You would think it’d be no problem to migrate data between the same type of ERP systems during a merger and acquisition. A $10 billion-plus chemical manufacturer certainly did, according to Eric Stout, VP of consulting, manufacturing vertical at BackOffice Associates. They estimated this “simple” migration would take maybe six months.
They were wrong—very wrong—as in $40 million and more than a year of work wrong, Stout writes in a recent Manufacturing Business Technology column.
“However, once the acquisition occurred, the project team quickly discovered that the competitor’s data processes and practices were inconsistent and the same was true for their own processes and practices,” Stout states. “They both lacked mature, standardized data standards across systems and functional areas, resulting in significant data quality and interoperability issues.”
This problem isn’t unique to manufacturing. I’ve written numerous times over the years about how integration—particularly data migration and integration—can add costs and complexities to company mergers.
Stout’s column brings real numbers to the discussion that, frankly, should give any acquiring companies some serious fodder for making IT part of the exploratory committee. In the chemical company’s case, he wonders whether the deal would have even gone forward if the acquiring company had identified the data problems early.
But even if the business imperative for an acquisition is overwhelming, you still need to really study data issues, particularly around ERP systems. It’s no coincidence that this is where the expensive problems hide. After all, ERP systems are where most companies create and store the bulk of their business data.
IT should play a strategic part of any M&A and should pay special attention to the ERP systems as they are notorious for their migration challenges and costs. Stout provides another example in which a manufacturing company hired a large systems integrator to design, implement and configure a new ERP system. The firm used legacy data counts to estimate the cost. The problem with that is that only 30 to 40 percent of business data is relevant, Stout says. Unless you’re on top of data quality and data governance, there’s a good chance you’d be paying big money to move redundant or unnecessary data. After really looking at the data, the manufacturing firm managed to reduce to 200,000 records from 5 million, thus saving itself millions of dollars in consulting costs on the new ERP system, Stout writes.
That doesn’t even count what the company saved by reducing down time, he adds.
“Not getting your data house in order before an M&A event can add millions to the bottom-line costs, not just in the short term but for years to come,” Stout writes.
Stout even offers a few “short cut” tips, such as practicing passive data governance, for manufacturing companies. For the most part, though, his advice applies to any type of organization, whether you’re an acquiring organization or seeking to be acquired.
Here are some additional resources on ERP integration and migrations during M&As:
Loraine Lawson is a veteran technology reporter and blogger. She currently writes the Integration blog for IT Business Edge, which covers all aspects of integration technology, including data governance and best practices. She has also covered IT/Business Alignment and IT Security for IT Business Edge. Before becoming a freelance writer, Lawson worked at TechRepublic as a site editor and writer, covering mobile, IT management, IT security and other technology trends. Previously, she was a webmaster at the Kentucky Transportation Cabinet and a newspaper journalist. Follow Lawson at Google+ and on Twitter.