How to avoid ERP pitfalls caused by mergers and acquisitions

Merging and Acquiring

Mergers and acquisitions (M&A) are a common growth strategy for companies. However, integration of the systems and processes of two separate entities can be a complex and challenging task. Enterprise resource planning (ERP) systems play a critical role in the success of an M&A. They help companies manage and automate their business processes such as financial management, supply chain management, and human resources. However, integrating ERP systems during M&A can be a difficult task if not done properly.  This can lead to significant delays, additional costs and can be a glaring failure point in the merger or acquisition.

First of all, when it comes to deciding the direction for their ERP system(s), company executives are faced with the harrowing and arduous task of making the change as less painful as possible. This is the reason why it is important to know there is no one-size-fits-all solution for ERP systems. Many factors need to be taken into consideration before a final decision is made.

Option 1: Replace existing software with a newer upgrade

Finance Leaders may decide that replacing existing software is the best option for the company. Example would be the company’s scope or size has changed significantly or current software no longer meets their needs. However, this decision should be based on a thorough cost-benefit analysis and consideration of the owner’s investment period. While this approach may yield better results in the long term,  it poses the highest risk. Adoption challenges, employee resistance to using more advanced software and increased costs for implementation to name a few.

Option 2: Adopt the software of the bigger and more established company

Another popular approach is to have one company adopt the other’s existing software. This would result in the least amount of disruption, as many employees are already familiar with it. However, employees of the company facing the change may be resistant to switching to a new system. For them, it requires effective change management to ensure their buy-in and support. Much of the resistance will also come from the learning curve, redefining existing processes and routines surrounding both entities.

Option 3: Third party consolidation software

Another approach is to maintain the existing software and use a consolidation platform to integrate and align information into a new tool. This option has several advantages, including being less disruptive, less costly and not requiring big changes. It also allows for a shorter time for owners to get an early ROI from whatever expenses they’ve incurred. The drawback would be managing the frustration for stakeholders and employees. This is due to the additional layer of information and change management that has to be put in place during implementation. 

What you need to take into consideration when using ERPs during M&As.

Key Strategy 1

One key strategy is to establish a clear plan for the integration of ERP systems early on in the M&A process. This plan should include a detailed timeline, budget, and resources required for the integration. It should also identify the key business processes that will be affected by the integration. This also includes the objectives that need to be achieved. By establishing a clear plan early on, companies can avoid delays and ensure that the integration is completed.  On time and within budget will be the ultimate measure.

Key Strategy 2

Another key strategy is to conduct a thorough assessment of the ERP systems of both companies before the merger or acquisition. This assessment should include an analysis of the technical capabilities of the systems. In addition, the data and information stored in the systems, and any potential issues or limitations. By conducting a thorough assessment, companies can identify any areas of overlap or duplication. This can definitely eliminate/reduce costs and improve efficiency.

Key Strategy 3

A third strategy is to prioritize the integration of ERP systems based on the criticality of the business processes they support. For example, the integration of financial management systems should be prioritized over the integration of supply chain management systems. This will help to ensure that the most critical business processes are up and running. Time is of essence which means as soon as possible after the merger or acquisition.

One critical action is to involve all relevant stakeholders in the integration process, including employees, customers, and partners. By involving all stakeholders, companies can ensure that the integration of ERP systems meets their needs. It also addresses any concerns they may have. This also helps to ensure that the integration process is transparent and that stakeholders are aware of the changes that will be made to the systems.

Key Strategy 4

A final strategy is to use a phased approach to the integration of ERP systems. This approach allows companies to implement the systems in stages, starting with the most critical business processes and gradually expanding to other areas. This approach helps to minimize disruptions to the business and ensures that the integration process is manageable and controllable.

Simplifying the Complex

In conclusion, integrating ERP systems during M&A is a complex and challenging task that requires a clear plan.  Thorough assessment, prioritization of business processes, involvement of all relevant stakeholders and a phased approach is a must. By following these strategies, companies can ensure that the integration of ERP systems is completed on time and within budget. This also minimizes disruptions to the business. Additionally, by having a solid ERP system in place, companies can gain better visibility and control over the financials, supply chain, and human resources. This leads to a more seamless integration and overall success of the merger or acquisition.

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