Optimize: Real Deals--And Challenges

EXECUTIVE ROUNDTABLE: As we entered the new year, a new round of merger-and-acquisition activity heated up across a wide spectrum of industries. While many discussions center on the financial aspects of these deals, Optimize invited four M&A veterans to discuss what goes on behind the scenes when IT operations are upended and then reassembled to support a new corporation.

OPTIMIZE: Is it common for deal makers to make decisions during the due-diligence process that executives and IT have to carry out?

BUDDY GILLESPIE: Yes, I think that's one of the frustrations. We're a large, integrated delivery system consisting of two hospitals, physician practices, home health and imaging centers, and lab annexes across a two-county area. One of the key issues is making IT a significant part of the due diligence. After working for three organizations in health care that had the opportunity to merge with other hospitals, [I know] IT is often asked to sit back and wait for the due diligence to be completed. And we're told not to worry—that the IT part will be there when it needs to be there.

Then the due diligence is complete, and they typically ask for merged financial reports or consolidated-enterprise materials-management functionality, and they ask for payroll to be merged. So now, when they tell me not to worry about a merger, I start worrying, and we put together a game plan in the background because we know that IT is paramount in making these mergers successful.

I don't think IT can change the process nor provide the economies and ROI on consolidated systems from an operational perspective. Corporate users have to blend together and join in a fashion that's friendly to the culture, and that has to really happen to get the leverage on the operational side.

ROVIT: There are four things we've witnessed. The first is that there's an unclear link between the business and the IT strategies, and you should be very clear about the business strategy before IT can help you enable it—that's not always clarified up front. In fact, 40% of the executives we interviewed said they went into transactions without a clear investment thesis. And 50% of the remainder said their investment pieces didn't pan out, so you're starting behind the eight ball.

The second thing we've seen is that IT organizational issues aren't resolved quickly in terms of who's going to be in charge if it's a merger of equals. I think it tends to be a little more straightforward when it's an imbalance in the size of the companies.

A third [factor] is that the technology architecture steady state isn't clearly defined up front. And fourth, IT is perceived as resistant to the integration effort. I've seen that happen generally at lower levels because people are tying their jobs to certain platforms. If I have Oracle, and you have SAP, I'm going to see that my future is impaired if I don't have the skills, and so I'm going to be fairly biased in an evaluation of which platform to move to. At a very junior level, people see their jobs tied to a platform decision and competency.

OPTIMIZE: What was UnumProvident's experience?

BOB BEST: UnumProvident was the result of several mergers that formed over a relatively short period of time, and it culminated in a bigger merger between Unum and the former Provident organization, which truly was a merger of equals. That kind of merger brings a little less clarity around who the senior-management team has to be. Sorting those things becomes a distraction within the organization.

In our situation, the technical architectures were really never designed to work together. And there were people issues—trying to bring cultures together from Portland, Me., and Tennessee: There are people still trying to fight the Civil War.

But through different transactions, some outsourcing, and a lot of significant change, our IT came out to be a much stronger organization. It reflected the essence of the merger—bringing the best of both worlds together and changing the business strategy.

Our companies went from a product-oriented business strategy to a much more customer-oriented focus, trying to bring to market all the different products and services that the companies offered. Even though it's not seamlessly integrated from a customer perspective, progress is being made. Certainly the IT organization ended up becoming much more efficient and effective than any of the single companies had been.

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