Article Contents
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. Companies modify the tools and strategies of the past. They occasionally leverage 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.
M&A Goals
Mergers and acquisitions are pursued for different reasons. The attached graph provides an oversimplified introduction to this list. It also tries to offer a heuristic for evaluating opportunities based on Maslow’s Hierarchy (Level 2 factors). Additionally, it considers Herzberg’s Hygiene (Level 1) Factors. The former provides an opportunity for additional value. This value can generate increased stakeholder performance, satisfaction, and retention. The latter is necessary to even get invited to compete in an industry.
The bottom two scenarios are included in this latter category. Change leadership and innovation is no longer considered a competitive advantage. It is required 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. 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 might be seen differently from the other end. The other company culture may be perceived as too ambivalent or passive.
| This | Vs. That |
| 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. The gap must be addressed first. A multi-vector perspective must also be considered. Only then can shared goals, strategies, processes, or priorities be created effectively.
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. It similarly influences the company’s business model and product/service offerings. It also affects how opportunities are evaluated and pursued. This is especially evident in business models that rely heavily on similar or limited support factors. These include processes and 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 start with value alignment. They also begin with culture alignment. However, they must emphasize aligning the business model at the end.
The following model describes the Enterprise Architecture Development Method (ADM) proposed in the TOGAF model. This process model is iterative. It builds upon previous steps. However, it does not require each and every step to be developed each time. The process starts with identifying what steps are already addressed. Next, each stakeholder in the system engages to develop the following step and components.
As examples of failed mergers and acquisitions have proven, having a shared vision and values is not enough. It does not guarantee success. If each company is not to operate separately, a shared enterprise architecture is needed. This helps to leverage similar processes. Systems and structures are optimized 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. It also includes designing and executing the processes, strategies, and tools necessary to develop the structures, architecture, and systems. Finally, it involves launching the product and support mechanisms into the environment.
| Inputs | Processes | Outputs |
| 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 |
| Alerts | Updates | Communications |
| Goals | Maintenance Planning | Training |
| 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 is crucial. Comparing these with the other company can be a significant first step. This helps in 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?
The Enterprise Architecture Body of Knowledge (EABOK) also suggests the following questions for building out a shared architecture:
- Develop those areas where you plan to make investments. Develop them to sufficient level of detail that you can see the new projects you
- Develop areas where you are experiencing difficulties such as performance problems or coordination problems.
- Develop nontrivial areas where there is high turnover and constant
- Develop areas where you will have significant interaction with other organizations and the interface needs to be well defined.
Answering these questions is no easy task. It often emphasizes both qualitative and quantitative key performance indicators (KPI’s). It also highlights values, assumptions, and strategic priorities. Unfortunately, most evaluations remain subjective. They focus more on optimistic thinking or financial measures. This focus occurs 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 acquisition opportunity begins with a SWOT analysis. You need to analyze each company’s performance. Review key performance indicators and financial metrics. Assess existing enterprise architectures.
The technical systems and resources support the company’s ability to integrate new assets. Qualitative competencies and processes help each company facilitate and sustain the transition. Both the technical systems and qualitative competencies are crucial and rely on one another. However, the transition process will often progress at cross purposes without the availability of compatible interlocking components.
Reviewing the enterprise architecture of both companies allows the leadership teams to determine company compatibilities and areas of incompatibility. It helps assess what M&A risks exist and the likelihood of achieving M&A objectives. They also evaluate whether 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.
“Fit is a conceptual business model construct. It aligns two (or more) geographically distributed corporations. The alignment occurs across key structural, process, and technological 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:
Formulas (click to expand)
Bs + Br + Bc + Bv + Bco + Bp + Ps
Merger & Acquisition Business Model Fit (f) = ——————————————–
Cc
OR
Bs + Br + Bc + Bv + Bco + Bp + Ps + Cc
Merger & Acquisition Business Model Fit (f) = ——————————————————
Bs + Br + Bc + Bv + Bco + Bp + Ps + Cc
For the purpose of this section, the above formulation(s) will be abbreviated as the following:
Merger & Acquisition Business Model Fit as a Function of (f) = MAfit.
Effectively leveraging a merger and/or acquisition requires more than just optimistic thinking or shared values. It requires alignment at the strategic, structural, and technological levels. Many mergers and acquisitions fail because they lack the necessary interlocking competencies and technical components.
———————————–
Statistical Evaluation of Quantitative M&A Factors
The design of each connects the logic of the business model to the supporting documents, values, technologies, and information. The following algebraic formulations are now available:
Merger & Acquisitions Enterprise Architecture (EA) Fit (f) = BA + AA + DA + TA
————————-
BA + AA + DA + TA
OR
Merger & Acquisitions EA Fit (f) = Enterprise Architecture (EA) Capabilities Co. “A”
——————————–
Enterprise Architecture (EA) Capabilities for Co. “B”
OR
Merger & Acquisitions Enterprise Architecture (EA) Fit (f) = EA #A = EA #B
Fit is a conceptual business model construct. It aligns two (or more) geographically distributed corporations across key structural, process, and technological areas. Fit can be achieved through efforts to:
- 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:
Merger & Acquisition Fit as a Function of (f) = MAfit
—————- = 1
EAfit
OR
Merger & Acquisition fit (f) = BMTechFit
Most merger and acquisition failures fall into scenario #3. Scenarios #1 & #2 remain as opportunities to increase the chances for success.
Moving beyond traditional value or KPI based assessments is important. Evaluating each company’s business model and supporting enterprise architecture (Fit) can be a useful route. This helps in assessing the likelihood of M&A goals being realized.
Case Examples
Case Example 1: When Shared Values Aren’t Enough: Rebuilding Alignment in Complex Organizational Ecosystems
The following generic case example describes four organizations that are organized to carry out a shared and aligned vision. Each organization specializes in a specific area(s), simplified in the chart below. The technological, process, and strategic competencies for each organization inevitably vary. This variation occurs as technologies expire, business model demands change, and leadership vision changes. Misalignment results with efforts to coordinate across the system experiencing significant drift and resistance over time.
A portfolio management approach has been introduced. It aims to establish the enterprise standards, technological structures, and professional competencies. These elements are necessary to support alignment, strengthen performance, and introduce cross system efficiencies.
Unfortunately, the legacy systems, cultures, and values create resistance. Technological advancements are ongoing. As a result, pre-existing efforts to strengthen alignment drift again into misalignment.
For example, the following structural differences exist:
Monitoring & Control
A is a small organization that has historically emphasized top down oversight and control.
V is a larger distributed organization that leverages collaboration and network competencies to drive impact across its areas of responsibility.
Project Management Tools, Structures, & Processes
A is largely inexperienced with project management methodologies. Many initiatives use such methodologies but loose traction quickly. Internal, and cross system stakeholders, have expressed being unconvinced of A’ commitment to shared value based initiatives.
J project management methodologies are highly developed and formalized. They lead key enterprise initiatives related to its technology and facility area expertise. Despite this, cross system initiatives can be costly, inefficient, and occasionally have to be withdrawn.
Communication, Engagement, & Momentum
A is responsible for the operation and programming of several centres. Each of these centres has significantly different cultures that emphasize different tools, values, and priorities.
P has a strong reputation for relationship building, community development, and spearheading initiatives in its area.
Culture, Traditions, & Priorities
A has a corporate culture that historically emphasizes a top down chain of command. Diversity is embraced on the surface but most members experience the environment as reinforcing homogeneity.
Despite this trend, internal centres experience different cultures that have a completely different experience and setting different priorities. Internal system collaboration and initiative implementation face frequent resistance. The differences in traditions, tools, assumptions, and beliefs driving performance across one internal member are poorly suited for another member. Personality is emphasized over technical competencies in the recruitment process. This impacts the organization’s ability to provide leadership. It also affects the drive for enterprise-level initiatives.
J experiences similar challenges when implementing cross system initiatives and projects with external stakeholders. The standardized structure and advanced tools and training support stronger alignment internally.
Skills are emphasized in the recruitment process. Personality is also important. This provides a balance. It drives core process and technical-based competencies across the internal organization.
Despite these organizations sharing funding, values, and vision, their strategic priorities, culture, and legacy structures continue to waste resources. They waste funding and create conflict at the social, technological, strategic, and process levels.
Organizations V, J, and P resent organization A. The parent organization (A) is perceived as lacking the competencies, tools, and structures necessary. It cannot productively engage the other organizations to facilitate progressive improvements. Other members resist enterprise level projects. The interlocking components needed to drive alignment across the system are missing.
Case Example 2: Profit, Purpose, and Platform: Building a Shared Architecture Across Diverse Organizations
The following generic case example describes four organizations that are brought together for both profit and nonprofit purposes. A contractor joined for a 4-5 year commitment. During this period, the M&A was evaluated, proposed, and implemented under the guidance of an investment group.
Business Architecure – Centralization
E: This Company is the parent organization. It involves stakeholder groups such as investors, nonprofit industry executives, and contractors. These stakeholders are jointly focused on leveraging network assets. The goal is to gain efficiencies that generate profits, improve service industry impacts, and establish industry leadership. Technology is leveraged significantly at this level, with business architecture centralized here for the entire network. This includes payroll, human resources, clinical information technology, incident reporting, timesheets, etc.
M&A Alignment – Shared Architectures
A: This Company is one of the first acquisitions for the parent company. Focusing on NGO services, this company provides industry leadership for its sector across several states. Services emphasize adults and has always been a for profit organization.
S: This Company is a later acquisition for the parent company. This company focuses on NGO services that matched company A, but serving both adults and youth. This company has always been a nonprofit until the date of acquisition. Company S aligns almost perfectly with Company A. The merger of these two companies is supported by value, training, and business model alignment. With Company A taking the lead, both companies are incorporated under Company E’s business architecture. Training and recruitment are standardized and upgraded. Clinical information technologies are also updated and standardized.
M&A Misalignment – Shared Architectures
I: This company is acquired around the same time at Company S. This company focuses on NGO services that differ from Company A and Company S. It specializes in professional competencies. The focus is on community-based (instead of residential) and consulting services. This company is similarly incorporated under Company E’s business architecture. However, it is not aligned with the other clinical information technologies used by Company A or Company S.
M&A Cultures – Regional Leadership
The different cultural and professional heritages of all three companies lead to separate management. Additional efficiencies are generated through the centralization of business architectures at the level of Company E. Multi-and regional leadership is provided for Company A & S at the level of Company E. Leadership is also offered through each individual company. Cross collaboration continues to be supported through ongoing training, professional development, and industry level advocacy. Branding remains separate although aligned.
Company I is similarly managed at the individual level and through Company E. Collaboration with Company A and Company S is minimal. Developing a shared identity is challenging. Branding emphasizes different competencies, services, and priorities.
Conclusion
The transitional stage for Company A and Company S includes developing unique positions. These positions were available for the initial term. These positions supported centralization of the business architecture, generating service and business standards, pursuit of additional business opportunities, and training/development.
Turnover in these positions occurred after the initial term, with some positions being discontinued. Several positions were also created to generate additional business opportunities at the regional and company levels. The merger of Company A and Company S faced challenges due to differing competencies, priorities, and cultures. As a result, each company remained independent to continue with its own unique brand. Several enterprise, business, and information architectures were standardized for Company A and S. The former were shared with the latter built separately for each company to remain compliant with regulatory requirements.
Company I’s M&A fit for the network was evaluated. This network includes Company E, A, and S. It was found less aligned shortly after acquisition. Some alignment existed at the service, competency, and business levels. However, the cultural level was quite different from those at Company A and Company S. The regulatory level was also quite different. Business architecture was centralized but this was not an option at the information architecture level.
The technology architectures for all three companies remained fairly consistent across the network. However, capacity limits were later encountered for the information architecture. This issue arose despite being built separately for Company A and Company S. Unfortunately, the capacity issue was not identified during the scope, requirements gathering, or vendor identification stage. The investors and leadership teams initially concluded the network’s M&A fit was potential. Their analysis focused on the industry’s market and service area. However, they missed the misalignment across the regulatory, professional development, and cultural vectors. The management of each company as separate entities, despite limitations, was considered a success.
An evaluation of the network’s enterprise architecture fit for the four companies listed above is included below.
Steps | Ranking (1 to 5) | Benefits | Status |
| Step 1: Architecture Vision | 3 | Avoids re-inventing the wheel | Different architectural visions are evident throughout the network. The results are as follows. |
| Step 2: Business Architecture | 3 | 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 | 3 | Based on best practices | Fragmented systems. Different systems used for each member. History of failed centralization, costing millions. |
| Step 4: Technology Architecture | 2 | 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 | 2 | 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 | 2 | 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 | 3 | Widely adopted in the market | Fragmented, limiting systems thinking, organizational learning, network planning, etc. |
| Step 8: Architecture Change Management | 2 | 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. |
| 20 |
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 (BMTechFit) Evaluation
The merger and acquisition evaluation checklist is adapted to TOGAF’ enterprise architecture development model (ADM). Each step is interdependent with the larger planning process. Each company will probably not need to cover every step. However, it is useful to review all of these steps at least once each planning cycle. This is also important when considering a merger or acquisition.
A planning checklist 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 architecture vision exist? Business, Data/Application, Technology architecture models? | |
| Step 2: Business Architecture | Business alignment | What processes, procedures, and models are needed to delivery value to all internal and external stakeholders? Mission? Values? Goals? Business Model? Value Streams? Organizational Structure? Do the existing processes, inputs/outputs, structures, and relationships work together or at cross purposes? | |
| Step 3: Information Systems Architectures | Scalable and reusable data sets and applications | 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? How is it structured? Where is it stored? How is it accessed? Viewed? Managed? | |
| Step 4: Technology Architecture | Scalable and reusable infrastructure foundations and integrations | 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? How is it structured? Managed? Integrated? Accessed? Secured? | |
| Step 5: Opportunities & Solutions | Scalable and reusable building blocks and solutions | 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 | An enterprise architecture that builds upon scalable and reusable migration pathways and tools | 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 | Centralized governance framework that strengthens integration, value delivery, and EA risks | How is the technology managed and maintained? Who? When? Evaluated? Who makes decisions? | |
| Step 8: Architecture Change Management | Centralized change framework that strengthens EA alignment, integration, and value delivery | 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. The totals are added across all 8 components. The highest possible score for evaluating MAfit is = 40. A score below 32 should be evaluated very closely. An assessment should determine if any previously unforeseen risks exist that could jeopardize company integration.
Integration alignment is critical to delivering effective, sustainable, and scalable efficiencies. An interactive planning tool is provided at the end of this page to begin documenting the company’s architecture vision roadmap.
Joint Venture Infographic
Conclusions
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. The public sector is often given greater latitude for inefficiencies. This does not have to be the case. Both sectors can be evaluated based on their business model. They can also be evaluated based on their enterprise architecture fit. Misalignment can be very costly in any industry. It needs to be taken quite seriously to support a poorly planned merger or acquisition.
NGO’s often experience a lag in technology and KPI adoption. This lag warrants a cautious selection of tools. The goal is 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:
- Benchmarks
- Goals
- Gaps
- 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.
Architecture Vision Roadmap Planning Tool (TOGAF)
An interactive Enterprise Architecture (TOGAF) planning tool is provided below. Use this tool to begin drafting some of the team’s early assessments of the company’s architecture models. Identify shared vision statements and building blocks to guide further discussion, planning, and integration going forward. Build upon this momentum through future discussions of and evaluation of opportunities to acquire additional partnerships and acquisitions. Identify integration & merger risks and opportunities.
The following interactive planning tool is available for taking notes and then printing out for further use with your team.
Because each cell often represents a complex step (and a full document to draft/update), recommendations are to make notes (1, 2, 3, etc.) in the cell to help prompt next steps for the team (who owns it, document/template to be used, timeline, remaining questions, etc.)
Innovate Vancouver is a Technology and Business Innovation Consulting Service located in Vancouver, BC
Travis Barker, MPA GCPM
Resource:
EABOK Consortium . (n.d.). EABOK. Retrieved February 03, 2018, from http://eabok.org/eabok.html
Togaf 9.1 can be found at opengroup.org