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Market Consolidation

The next factor that is creating this perfect storm is mergers and consolidation. Although market consolidation is part of the natural ebb and flow of any industry, a shift has occurred in the business model of mergers and consolidation. It is driven by larger deals and the need to integrate more technology.

From an IT perspective, when any two companies merge, the integration process is often much lengthier and more timeconsuming than originally anticipated. This holds true regardless of the merger's size. Aside from the integration of teams and best practices, there is the very real and potentially very costly process of making the two different IT infrastructures work together.

One of the biggest "hurry up" components of mergers is the immediacy of combining the back-office systems of the new collective entity. At a minimum, similar if not duplicate applications will be strewn throughout the infrastructure of both companies. With all these variations on the same type of application, such as customer accounts, sales databases, and human resources files, there will undoubtedly be inconsistencies in how the files were created. These inconsistencies become very apparent during the integration process. For example, John Q. Customer may be listed as both J.Q. Customer and Mr. John Customer and might have duplicate entries associated with different addresses and/or accounts, yet all of those accounts represent one customer.

Along with trying to streamline the number of applications is the challenge of integrating the various technologies that may or may not adhere to industry standards. Getting all the parts of the orchestra to play the right notes at the right time presents a significant challenge for even the most talented IT professionals.

From a more mainstream point of view, spotty efforts to merge infrastructures can have a very real impact on consumers. For example, according to the Boston, Massachusetts television station and NBC affiliate WHDH, as well as the local Boston CW news affiliate, when tuxedo retailers Mr. Tux and Men's Wearhouse merged in 2007, a computer glitch didn't properly track inventory and customer orders.12 This resulted in wedding parties and others on their way to formal events without their preordered tuxedos. Since you can't change the date of such events, many customers had to incur additional expenses by going to another vendor to ensure they were properly attired for their big day.

Before you start chuckling at the thought of groomsmen wearing tuxedo T-shirts instead of formal wear, keep in mind that the U.S. wedding industry represents $86 billion annually13 and that men's formal wear represents $250 million annually.14 Talk about a captive audience—you can well imagine the word-of-mouth influence of an entire wedding reception.

Hallmarks of Successful Mergers

Every company that's been through a merger can share its own tales of what went right, what went wrong, and what never to do again. Yet I believe that successful mergers have consistent hallmarks:

  • A cross-functional team: This group is dedicated to the success of the merger. It needs to represent all the different functions of the newly formed organization and should work on the integration full time.
  • A realistic road map: When millions of dollars are at stake, especially if one or both of the companies are publicly traded, there may be a tendency to set aggressive deadlines to accelerate the integration. Don't sacrifice the quality of the efforts and the customer experience for short-term financial gains. For example, if your senior-level IT staff tells you the deadlines are unrealistic, listen carefully and follow their lead.
  • Humility: Don't assume that the acquiring organization has the better infrastructure and staff. Part of the responsibility of the integration team is to take a closer look at all the resources that are now available to create the strongest company possible.
  • Technology overlap: Whether a successful integration takes three months or three years, do not shut off any systems until the merger is complete from an IT perspective. You may need to spend more resources to temporarily keep simultaneous systems running, but this is well worth the investment to avoid any disruptions in service to customers.
  • Anticipate an extensive integration process. The biggest mistake an acquiring company can make is to assume that the integration will be complete in 90 days. Although it may be complete from a legal and technical standpoint, don't overlook the commitment required from a cultural perspective or you may risk degrading the intellectual value of the acquisition.
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