Becoming one IT organization is a challenging journey – these five success factors may make your life a little bit easier

Post-Merger-Integration projects (‘PMIs’) are some of the most challenging projects for large organizations. In them, two or more fundamentally different "worlds" need to be fused into a new unique, homogenous entity whilst realizing ambitious cost and efficiency targets. Therefore the different entities need to converge organizationally, aligning business models, delivering synergies and – the focus of this article – merge their IT departments. And to top it off, all of this has to be done while maintaining regular business operations.

A merger of IT departments is generally a long complex process. Due to the complexity, it is not treated as one large work item but is split into numerous smaller and larger projects across the whole IT organization (e.g., sourcing, infrastructure, business applications, workplace, workforce, etc.). The ultimate goal of all sub-projects is to achieve a certain recurring synergy target by consolidation, harmonization and optimization. Of course, all of this comes with a price tag of typically two to three times the expected long-term savings.

Based on our experience from previous PMI projects in the energy sector, we have identified a number of success factors for PMI projects. In this article, we want to share the five most important ones with you. Of course, depending on the individual situation, the relevant success factors may vastly differ. In our experience, all PMI activities must however obey to the following five success factors in various degrees.

1) Set up a dedicated team to own the entire integration

This team – often called Integration Management Office (IMO) – can be seen as the center of the PMI. Here, all relevant tasks across all modules and projects come together and are being coordinated with a strong E2E-thinking. The IMO is also responsible for driving decisions and of supporting escalations.

As it is a separate entity, the IMO is free from any historical burden or line management tasks and can operate in the best interest of the PMI's success. At its core, an IMO actually shares many characteristics with an Activist PMO.

When starting a PMI, the regular business operations keep running and IT on both sides keeps on working quite independently. You then need to develop a joint target picture as soon as possible and ensure, that it is anchored into the mindset of all employees. In addition, synergies need to be identified and corresponding cost reductions delivered. It is the task of the IMO to collect, keep track and actively steer the synergy realization.

To be effective, the IMO requires clear responsibilities and a corresponding mandate from the leadership team. Also, a direct reporting line to CIO and Board (usually responsible for the overall integration) is highly recommended.

2) Prepare an E2E-focused Integration Plan

Covering the whole organization and multiple independent transformation projects, an E2E-focused Integration Plan is a key prerequisite to ensure alignment between all relevant parties and stakeholders. This alignment should not only include projects focused on IT systems, but also all other areas of the transformation such as sourcing, workforce, workplace and cybersecurity initiatives.

The plan will outline multiple dimensions of the integration, starting with the fundamental timeline to synchronize all parties. Here, all actions are choreographed in preparation of the obligatory Day-1, the first day of the joint legal entity. This seemingly easy task is not trivial at all in the real world: The plan must reflect all legal, technical and organizational dependencies and resolve them in an intelligent manner. If you consider the local anti-trust laws preventing the collaboration of multiple parties, the timeline of the fiscal year, and all necessary steps to allow cross-party trust between IT systems, you begin to understand the plan’s complexity.

Past Day-1, the plan may be less detailed and more oriented towards overarching milestones. Commonly found items are around the termination of existing contracts or the successful integration of IT systems from both former companies.

It is important, that all relevant activities and milestones, responsibilities and communicated timelines always have E2E in mind. This means, that each project and activity should identify and monitor interdependencies and provide corresponding transparency at all time.

3) Develop Target Architectures and Migration Plans

When merging two independent and most likely quite different IT environments (in terms of used technologies and processes), the joint development of the Target Architecture should be one of the first steps. In a way it is the essence of the PMI as it will deliver the majority of the IT synergies.

It forces the organizations to get to know each other's system landscapes in detail and therefore helps to select the best path forward (e.g., greenfield vs. brownfield vs. best of breed) when designing the future setup and defining the required transformation projects. Considerations span further than the IT systems itself and should always consider/include all relevant facts for the business and IT.

As soon as the projects have been defined, migration plans should be prepared and aligned. Those plans are always required, if comprehensive changes to the IT landscape are being made and major impacts on the daily business is to be expected – be it due to data migration or due to decommissioning of legacy systems.

Those migration plans including their milestones serve as direct input for the previously mentioned integration plan and covers typical questions such as ‘What are the key dependencies?’, ‘When are the new systems ready?’ or ‘When can the old systems be turned off?’.

4) Establish a Holistic Tracking Process

As mentioned, the goal of an IT PMI is to create synergies across the IT organization. Those savings are directly tied to the progression of individual measures, which need to be tracked together with the implementation costs as well as actual IT spend.

A holistic tracking needs to bring together all three relevant dimensions (measure progression, synergy realization and associated costs). The reporting should be easy to read, understandable and be as transparent as possible at its core. Generated by the IMO, it is shared with all relevant stakeholders to help them understand and steer the process. This reporting process also serves as early warning system for the IMO (e.g., high increase of implementation costs but limited measure progression).

The IMO however is not the sole executer of all tasks of the PMI. It is rather the gate keeper and will keep track of the measures identified by IT and business. Each measure itself becomes a project with its own timeline, budget and synergy targets.

It is highly recommended to embed the synergy targets in the MTP (midterm planning) process and personal targets of the leadership team and – where possible – of the employees, too. This way, the buy-in of the organization can be ensured and support in the strain against change fatigue. Ultimately, all projects should also be reviewed by representatives from the business to make sure that they are in line with its strategy and may not contradict future anticipated development.

5) Focus on the Employees

Many tasks within the PMI are very important and top priority. Especially in the busy days before the merger and the first days after the legal entities merge, it often feels like there is no time to deal with the employees. But it is precisely those who have to put the target vision into practice.

If the new organization does not succeed in motivating employees and in giving them a perspective in the new environment, many of the key initiatives and plans will fail.

“Make them part of the journey” is an ancient – yet true – change management philosophy. Understandably people are not willing to contribute if they do not understand the path they are on. This is especially true if parts of the synergy is based on FTE reduction. A few minutes of small talk on the coffee machine and a joint team event to share the latest developments and plans are well invested time. You can find ideas on how to do this in times of Covid-19 here.

Conclusion

PMIs – and here especially focusing on the IT part – are highly complex projects as they cover the full value chain of the affected entities: Multiple unique IT projects (ranging from smaller implementation initiatives to full-blown IT landscape transformations), changes in the IT organization, sourcing initiatives to find the best service providers, high pressure to reduce the overall IT costs and many more.

We hope that our TOP-5 success factors will help you to navigate this challenging environment and ensure a successful PMI. 

Feel free to reach out to us if you want to know more or discuss a specific PMI challenge with us!

Authors: Soeren Greve (Manager), Thomas Masyk (Senior Consultant) and Michael Ruckel (Associate Director) are part of the Energy practice area of BCG Platinion and experts for digitization and IT transformation in the Energy industry.