How top brands achieved success in post-merger ERP integration
Acquire companies, not headaches
Mergers and acquisitions are key strategies in business growth, but from an operational standpoint, they can present challenges. After the deal is inked and the excitement wanes, you’re left with, as technology reporter Ben Worthen aptly described it, a “corporate Noah’s Ark”: two sales forces, two marketing teams, two finance departments and two (or more) ERP platforms.
It’s not surprising then that integration failure is the single biggest concern facing executives in M&A transactions.1 While cultural fit tops the list of merger hurdles, systems integration can pose a problem as well. A Deloitte survey found that 75% of acquisitions had low performance results post-merger.
Luckily, these leading industry leaders didn’t follow that trend. See how they created a systems integration strategy for their business that netted positive results.
More platforms, more problems
Poor system integration can result in spotty data, redundancies or gaps in production, which can hinder your ability to increase profits, serve customers and meet compliance regulations. As such, it’s tempting to just leave existing systems in place. For some location-based functions, that’s fine. But unless you plan to operate acquired entities completely independent from the parent company, multiple ERPs probably aren’t the way to go.
Running more than one ERP system means different databases and hardware to support, which leads to high infrastructure and people costs. Gartner estimates that companies can reduce these costs by as much as 40% through ERP consolidation.
Take ViewSonic for example. The company was running three independent Oracle ERPs—one for each region (AsiaPac, EMEA and Americas)—with more than 500 customizations. ViewSonic’s CIO chose to consolidate these systems into one in an effort to save on the high support costs of multiple ERPs. As a result, the company was able to trim down from 26 full-time support staff to nine, retire $1 million worth of hardware and reduce maintenance costs by $150,000 a year.2
Having disparate financial, production and ordering functions also complicates the reporting process and often requires customizations, workarounds or manual work to validate data. Esselte, a global office supply company, was running 27 different business systems in 30 separate IT divisions worldwide. According to Esselte’s CIO, it took a team of accountants weeks to reconcile their financial records every quarter because they “couldn’t trust the data.” It took some time, but Esselte succeeded in consolidating all its disparate systems into one Microsoft Dynamics AX ERP. As a result, the company is now able to close its books in days versus weeks.3
Even if a single ERP strategy isn’t feasible, most companies realize post-merger performance benefits faster with some degree of ERP consolidation.
Align ERP goals with business goals
Systems integration following a merger often leads to more questions than answers: Which software and systems do you keep; which do you retire? What about data migration? Can operations be standardized on one platform without sacrificing functionality? This can turn into a tug-of-war between protecting the core business and achieving the greater efficiencies and economies of scale that the company hoped to gain as a result of the acquisition.
A common mistake companies often take at this stage, according to Strategy&, is to focus on short-term cost savings and fail to take into account the long-term revenue and growth opportunities. Having a comprehensive ERP strategy in place can help level set expectations company wide and provide a roadmap for how to optimize business processes, improve usability and ensure data integrity.
Aligning ERP with the goals of the business helps in setting priorities and determine what’s critical and what can come off the table. It can also identify gaps in your processes and areas of opportunity as well as minimizing risk factors or compliance issues. And ultimately this will guide the project team in determining which ERP configuration will best service the new entity.
With a complex and geographically dispersed supply chain, this can be a major undertaking. For example, when chemical manufacturer The Sachtleben Group took over competitor Crenox GmbH, it discovered that the two companies used many of the same suppliers and materials. However, disparate and decentralized systems prevented purchasing synergies. In an effort to integrate its entire factory network, Sachtleben worked with consultancy firm BearingPoint to consolidate the company’s systems and operations into one ERP system. Standardizing these processes led Sachleben to eliminate redundancies, consolidate ordering, improve purchasing conditions, and reduce procurement costs.4
Similarly, when Coty acquired Unilever’s cosmetics subsidiary, the CIO was tasked with unifying the two organizations’ order entry, processing, financial, warehouse and shipping systems. No easy task given that this involved 10 countries, four ERP systems, three warehouse systems and five major distribution centers. Coty employed service-oriented architecture (SOA) software to help map applications to business processes and integrate the disparate systems with the priority on “anything that touched the customer.” Ultimately, Coty was able to standardize operations from both businesses on its existing SAP ERP System.
Have a well-designed ERP strategy also makes future acquisitions easier to integrate into the business. In preparation for a series of pending deals, Oracle consolidated 70 internal systems into a single ERP systems for all its business functions. This saved the company $1 billion annually and shortened the process for post-merger integration to less than six months.6
Consider the Cloud
Post-acquisition ERP integrations often involve dealing with legacy applications that weren’t designed to integrate with other platforms. This can be difficult and costly. One study found that on-premise ERP disruptions following a merger caused company stock prices to drop 21% on average.7
Enterprise application integration software can help link applications in your ERP, however these middleware solutions typically require manual processes or customizations and can also have high up-front costs. Upgrades to on-premise solutions can also be cost-prohibitive; a Software Insider survey found that 45% of businesses felt that these costs were too high. Cloud solutions that are pre-certified to integrate with many different types of ERPs may be a more affordable and flexible alternative with pay-as-you-go pricing and automatic upgrades lowering total cost of ownership.
From an agility standpoint, the Cloud also has appeal. After acquiring Integrated Motion, automation distributor iAutomation chose to move its ERP and CRM systems to the NetSuite ERP used by Integrated Motion. This move replaced the original on premise solution and in-house servers with NetSuite’s cloud applications. As a result, iAutomation saw $70 million gain in revenue as well as marked improvement in customer service, pipeline forecasting and cross-selling opportunities.8
In some businesses, like manufacturing, where Bring-Your-Own-Device (BYOD) and mobile technology have become more prevalent, cloud-enabled ERP applications keep them connected to the business and provide access to live data.
That’s not to say that converting to an all-cloud ERP is necessarily the way to go. But it can be advantageous to move certain functions to the cloud. Most enterprise ERPs like Oracle, SAP, Infor, Microsoft and Epicor support cloud applications on their on-premise systems with pre-certified connectors, which make them highly configurable to meet specific business needs.
For example, a multinational oil and gas company based in Spain wanted to make travel reimbursement easier for remote staff. So the company implemented SAP’s Cloud for Travel solution with its on-premise SAP ERP system, which now allows employees to request and book travel and capture expenses on their mobile phones. Managers can receive updates and approve workflow on their phones in real time. This helped speed up the reimbursement process as well as providing valuable insight into travel spending.9
When private equity firm Pfingsten Partners acquired SII Holdings, it needed an ERP strategy that could streamline its manufacturing and logistics, improve financial and operational performance and accommodate future growth, both organic and through acquisitions. The company chose an integrated Cloud approach with NetSuite ERP and specialized cloud applications including Salesforce (CRM), EBizNet (for warehouse management) and Avalara (sales tax compliance).10
Hybrid ERP is becoming an increasingly popular choice with many companies. Recent studies show that nearly 40% of companies use SaaS applications in their business, and 1 in 3 mission-critical apps are now hosted in the cloud.11 By 2016, experts predict that 75% of enterprise IT spend will involve hybrid or cloud platforms.12
Don’t be complacent about compliance
A merger will likely change your sales tax requirements. During the integration process, it can be easy to overlook new or different tax obligations, such as nexus, jurisdictional rate changes or product taxability rules. This can lead to over or undercharging sales tax and raise red flags with auditors.
Additionally, the target company may have been carrying tax attributes on its books or ongoing tax audits that could transfer to the new organization. If these aren’t properly identified and managed as part of the due diligence during the deal, obligations could be overlooked, resulting in additional tax liabilities.
Companies often assume that their ERP is handling sales tax automatically, when in fact that might not be the case; built-in modules or on-premise applications often require regular manual updates. And, if the sales tax module in the parent company ERP differs from the module in the acquired company’s ERP, it could cause data instabilities. A SaaS solution like Avalara AvaTax, CertCapture, and Returns resolves these issues and integrates easily into ERP environments.
Tax consultancy McGladrey routinely advises clients going through acquisitions to automate sales tax during the ERP integration process in order to reduce costs and audit risk associated with tax compliance. One client, a national laboratory, saw a 90 percent reduction in audit penalties and overpayments as a result of automating sales tax in their ERP. 13
Better data, better decisions
Despite the headaches, proper ERP integration following an acquisition is critical. According to Accenture, companies that took the time to properly integrate their systems following a merger were able to reduce costs of key business functions by as much as 40%. With centralized process management and real-time data, you make more informed business decisions. Done right, your new high-functioning ERP could be on the best assets to come out of the deal.
1Deloitte 2CIO magazine 3Tectura, CIO 4Bearing Point 5CIO Magazine 6McKinsey 7IDC 8AutomationWorld 9Accenture 10Baker Tilly 11Aberdeen Group, SailPoint 12Cognizant 13McGladrey
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