Mergers and Acquisitions perplex even the most skilled consultant. The opportunities envisioned in initial merger and acquisition pitches are often challenged by the differences that exist between each company. A review of each company’s enterprise architecture provides a useful view into each company’s business model, capacity, resources, and commitment.
Strategies that work within one corporate culture may not work in another. This is increasingly true as tools are adapted to fit each unique situation. The era of the benchmark is over as companies modify the tools and strategies of the past; occasionally leveraging tools in contexts they were not originally built for. Instead of creating additional value an attempt to leverage mergers and acquisitions will often compound individual performance issues. Understanding how another company is currently performing is crucial.
Evaluating goal and mission alignment with existing technologies used can generate significant insight into capacity, assets, and commitment.
Mergers and acquisitions are pursued for different reasons. The attached graph provides an oversimplified introduction to this list as well as attempts to provide a heuristic for evaluating opportunities based on Maslow’s Hierarchy (Level 2 factors) and Herzberg’s Hygiene (Level 1) Factors. The former provides an opportunity for additional value that can generate increase stakeholder performance, satisfaction, and retention; whereas the latter is necessary to even get invited to compete in an industry.
The bottom two scenarios are included in this latter category since change leadership and innovation is no longer considered a competitive advantage but is required in order to remain relevant within an ever changing landscape.
Merger/Acquisition-to-Objective Business Model Fit
Whatever the reason the merger/acquisition-to-objective fit must be evaluated carefully. This begins with the question “does the merger or acquisition drive more value for your business customers?”
International Mergers & Acquisitions
International engagement impacts each of the factors mentioned above but particularly business culture (Bc) and capacity for change (Cc).
Keep in mind that culture and capacity to change often represents a continuum where experience or perspective from one end is reciprocated in the reverse from the other end.
For example, what can be too assertive from one end can be reciprocated from the other end with the perception of the other company culture being perceived as to ambivalent (or passive).
|Too Assertive||Too Lenient|
|Too Reckless||Too Cautious|
|Too Structured||Too Loose|
|Too Authoritarian||Too Laxidasical|
|Too Touchy Feely||Too Out of Touch|
|Too Biased||Too Impersonal|
The challenge is to bridge these gaps. Unfortunately it is more common to apply one’s views without taking into consideration opposing perspectives. Until the gap and a multi-vector perspective are considered, the likelihood of creating shared goals, strategies, processes, or priorities is minimal.
Are either company willing to ‘unlearn’ the practices, strategies, and assumptions that reinforce and maintain these gaps?
This directly impacts the interconnectivity of processes, systems, and technologies and similarly influences the company’s business model, product/service offerings, and how opportunities are evaluated and pursued. This can particularly be viewed in business models that are dependent on overtly homogenous or narrow support factors, processes, and/or technologies. Performance is constrained as a result, often handing the competitive advantage to competing companies.
Enterprise Architectures (EA) and the Business Model Support System
The value available through creating a strategic integration plan for each of the above architectures cannot be understated. Neither can the risk of mismanaging these connections. Despite these risks misalignment is all too common. Attempts to manage the inter-dependencies piecemeal need to be avoided. This is particularly evident in mergers and acquisitions (as well as in complex distributed organizations). Strategic efforts to support a merger and acquisition begin with value and culture alignment but end (and must emphasize) the alignment of the business model.
The following model describes the Enterprise Architecture Development Method (ADM) proposed in the TOGAF model. This process model is iterative and builds upon previous steps but not require each and every step is developed each time. The process begins with identifying what steps are already addressed following by engaging each stakeholder in the system to develop out the following step and components.
As most examples of failed mergers and acquisitions have proven a shared vision and values is not enough to guarantee success. Unless each company is to operate separately shared enterprise architecture is required to leverage similar processes, systems, and structures across the business model. This is accomplished by an interlocking, shared, and interdependent business architecture, information systems architecture, application architecture, and technology architecture.
Early technology questions will vary on the industry and goals of the M&A but will often emphasize the following:
- What goals currently exist?
- What technologies are deployed to support these goals?
- Are the goals and technology matched?
- If not, why? What are the consequences?
Companies with competing components will resist efforts to support and sustain future alignment. Although some companies may choose to still pursue the merger and acquisition, due to the anticipation of benefits (or the avoidance of current business risks), technology integration represents a useful way to evaluate:
- Past performance
- Future goals
- Alignment with technology and process assets
- Capacity, and commitment, to delivery performance KPI’s
The next step involves confirming the requirements to be supported by the enterprise architecture; designing and executing the processes, strategies, and tools necessary to develop the structures, architecture, and systems; and launching the product, and support mechanisms, into the environment.
|Real time information||Committee||Mobile App|
|Confidential||Working Groups||Desktop Application|
|Analytic ability||Build out architecture||Web based app/cloud|
|Easy access||Integration of systems||Backup data to cloud|
|Mobile||Migration of Data||Authors|
|Secure||Test MVP||Access authority levels|
|Cross system collaboration||Feedback||Component owners|
|Progress Reporting||Stakeholder Consults||Maint. & Upgrades|
Technology architecture and process misalignment, within or across companies, can undermine future performance.
Taking an honest look at the compatibility of each company’s technology and process assets with the other company can be a significant first step towards identifying best transition practices moving forward.
Leveraging Interlocking Structures
One way to both evaluate AND build merger/acquisition-to-objective fit is to review the enterprise architecture supporting both companies:
- Will they work well together?
- Do they perform similar objectives?
- Can lessons in one company (area) be shared and used in the other company?
Answering these questions is no easy task and often emphasizes both qualitative and quantitative key performance indicators (KPI’s) as well as values, assumptions, and strategic priorities. Unfortunately most evaluations remain subjective and focus more on optimistic thinking, or financial measures, more than an evaluation of whether the two companies can work in (relatively) perfect alignment. A standardized approach that emphasizes more than just strategic numbers is needed.
Enterprise Architectures (EA)
The enterprise architecture is a conceptual blueprint that defines the structure and operation of an organization. The intent of enterprise architecture is to determine how an organization can most effectively achieve its current and future objectives (SearchCIO.com).
The enterprise architecture supports the company’s:
- Business Architecture (BA): Business processes, organization, people
- Application Architecture (AA): Services
- Data Architecture (DA): Data, information
- Technology Architecture (TA): Hardware, software, network
Evaluating Company Readiness
Evaluating your company’s merger and/or acquisition opportunity begins with a SWOT analysis of each company’s performance, key performance indicators, financial metrics, and existing enterprise architectures.
The technical systems and resources support the company’s ability to integrate new assets whereas the qualitative competencies and processes support each company’s ability to facilitate and sustain the transition. Both the technical systems and qualitative competencies are crucial and rely on one another but without the availability of compatible interlocking components the transition process will often progress at cross purposes.
Reviewing the enterprise architecture of both companies allows the leadership teams to determine company compatibilities (or areas of incompatibility), what M&A risks exist, the likelihood of achieving M&A objectives, and whether or not the M&A would represent a ‘step forward’ or ‘backwards.’
Statistical Evaluation of Qualitative M&A Factors
A definition of business model fit must take into consideration both qualitative and quantitative components. An elementary algebraic formulation can be used to evaluate company-to-company fit using the factors discussed earlier.
- Build ‘from scratch’
- Connect pre-existing mutually compatible components
- Leverage existing compatibility to strengthen deficient areas
Statistical Evaluation of Qualitative and Quantitative M&A Factors
Homeostatic mechanisms will dominate the process unless structural, process, and architectural compatibility exists. With increased compatibility the challenge of sustaining benefits of the merger or acquisition becomes easier. Evaluating how the business model and the enterprise architecture of both companies interconnect (and identifying if integration will be successful) can now use a more complex formula based on the above sections:
Most merger and acquisition failures fall into scenario #3, leaving scenarios #1 & #2 as opportunities to increase the chances for success. Moving beyond traditional value or KPI based assessments to an evaluation of each company’s business model and supporting enterprise architecture (Fit) can be a useful route towards evaluating the likelihood of M&A goals being realized.
A Case Example
An evaluation of the network’s enterprise architecture fit for the four companies listed above is included below.
|Ranking (1 to 5)||Benefits||Status|
|Step 1: Architecture Vision|
|Avoids re-inventing the wheel||Different architectural visions are evident throughout the network. The results are as follows.|
|Step 2: Business Architecture|
|Business IT alignment||Business architecture meets minima standards but provides limited support to planning, evaluation, and risk management. Accessibility to primary systems and assets is limited.|
|Step 3: Information Systems Architectures|
|Based on best practices||Fragmented systems. Different systems used for each member. History of failed centralization, costing millions.|
|Step 4: Technology Architecture|
|Possible to participate in the evolution of the framework||Stakeholders often feel left out of the planning discussions. Upgrades are subsequently resisted.|
|Step 5: Opportunities & Solutions|
|Available under a free perpetual license||Fragmentation limits standardization and sharing of best practices/technologies. No central repository exists. Researching standards and best practices, internally, is resisted as this can result in ‘intervention’ or ‘interference.’|
|Step 6: Migration Planning|
|Tailorable to meet an organization and industry needs||Technological lags are not often acknowledged, which interferes with substantive (vs. vanity or surface) innovations that solve core/root problems.|
|Step 7: Implementation Governance|
|Widely adopted in the market||Fragmented, limiting systems thinking, organizational learning, network planning, etc.|
|Step 8: Architecture Change Management|
|Complementary to, not competing with, other frameworks||Fragmentation (see above) creates pockets of resistance and limits information sharing, evaluation, problem solving, and strategy execution across network nodes.|
Company A’s oversight responsibilities has resulted in continued top-down efforts to centralize governance, reinforce accountability, and drive performance. Due to the fragmentation a full merger with the other companies in the network has not been attempted. The reasons are numerous, but will not be explained in further detail here.
Each company operates with relative independence. Company A’ and member organizations are increasingly introducing a portfolio management approach to network governance based on each company’s expertise. The early results are disappointing but the final numbers have yet to be tallied.
Business Model Technology Fit Evaluation and Planning Tool (BMTechFit)
The merger and acquisition evaluation checklist is adapted to TOGAF’ enterprise architecture development model (ADM). Each step is interdependent with the larger planning process. Although each company will probably not need to cover every step it is useful to review all of these steps at least once each planning cycle AND when considering a merger or acquisition.
A planning tool is provided below emphasizing the evaluation of the company’s combined enterprise architecture fit.
Business Model Technology Fit Evaluation
|Steps||Benefits||Status (criterion)||Action Plan|
|Step 1: Architecture Vision||Avoids re-inventing the wheel|| |
Does a shared vision exist?
|Step 2: Business Architecture||Business IT alignment||What technologies, processes, and tools are needed to support the business model? Mission? Values? Goals?|
Do the existing technologies work together or at cross purposes?
|Step 3: Information Systems Architectures||Based on best practices||Is the information needed available? Does it support iterative learning and the goals intended? Is it freely available and accessible to all who need it?|
|Step 4: Technology Architecture||Possible to participate in the evolution of the framework||Is the current iteration aligned with future directions for the company’s technology? Is there agreement regarding what technology is needed to deliver future requirements?|
|Step 5: Opportunities & Solutions||Available under a free perpetual license||Are technology standards available to build out future solutions? Are these matched with training and technical resources to deliver across the enterprise?|
|Step 6: Migration Planning||Tailorable to meet an organization and industry needs||Is a migration plan in place when the technology needs an upgrade OR replaced? What teams are involved? What resources will be needed?|
|Step 7: Implementation Governance||Widely adopted in the market||How is the technology managed and maintained? Who? When? Evaluated? Who makes decisions?|
|Step 8: Architecture Change Management||Complementary to, not competing with, other frameworks||What is the criterion for identifying technology expiration? For evaluating technology-to-objective fit deterioration? Who takes the lead? What tools and models are suggested to facilitate the transition? Who approves the change(s)?|
In principle, each component (step) can be evaluated on a scale of 1-5 with the totals being added across all 8 components. The highest possible score for evaluating MAfit is = 40. A score below 32 should probably be evaluated very closely to determine if any previously unforeseen risks may exist that could jeopardize company integration.
The above graph depicts a theoretical ranking distribution for BMTechFit.
The challenges facing a merger are arguably greater than a simple acquisition. The former requires compatibility at the architectural, process, business model, and social levels. The latter only requires acquisition with considerable flexibility remaining regarding the structure of the company’s relationships within the (owned) network.
The models, and formulations discussed above, can be used to evaluate both private and public sector networks although the latter is often given greater latitude for inefficiencies. This doesn’t have to be the case as both sectors can be evaluated based on their business model and enterprise architecture fit. Misalignment can be very costly regardless the industry sector and needs to be taken quite seriously if the pitfalls of a poorly planned merger or acquisition is to be supported.
With NGO’s we often find a lag in technology and KPI adoption, which warrants cautious selection of tools to increase service line support, evaluation, and delivery. Yet there is also a balance when a lack ‘of’ a technical foundation is met with performance issues. Moving from this stage with technical competencies, which are often experienced as impersonal and alienating, can be challenging.
In some of these cases the companies may benefit beginning with a dialogue around:
- Process maps/ service standards
- Vision, and then……….
- The tools that help teams to drive performance
Collaborating across organizations can also be helpful to create engagement, vision, and hope. NGO’s can also (essentially) lack a coherent structure; when this occurs the culture can resist standardization.
How is your company evaluating M&A fit? Share your comments below.
Travis Barker, MPA GCPM
Togaf 9.1 can be found at opengroup.org