Mergers and Acquisitions: What Do They Mean for ERP Systems?
Mergers and acquisitions are a common means of accelerating business growth. But where there’s expansion there are also a number of barriers, with operational integration chief among the challenges.
While mergers and acquisitions mean more profits and a greater market share, they also bring with them some unique problems. And this is certainly understandable when you consider that when two companies merge, the process creates duplicates.
Of these inherited issues, legacy ERP systems are among the most difficult to untangle. Integrating existing systems can result in diminished performance, which undermine the value of the merger.
To help businesses get post-merger ERP integration right, we’ve put together this extensive need-to-know guide. Covering everything from typical challenges to useful strategies, our resource can help you achieve the most positive outcomes from your integration efforts.
The Importance of Post-Merger ERP Consolidation
Following a merger or acquisition, ERP system integration warrants a significant investment in resources. Without taking the time to assimilate legacy systems to a good standard, you risk major performance issues which could affect the long-term success of the project.
Data segregation, incoherent workflows and performance glitches are some of the many problems which can arise from incompatible ERP systems being improperly integrated. It can also hinder compliance, which makes it difficult for businesses to safeguard and control data.
There are cost elements to consider too. Unifying ERP systems can lead to significant savings, both in maintenance and hardware costs, and a reduction in support staff.
How to Achieve Success Post-Merger ERP Integration
So, post-merger ERP consolidation is important. But how do you get it right?
Here, we offer several useful strategies you can use to plan and deploy ERP integration following a merger or acquisition.
Consider the Merger Model
The complexity of your ERP integration will hinge largely on the type of merger which has taken place. This should, therefore, be the starting point for roadmapping your consolidation strategy, as it provides a clear idea of both the scope and challenges involved.
Let’s take a look at the three main types of mergers and how their structure could impact your ERP consolidation efforts.
Financial Reporting Merger
A financial reporting-style merger is unlikely to have any significant impact on how present systems operate. That said, some elements of integration could bring greater efficiency and control, with advanced business intelligence and reporting capabilities enhancing day-to-day operations.
A hybrid merger – wherein some elements of an acquired business continue to operate separately while others are merged – presents greater integration challenges than the financial reporting model. Businesses must decide which systems and processes need unifying, whether that’s sales, warehousing, distribution or purchasing.
Given the complexity of consolidating new and existing systems, a hybrid merger may facilitate the need for a new business systems strategy. This effectively sets out the level of integration required, as well as the costs, risks and timelines involved.
Fully Integrated Merger
A fully integrated merger equates to a complete takeover, whereby one business effectively absorbs the systems, processes and workflows of another.
From an ERP integration perspective, this may sound like the most complex of the three merger models. But in reality, a fully integrated merger may prove to be more straightforward than a hybrid, simply because there is a greater opportunity to wipe the slate clean and implement new systems within the acquired business.
As with a hybrid merger, a new business systems strategy may be needed to roadmap your approach to integrating one business with another. Because of the complexity involved, consider if it’s worth consolidating existing systems, or if it’s better to deploy a new ERP to cover both businesses as a combined entity.
Considering the method of acquisition can be a powerful way to steer your ERP integration project, but it’s not the complete picture. A holistic approach is needed to guarantee consolidation success, as highlighted by the points below.
Audit Legacy ERP Applications and Modules
One of the first things you should do after acquiring another business is to carry out an audit of its existing systems and legacy data. The goal here is to attain a state-of-play picture of a business’ ERP setup, including its data, security, performance and compliance.
Auditing highlights gaps, errors and opportunities within an existing ERP ecosystem. It ensures data accuracy and relevancy, whilst allowing you to ascertain how feasible it would be to integrate one or more systems.
There are several methods used for ERP auditing, each targeting a different area of the core system framework. For example, process auditing considers workflows and processes, while security auditing looks at data protection – and so forth.
The importance of effective ERP auditing can’t be stated enough. If you’re unfamiliar with how it works and what to include, be sure to read our comprehensive guide on how to conduct an ERP audit.
Align Business Objectives with ERP Management
Cost reduction can often take precedence following a merger or acquisition. But from an ERP integration perspective, your approach must align with long-term business objectives.
Short-term cost savings may make for a healthy interim cash flow, but you need to consider the potential long-term impact of scrimping on effective system integration. Investing money and resources in ERP consolidation now will sure up your supply chain, with future-proof technologies that align with key business objectives.
Take an Agile Approach with Cloud Solutions
Integrating ERP systems is a complex business, not least because many legacy applications are outdated and not designed to integrate with other platforms. Geography and physical location play their part too, making it difficult to integrate on-premises ERP with systems in different locations.
Cloud-enabled ERP systems can prove invaluable here. With the flexibility to scale and implement systems at will, they provide the agility you need to overcome integration challenges – particularly those related to location and incompatible legacy applications.
Unsure about the potential benefits of cloud ERP solutions? Read our guide on cloud vs on-premises ERP to learn more about their pros, cons and how they compare.
Invest Adequate Resources in Data Migration
Even for seasoned ERP specialists, data migration can be an arduous process. Add to that the complexity of merging legacy data sets from two or more businesses, and it becomes a hugely challenging undertaking.
Many ERP consultants will attest that data migration is the single most important aspect to get right as part of a post-merger ERP integration. Therefore, ensuring accuracy, consistency, validity and completeness between merging data sets is imperative, as is the avoidance of duplication.
From building the right team to roadmapping a clear strategy, investing adequate time and resources in data migration is essential. If you’re concerned about undertaking such a task as part of your post-merger ERP integration strategy, take a look at our complete guide to data migration for some useful tips and advice before you start.
Post-merger ERP integration is fundamental to the success of any business acquisition, yet many companies don’t invest the resources adequate enough to ensure a high standard of completion. This ultimately jeopardises some of the inherent benefits of the merger, particularly from a cost reduction and efficiency improvements point of view.
If you’re looking to develop a sound post-merger ERP integration strategy, the specialists at JS3 Global can help. With expertise in all aspects of ERP implementation and management, we have the knowledge and solutions to guide you to integration success. For more information, visit the homepage or call us on 0161 503 0866.