etc. Global Health Pandemic is the new addition in this list.

Mergers and Acquisition (M&A) is one of the key interventions that these global corporations adopt to cautiously navigate in tough business environments. A comprehensive and fully aligned IT and ERP strategy, that works cohesively with the underlying business strategy, becomes a key ingredient of the success of the M&A.

On a global scale, merger & acquisitions (M&As) have been growing over the years. In 2019, there were about 50,000 transactions valued at US$ 3.8 trillion. (Source: IMAA website)

This point of view is an attempt to throw light on the key aspects pertaining to M&A /Demergers, how the alignment of the ERP strategy with overall M&A /Demerger objectives, had helped these corporations draw maximum benefit out of organizational consolidation transactions.

The typical objectives/drivers for M&A would be

  • Gain access to new markets, geographic locations, consumer groups
  • Achieve synergies through consolidation and collaboration
  • Realize benefits through complementing (as opposed to competing) strengths
  • Achieve non-linear increase in scale of operations and service delivery
  • Pave way for entry to diversified industry segments


Over the years the business strategies after M&A /Demerger had been broadly classified into 3 types:

  The success of the M&A /demerge largely lies on the right ERP strategies and correct coupling and decoupling approach taken up by these entities.

ERP Strategies

  • Need varies for business to business
  • Alignment to overall M&A/demerger objectives
  • Depends on the Line of Business (LoB), Size, Type, Industry operated etc
  • Existing ERP status
  • Existing ERP Product support availability horizon -Example a specific version may not be supported after a year or so.
  • Risk appetite etc
  •  












Choosing the RIGHT ERP system, is the most important decision in M&A or demerger Post-facto operations. It should align with the overall Business Strategy and with a clear Risk and Risk mitigation strategy analyzed for all possible scenarios.

Possible scenarios include

  • Acquired Company adopting acquiring company's ERP / merging entity adopting base entity's ERP

  • Acquiring company adopting Acquired company's ERP / base entity adopting merging entity's ERP

  • Retain existing ERPs, have common reporting platform as an add-on (Example - Hyperion or any BI Reporting Tool)

  • Both moving to a NEW ERP system as applicable to Business (For example - If both are on the verge of Sunset with their legacy systems)

  • Both on SAME ERPs - Simple, BUT YET NOT so simple - Still some synergies may be needed (Diff Processes, Version etc)

At a more granular level it can be

  • Inventory Org Consolidation

  • Operating Unit Consolidation

  • Instance/Environment Consolidation

 

In case if the Target Application would be a NEW ERP, following Key Parameters can be considered in choosing the right one:


The typical challenges in the ERP Integration for M&A /Demerger could be classified into Five main pillars.












 Infosys solution framework/approach revolves around addressing the above key challenges.

High-level framework is as given below:

Key Challenges

Infosys Solution Approach

Business Process Alignment

Business Process Mapping exercise

Ø  Convergence/Divergence exercise

Ø  Classify as Common, Unique, New etc

Ø  Construct a Business Process Reengineering (BPR) wherever possible

Master Data Alignment

Establish

Ø  Clear Strategy

Ø  Data Standards

Ø  Process

·         De-duplication

·         Consolidation

·         Joint Migration

Reporting Mechanisms

Ø  Joint Balance Sheet

Ø  Separate P&L

Ø  Separate Internal reporting

Ø  Define reporting consolidation approach (Live Vs Analytical)

Ø  Standardize processes, tools and data reservoir strategy

Legal/Localization requirements

Depending on the geography - Example - Europe, India.

Data Security (Relevant in the interim period)

       Master Data

       Transactional Data

Options include

Ø  Masking

Ø  Scrambling etc

thus, making data access secure during the co-existence period for both the entities.

 

Infosys also has multiple tools and accelerators that can enable the smooth implementation of the ERP Strategies as part of the M&A /Demerger activities such as process review checklist dos and don'ts, comprehensive business process listing and flows, configuration questionnaire wizard, configuration documents, test scripts, which help the ERP implementation /rollout projects to be done in an accelerated deployment model.

Conclusion:

Dynamics and challenges associated with M&As have been very widely documented, discussed and there is a constant effort by organizations to make them successful. ERP systems integration is a key determinant of M&A success and Infosys, armed with depth of knowledge, learnings & experience gained through multiple engagements is strongly poised to advise and partner with organizations in this compelling strategic intervention.

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Authors

Murali Krishnan Santhanam (murali_santhanam@infosys.com) 

Prabhoo Kannan (PrabhooK@infosys.com)



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