In this age of digital and global connectivity, it’s more common and expedient than ever for businesses to achieve growth through acquisition. And though the term “mergers and acquisitions” has a Fortune 500 ring to it, many of today’s hyper-growth-focused, service-based businesses rightly regard acquisition as a viable, highly profitable growth strategy.
Savvy CEOs are aware of the most obvious potential pitfalls, and perform due diligence both in choosing the right companies to acquire and in outlining an execution strategy. However, despite this careful planning, the road to actually integrating the first (or tenth) acquisition can be rocky once the deal is done. This is because the very same thing that makes acquisitions increasingly possible – the role of technology – is often overlooked (or even subconsciously neglected) by even the most well-informed and careful leader.
From this simple and totally avoidable oversight, we’ve seen companies lose hundreds of thousands, even millions during acquisition, when they discover surprise barriers to integrating technology – or gaping holes that leave them liable. And we’ve seen the incredible stress involved in suddenly learning that an acquisition is veering badly off course. It almost always leads to staff unhappiness and frustration, customer uncertainty and lack of trust, threat to stakeholders’ buy-in for future endeavors, or all of the above.
The good news is, all of these extra financial and emotional costs are totally avoidable when you give technology a seat at the table. If technology is overlooked, here are three of the harsh and expensive realities you could fall victim to.
The Afterthought Effect
Most CEOs rightly dedicate the time and resources needed to create a comprehensive acquisition or expansion plan, carefully considering customer base, HR and culture, marketing, costs, and financial projections. However, these same CEOs, if they consider technology at all, wrongly regard it as a future implementation step, instead of including it within the overall acquisition strategy.
When technology isn’t addressed upfront, there are real risks to new customer acquisition, data security, and especially productivity (consider all the downtime that results when technology isn’t working). And of course, there’s a high probability of the always-dreaded time and cost blowouts. Conversely, technology can be a major part of an acquisition’s success when it’s proactively included from the start.
One of the reasons CEOs fall into trouble in this area is because they assume that their IT department simply needs to press a few buttons to get everything connected. But while technology has come a long way in getting systems to understand each other, integration is a lot more complex than that.
Imagine a professional weightlifter suddenly being told that he needs to join a marathon after the starting gun has fired. He may be a world-class athlete, but he’s going to struggle to run 26 miles without some time to get ready for it. Your CIO/CTO is in the same position. He’s doing all the heavy lifting for your central office: Bolstering security to make sure data can’t get out, and ensuring productivity for a centralized workforce. When he’s suddenly told that the company is buying a new business, he’s got to break down those security walls, evaluate risks, and prepare to run data among new locations.
Derrick was in this situation when he came to us in an absolute panic. As the CIO of a major business services organization, he’d just been told that he had to integrate 10 new international locations (each with at least a dozen staff members) ASAP. He understandably had no idea how to accomplish this Herculean task within the extremely limited time frame.
The company had recently spent $50K on a centralized security management platform, which was essentially a fortress designed to keep everyone else out. Derrick now needed to break down all the walls and rebuild them with 10 new interconnected entryways, fast, all while maintaining data security. The work required was not only a stress-inducing bombshell, it was in direct contrast to everything he had been building up to then. He’d been training hard for power lifting (i.e., speed and security inside a fortress), but was suddenly thrust into a marathon and told to come in first (i.e., he instantly had to achieve speed and security throughout a technology superhighway).
Not only had the company lost their $50K investment, they had already burned through $100K trying to get the new system up and ready, and there was no end in sight.
The kicker is that this entire painful situation could have been avoided by simply keeping Derrick in the loop. As he discovered later, the company had decided on this 10-office rollout more than a year before. If they had given him even six months’ notice, they could have eliminated all the extra time, money, and stress.
While we take pride in being able to come to the rescue and help people like Derrick in these situations, what gets to me is how easily this could have been avoided, and how different the company’s experience could have been.
If we hadn’t been available, or if Derrick had been overconfident and tried to accomplish this massive task by himself, it would have likely ended up costing an additional $300-$400K.
It would have been much more cost-effective and productive if leadership had included Derrick during the acquisition planning stages. He might not have needed us at all. And even if he did, the company still would have saved hundreds of thousands of dollars, and enjoyed a smooth, stress-free rollout.
Widening the Lanes
Your infrastructure is the beating heart of your business, and virtually nothing can be accomplished without it. Whether you’re adding new locations or merging an acquired company’s technology with your own, you must ensure your infrastructure is prepared for growth.
We often take for granted the simple things we all do in our day-to-day work: emails, phone calls, basic software applications. And of course, that’s just the start. Think of all the IT-dependent elements involved in your organization, from customer management to payroll to data reports to network security to vendor management and more. Just imagine the workplace chaos if those services were dramatically slowed down or indefinitely interrupted, especially in the midst of an already-stressful period of change and uncertainty – it’s easy to picture the major costs in time, money, staff, reputation, and ultimately, success.
As new suburbs spring up around a major city, smart local governments plan the roads from the start, based on expected population and accounting for ongoing growth. But one bad feeder lane can cause gridlock across the entire highway. Your infrastructure is the same. You can have two well-optimized offices with great bandwidth, but one bad firewall can cause problems throughout the whole system.
If your plan is acquisition, your CTO needs to understand the size, depth, and timeline of your strategy to be able to immediately handle the demands of additional locations and employees.
This can often be addressed by your in-house IT team; however, this might be the first time they’re invited to the planning table. So they need to understand the right questions to ask. Otherwise, regardless of their good intentions and high skill level, they may find themselves in the same stressful situation as Derrick. This is something Mark, a C-level executive with a global IT services company, understood when he approached us to assist with his company’s expansion throughout several locations worldwide.
As an IT professional, Mark already had a proactive technology mindset. He was highly capable and ultimately could have handled the process himself. But because it was his first experience with acquisition, he got the CEO’s blessing to ask for a little help, cut the learning curve in half, and deliver success. Mark knew that this expansion would strain their resources, and he wanted to ensure the infrastructure was a success factor in their hyper-growth. We worked together to perform a gap analysis, prepare for ever-increasing users and software, and maintain security.
By asking a few simple questions, we discovered some licensing and software issues that would have cost them $1.5M over 2-3 years, since they’d be stuck in their agreements with no way out. This was avoided through proactive big-picture road mapping, and Mark was able to seamlessly roll out the expansion with no interruptions, surprises, or unexpected costs.
This made for a smooth, confident six months for Mark, and a highly successful, well-managed rollout – as opposed to the stress and expense endured by Derrick. A massively expensive bombshell was avoided just by asking some straightforward questions.
Building the Black Box
Having a black box lets you systemize the IT rollout each time you acquire a new organization. It means you have a repeatable, reliable process for assimilating all technology, systems, and hardware quickly and easily.
But even more important, the black box creates a digital framework through which to evaluate new acquisitions, saving you millions of dollars and untold stress. Just as you use a business lens to look at an organization’s financials and customer base before purchase, you also need to approach it with an eye on their technology. This ensures there are no surprise costs, and, if needed, allows you to require specific technology upgrades before buying. All told, the black box often makes the difference between a quickly-profitable acquisition and one that drastically adds to the total costs of purchase.
Joe, the CIO of a national A/V manufacturing company, approached us in the middle of his company’s second acquisition. They’d had costly assimilation problems with their first acquisition and were already running into similar problems with this one. The CEO was under a lot of pressure as a result of significant technology expenses, which had once again gone unnoticed pre-acquisition. Joe knew that this was going to be a costly, recurring concern unless they addressed two issues: They needed to better equip their CEO in assessing technology pre-acquisition, and they needed a repeatable procedure for assimilating new technology post-acquisition.
The systems and processes we created for the company’s second acquisition are now being used to fix the ongoing integration problems experienced in the first. Even better, the company now has a reliable process for all further acquisitions, as well as a set of fixed guidelines – a black box lens – through which the CEO can evaluate new purchases. This ensures that the costs are clear and there are no technology shocks as the company continues to scale. Stakeholders are now confident and excited about their next acquisitions, instead of bracing themselves for what might go wrong.
Conclusion
For many hyper-growth service-based businesses, acquisition is the key to continued expansion and profit. If your company is planning or considering an acquisition, understand that technology is a crucial element of success – and it isn’t going to happen by luck. To truly prepare for hyper-growth, think of yourself as a tech-first acquisition company, and plan accordingly. After all, no matter what industry you’re in, technology is central to successful operations.
Overlooking the importance of your IT team in pre-acquisition planning and leaving them in reactive mode not only leads to drastic expenses and endless rollout complications, but can threaten the acquisition entirely. On the other hand, having a reliable technology strategy in place from the outset helps ensure the success of your big-picture growth plan for years to come. This is especially true when taking on multiple hyper-growth acquisitions, where a black box is crucial to acquisition evaluation and integration.