How ERP Implementations Can Enable M&A Integration

Written By: Eric Kimberling
Date: December 11, 2020

Effective ERP implementations can be a fundamental driver of business value during M&A integration. Whether you are dealing with a merger, acquisition, carveout, or some other M&A-related event, your digital transformation strategy and ERP implementation should be a core tenet of delivering the expected return on investment.

Many of our clients turn to my team and me to help with their M&A integration – particularly as it relates to the technology, operational, and organizational components of the transformation. We have quite a few lessons from these M&A integrations that can provide a clear integration roadmap.

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Why ERP implementations and M&A integrations fail

ERP implementations too commonly fail – regardless of whether or not it is in the context of an M&A integration. However, ERP implementations are even more likely to fail as part of an M&A integration. The primary reason is because of the magnitude of change; ERP implementations are difficult enough on their own, but the disruption of M&A integration is another straw that can break the camel’s back.

In addition to this root cause of failure, ERP implementations suffer from a variety of problems against the backdrop of an M&A integration. Here are a few examples we have seen with our clients:

  • The organizational design and integration is overlooked
  • Future state business processes are not well defined
  • The newly combined executive team is not strategically aligned
  • Employees of the combined entity suffer from change fatigue – both from the M&A integration and the ERP implementation
  • Private equity groups focus on minimizing short-term ERP implementation costs, often at the expense of longer-term risk, cost, and operational disruption
  • The ERP implementation is too often viewed as a necessary evil rather than a strategic opportunity
  • Culture clashes amongst merged entities undermine the digital transformation and ERP efforts

These and other pitfalls can be mitigated through some of our lessons from M&A integration work with our clients. Below are some of the key steps to leverage your ERP implementation or digital transformation to enable a successful M&A integration.

Align your corporate strategy with your digital transformation

ERP implementations that are misaligned with corporate strategies and objectives are destined to fail. No matter how well you may plan and execute your digital transformation, it won’t be enough to overcome internal misalignment.

Rather than careening straight into implementation at a breakneck speed right out of the gates, it is important to take a step back to define and clearly articulate your go-forward strategy. This exercise often exposes strategic and operational misalignment – a critical prerequisite to a successful transformation. It may be messy and time-consuming, but much less so than an ineffective implementation against the backdrop of internal misalignment.

This video provides some more background and practical frameworks to ensure that you achieve strategic alignment within your organization:

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Ensure cultural alignment

Many studies show that most M&A integrations fail – regardless of the potential they may show on paper and in theory. The number one root cause of integration failure is related to clashing organizational cultures. Simply put, two opposing cultures can completely derail an otherwise successful merger or acquisition.

The most successful M&A events are those that deliberately and strategically find ways to blend the best of multiple cultures. At the very least, a merger or acquisition needs to neutralize any incongruent cultures. A very rigid, standardized culture combined with a more flexible and entrepreneurial culture is a common recipe for disaster. Be sure to incorporate a cultural assessment and integration plan as part of your overall integration and transformation.

Define business process improvements and the future target operating model

Just as cultural misalignment can undermine M&A integration, so too does operational improvements. This typically comes in the form of business process improvements and defining a future state operating model. This helps define how the combined entity will work in the future. Without it, chaos ensues, value is undermined, and it can actually create a negative ROI.

The more successful M&A integrations take the time to identify what the combined entity wants to be when it grows up. They don’t simply define theoretical process efficiency and effectiveness gains (such as “reducing SG&A costs”); they also define these potential improvements in more detail, including how exactly they will be achieved. Note that this exercise is most effective when done at a macro level independently of technology.

This video provides some more definition on how and when you should define your future state business processes:

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Organizational design and integration

Once the strategic alignment, cultural, and operational issues have been addressed, then it is important to define the future state organization. This is especially true if much of the expected M&A value is to be driven from organizational synergies and/or labor cost reductions.

Before simply overlaying technology on broken or inefficient organizational structures and job roles that are going to change anyway, it is important to spend time upfront defining what the future-state organization is going to look like. This is one of the more important change management workstreams that should be executed prior to starting the ERP implementation in earnest.

Develop an effective ERP implementation strategy and plan

Once the foundational work outlined above has been completed, then you will have a strong blueprint for a successful ERP implementation. It may be tempting to do this part first – then worry about all the other stuff outlined above at a later time – but this is a mistake. Avoid the temptation.

Instead, consider this an enabler of the M&A integration value that you envision. There may be immense pressure to deliver integration value on the transaction as soon as possible, but it is important to recognize that you will actually achieve value faster this way than if you were to jump straight into your implementation prematurely. This more disciplined approach also mitigates risk and ensures longer-term business value, which is something so many M&A transactions desperately crave and fail to achieve.

This video provides some more details on how to do this:

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Next steps to successful M&A integration

If you are part of an ERP implementation within an M&A integration, it is okay to admit that digital transformation is not your day job or primary point of expertise. This is where education comes into play. Our 2021 Digital Transformation Report is one excellent resource to help educate you and your team and what to expect during a transformation, as well as some of the technology-agnostic best practices that will put you on a path to success.

I also recently produced a podcast on this specific topic. Be sure to subscribe for weekly episodes featuring digital transformation best practices.

Listen to the Podcast Here

We work with M&A transactions across the globe on a regular basis. Please feel free to contact me if you would like to share notes or brainstorm ideas related to your M&A event and corresponding digital transformation. I am happy to be a sounding board as you continue your journey!

Kimberling Eric Blue Backgroundv2
Eric Kimberling

Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.

Eric Kimberling
Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.
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