Transcript IT Role in M&A - Stevens Institute of Technology

The Role of IT
in the Success of Mergers and
Acquisitions
Carol V. Brown, Ph.D.
Distinguished Professor
Howe School of Technology Management
Stevens Institute of Technology
[email protected]
HSATM – November 19, 2008
Personal Research Interests
 IT Strategy and Management issues…
that keep CIOs awake at night
 Field-based research: case studies & surveys
“Best practices” and new IT management capabilities
 Publications: academic readers and practitioner readers
 Editorships: MIS Quarterly Executive (editor-in-chief eff. Jan. 2009)
Presentation prepared by Carol V. Brown, HSATM, Nov. 19, 2008
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Agenda: the IT Role in M&A
 The Motivation
– CIO “awake at night” Topic
– Knowledge Gaps in Prior IS Research
 Case Study Research
– Merger-of-Equals (n=3)
– Smaller Acquisitions (n=6)
 Some Concluding Thoughts
Presentation prepared by Carol V. Brown, HSATM, Nov. 19, 2008
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The Motivation: CIO perspective
 Today’s Business environments (dynamic, global)
 more frequent Business restructuring events
Mergers and Acquisitions (M&A)
Divestitures
Joint ventures & other strategic alliances
 What IT Capabilities are needed to effectively support
these Business restructuring events?
Presentation prepared by Carol V. Brown, HSATM, Nov. 19, 2008
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The Motivation: Gaps in IS Research

M&A events have different characteristics (intent, size):
What characteristics of the M&A event influence the IT role?

Mergers-of-Equals involve large-scale, complex IT projects:
–
–
–
IT Application rationalization (App Rat)
Other Technology rationalization (data centers, networks)
IT Talent selection: retaining and downsizing
What are some “best practices”?

Multiple IT Merger strategies exist:
Support IT of Firm B (leave as is)
Replace IT of Firm B (with IT of Firm A)
Adopt IT of acquired Firm B
Synthesize or “Greenfield” IT project (to replace IT of Firm A and Firm B)
Is the same IT merger strategy used for all acquired systems?
Why or why not?
Presentation prepared by Carol V. Brown, HSATM, Nov. 19, 2008
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Case Study Research
 Descriptive Case Studies:
3 Merger-of-Equals
– Compaq
buys
– Sallie Mae buys
– Sprint
buys
Digital
USA Group
Nextel
(with J.Ross, MIT)
(with IT leaders)
(with IT leaders & B.Wixom, UVA)
 Grounded Theory Studies:
– Smaller Acquisitions
(with B.Reinicke, UNC-W)
2 events in 3 companies, no merger-of-equals
– Merger-of-Equals
(with B.Wixom & E.Goren, SIT)
2-year longitudinal study, early access (two locations)
Presentation prepared by Carol V. Brown, HSATM, Nov. 19, 2008
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Deal Closes: July 31, 2000

Old Sallie
$14Mae
billion public firm based in Reston,
Virginia

$50 billion student loan portfolio

Public firm with employee stock option
program
# 1 Funds Source
# 1 Servicer
USA Group

Largest guarantor of student loans based in
Indianapolis

$16 billion student loan portfolio

Not-for-profit with growing fee-based
businesses
New
Sallie Mae
Presentation prepared by Carol V. Brown, HSATM, Nov. 19, 2008
# 1 Guarantor
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Success Metrics
Industry M&A Record
Only 12% of mergers led to significant
growth during 3 years after
acquisition; 42% actually lost ground.
Bekier, Bogardus, and Oldham. McKinsey
Quarterly, 2001 (No.4)
Key employees typically receive external
job inquiries within 5 days of a merger
announcement.
Kay and Shelton. McKinsey Quarterly, 2000 (No.4)
Record
Business Metrics:
Increased market share
Public goals met for cost reduction:
headcount by 25%, other costs by 40%
IT Metrics:
No major service interruptions during
first peak season (less than 30 days
after data center relocation completed)
Key IT talent retained as needed for 12+
months, despite “hot market” conditions
Presentation prepared by Carol V. Brown, HSATM, Nov. 19, 2008
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4 Success Factors Identified
1. Credible IT Leadership (supports Linder 1996)
– Announce IT leaders as soon as possible
– Leverage prior relationships (IT business, IT project teams)
2. Common Direction & Compelling Deadlines
(supports Linder 1996)
– Set direction, remove roadblocks, and empower others to act
– Make customer-facing applications a priority
3. Intensive Collaborative Planning
– Firm A + Firm B pairs to rationalize technologies
4. Retention of Key IT Talent (supports Watson Wyatt 1999 survey)
– Generous severance packages
– Incentives to ensure knowledge transfer
These Practices are NOT characteristics of Compaq-Digital case study
Presentation prepared by Carol V. Brown, HSATM, Nov. 19, 2008
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Sprint
Deal Announced: Dec. 2004
Old Sprint
Old Nextel

15-year-old company, 20K workers
based in DC corridor
Local, long-distance, wireless

Wireless; innovative push-to-talk
product
Systematic consensus management, but
IT credibility problems with business

Entrepreneurial management, with
strong IT track record with business

100-year-old company, 60K workers
based in Kansas


“Merger-of-equals” with Adopt-and-Go approach
Sprint
Nextel
Presentation prepared by Carol V. Brown, HSATM, Nov. 19, 2008
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Sprint
Success Metrics
IT Synergy Target
$400 Million Cost Savings
over 3 years
IT Synergy Achieved
$424 Million Cost Savings
within 2 years
Reduced operational expenditures and
avoided new capital IT expenditures for:
IT Applications
IT Operations
Includes integration of other business restructurings:
- spinoff of major business unit (required for government approval)
- acquisition of former alliances (Nextel Partners, Sprint affiliates)
Presentation prepared by Carol V. Brown, HSATM, Nov. 19, 2008
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Sprint
Success Factors for IT Role
1. Credible IT Leadership
– Early “wins” (Day 0, Day 1)
– Constant, consistent communications
2. Common Direction & Compelling Deadlines
– “Adopt-and-Go” approach embraced by IT
– Integration Management Office to keep IT focus on synergy targets
3. Intensive Collaborative Planning
– “Rational” process for application “domains”: Pairs of leaders, clear criteria &
use of multi-criteria decision-making tool to selected “winners”
4. Retention of Key IT Talent
– In-source and reallocate people across IT units
– Early voluntary separation package
4 Factors identified for Sallie Mae also found in Sprint case
Presentation prepared by Carol V. Brown, HSATM, Nov. 19, 2008
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IT Synergy Communications – 09.28.2006
Scorecard
Surveys
Ops Reviews
I have good understanding of synergy
Synergy is critical, most important
Synergy is most, very urgent
VP has responsibility for synergy
Supervisor has responsibility for synergy
I have responsibility for synergy
I have responsibility for synergy
(agree & somewhat agree)
Director
Manager/supervisor
Individual contributor
Jun-2006
Jan-2006
90.43%
91.95%
83.94%
95.49%
92.14%
90.78%
88.76%
90.93%
80.77%
91.40%
87.61%
86.91%
Jun-2006
Jan-2006
100%
94.71%
90.04%
97.44%
93.16%
85.40%
IT Synergy
Newsletter
IT All-Hands
August 2006
IT All Hands Meeting
IT Shooters 1Q 2006
Initiatives
Top 10 Award
Presented to
<Winner Name>
In recognition of your leadership in the pursuit of IT
synergy goals through application elimination.
Dick LeFave
Sprint CIO
March 16, 2006
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© 2005 Sprint Nextel. All rights reserved.
Presentation prepared by Carol V. Brown, HSATM, Nov. 19, 2008
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Case Study Research
 Descriptive Case Studies:
3 Merger-of-Equals
– Compaq
buys
– Sallie Mae buys
– Sprint
buys
Digital
USA Group
Nextel
(with J.Ross, MIT)
(with IT leaders)
(with IT leaders & Barb Wixom, UVA)
 Grounded Theory Studies:
– Smaller Acquisitions
(with B.Reinicke, UNC-W)
2 events in 3 companies, no merger-of-equals
– Merger-of-Equals
(with B.Wixom & E.Goren, SIT)
2-year longitudinal study, early access (two locations)
Presentation prepared by Carol V. Brown, HSATM, Nov. 19, 2008
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Preliminary Findings: Smaller Acquisitions
IT Role: Success Factors
Repeatable processes
Dedicated team
IT Merger Strategies
Replace IT of Acquired*
Goal: Minimum cost &
Maximum speed
Support IT of Acquired
Goal: Alignment for
short-term...or long-term
Factors that influence
system-level Strategies
IT factors
IT standards
Security issue
Business factors
Regulatory issue
Financial issue (of acquired)
Unique business function/process
Corporate governance/culture
Adopt or Synthesize IT
Goal: Increase IT Assets
…and these may change over time
* Includes Replace with IT Standard
Presentation prepared by Carol V. Brown, HSATM, Nov. 19, 2008
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Some Concluding Thoughts
 IT and Business factors influence the IT Merger Strategy
selected; different strategies for the same M&A event are
typical, and the Year #1 strategy may differ from Year #2
- Replace, Support, Adopt, Synthesize/Greenfield
 “Best practices” for merger-of-equals events include:
– Credible IT leaders, dedicated project office and compelling deadlines,
collaborative “rational” planning processes, and retention of key IT talent
 Characteristics of the M&A event influence the IT role:
Combination Potential – not just Size, but “merger-of-equals” mindset
Competitive Environment – not just hyper-competitiveness, but also if Public
Presentation prepared by Carol V. Brown, HSATM, Nov. 19, 2008
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Some Concluding Thoughts
 IT Role Success is Necessary, but not Sufficient, for
M&A Success
 IT Role Metrics: not just IT Cost Savings, but also
Business Revenues
 Today’s dynamic Business environments require a new
type of IT Capability:
“Reconfiguring IT Resources”
Presentation prepared by Carol V. Brown, HSATM, Nov. 19, 2008
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M&A Articles & Teaching Cases Published
Articles
Clancy, G., C.V. Brown, and R. Scholer. “A Post-Merger IT Integration Success Story: Sallie
Mae.” MIS Quarterly Executive, 2:1 (March 2003), pp. 15-27.
- SIM Best Paper Award, 2002
LeFave, R., W. Branch, C.V. Brown, and B. Wixom. “Sprint Nextel IT Leadership: Reconfiguring
IT Resources for Results.” Forthcoming in MIS Quarterly Executive, 7:4 (Dec. 2008).
- SIM Best Paper Award, 2008
Teaching Cases
Brown, C.V. and J.Ross. “Merging Information Technology and Cultures at CompaqDigital.” Managing Information Technology, 5th ed. (Prentice Hall, 2005).
Part A: Meeting Day One Objectives
Part B: Becoming a Single Firm
Brown, C.V. with R. Scholer. “FastTrack IT Integration for the Sallie Mae Merger.”
Managing Information Technology, 6th ed. (Prentice Hall, 2009).
Presentation prepared by Carol V. Brown, HSATM, Nov. 19, 2008
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The Role of IT in the
Success of Mergers and Acquisitions
Q&A
Presentation prepared by Carol V. Brown, HSATM, Nov. 19, 2008
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