Information systems need to be written into the first act if the merger and acquisition show is to go on.
Through painful experience, retailers have learned that they if they leave IS until late in the merger and acquisition process, they may forgo or delay many of the benefits of combining companies. At many levels, today's deals depend on technology, and an IS strategy in place at the beginning of merger talks can help the companies involved arrive at an accurate valuation. That's an important consideration because unexpected integration costs could exceed 10% of the original purchase price, according to KPMG, Boston.
"You've got to bear the pain of doing the conversions right up front when you take on another environment," said Bruce A. Cross, senior vice president for business transformation at Nash Finch Co., Minneapolis. "You have to bite the bullet and integrate not only the systems, but more importantly, the business processes."
For example, in acquiring stores, any systems and business processes that integrate the operations into your business should be addressed "right out of the chute," he said. Retailers should immediately implement bookkeeping procedures, in-store software and the processes around those software systems, as well as any non-systems related processes, such as customer-service initiatives, back-door receiving or anything within the store environment.
"There is typically a window of opportunity when you make an acquisition. Everybody is expecting change, and if you miss that window you usually don't get back to that piece of work until some other business driver down the road forces you to do it," Cross said.
It's not always feasible to convert systems and processes on day one in a newly merged company, he said. "But those that can be converted day one should be, and then there should be an aggressive time line, the most aggressive timeline that is a) affordable and b) practical," he said.
The results of merger integration in the supermarket industry have been most often "disappointing," said Gary Giblen, director of research and senior vice president at C L King Associates, New York. "That applies to marketing and merchandising, but I would say IS is probably below average in terms of the results of integration."
However, while early planning remains the key to successful IS integration, there is such a thing as moving too fast.
In its haste to "marry" the Albertson's and Lucky stores in southern California last year, Giblen said, "Albertson's tried to do too much too quickly and blew the proverbial fuse. They simply had no management-decision information in California for a couple of quarters."
The worst problems occurred in the fourth quarter of 1999, and they were still affecting the retailer in the first quarter of 2000, he said. By the second quarter of 2000, Albertson's was doing better. "They have surmounted those issues now, but it was pretty scary for a while. It was like driving on a mountain road blindfolded," he said.
While Albertson's executives in Boise, Idaho, did not respond to requests to participate in this article, company president and chief operating officer Peter Lynch said in a previous SN story that Albertson's was "missing some reports and tracking information" during that period, and that the company will "slow the pace" of future integrations because of its experience.
Combining IS from merged companies "is not about moving fast as much as it is about planning well, and planning with one strategy," said Thomas D. Murphy, president of Peak Tech Consulting, Colorado Springs, Colo. Murphy is a former vice president of information systems at Kroger.
Murphy outlined three keys to success. "No. 1 is the recognition that you have to pick somebody's applications and implement them. You can't pick through two different baskets and try to come up with one basket of applications. The cost of that, the time it takes, the frustration it creates, are just impossible to deal with," he said.
The second key is management's commitment to the business process change and to overcoming the frustration associated with it, Murphy said. "One group or the other is going to have to change the way they do business to fit the application. Very seldom does an application fit the way everybody does business, and very seldom is there the flexibility to do that," he said.
Third, "you must have a technology leader who can find a way to integrate the technologies in such a way that doesn't alienate all the people on both sides of the fence. You don't want to lose your good people. Although you don't want to create an environment of 'we-they,' in essence you almost have to create that environment, but you have to figure out a way to manage it," Murphy said.
H.S. "Skip" Smith, president of Smith Technology Consulting, Mound, Minn., a former senior vice president of information systems for Supervalu, Minneapolis, observed, "The plans are all important because if you don't have a good plan about how you are going to get two companies together, you are definitely doomed to failure."
At Supervalu on Smith's watch, the company had a set of plans that were modified for each acquisition, and presented to the company that was being acquired. "As we went through an acquisition, we were very open and communicative. People may not like the answers that they get from you, but as long [you answers] are truthful, straightforward and to the point, you will get a great deal of respect," he said.
Technology is one of the reasons the industry has been consolidating, said Chuck Cerankosky, an analyst with McDonald & Co., Cleveland. "It is an area where economies of scale come to bear on a multiregional operator in the form of an advantage compared to somebody who has a single market," he said.
"Systems are critical. You've got to be managing everything from the point-of-sale information to working capital, which involves payables and inventory. If you are not integrating all that information in the context of supply-chain management and merchandising programs, you are going to be at a severe disadvantage to other companies in that area," he said.