My ERP or Yours?

Some years ago, a friend of mine was studying for a final exam in criminal procedure. There was one question on the exam: “A hits B – discuss.” In life, as in ERP, the simplest questions to pose are often the most difficult to answer.

The question I want to pose today is: Company A buys Company B. Let’s suppose that Company A is running one ERP system. Company B is running a different ERP system.  

With respect to its ERP system, what should Company B do (be asked to do) as part of the merger?

Let’s consider some key dimensions of the analysis:

What is best for Company B: Without the merger, was Company B happy with its ERP system? Can they prove that the ERP system continues to provide quantifiable benefits for reasonable cost? If so, it is generally best to leave Company B’s ERP system in place for a period of 12–24 months after the merger.

Then further analysis is required. Suppose that Company B had an outdated ERP system. The relevant questions are: What would be best for Company B on a standalone basis? Is the best solution for Company B the same as the best solution for all of Company A (including Company B)? This will take more discussion. 

“Hi, we’re from Corporate and we’re here to help you.” Face it, the ERP team from Company B may not always embrace Company A personnel with open arms. That is not to say that Company B shouldn’t be required to switch to Company A’s ERP. But, there are political and cultural issues to be considered, and Company A must be well-prepared for the discussion. Perhaps it’s like your wife telling you that she would like to invite her old boyfriend over for dinner.  

Vertical Integration: Suppose Company A is a car manufacturer, and Company B makes fan belts for the cars. This would be a clear case for vertical integration, as the fan belts are required as part of the final assembly. The greater the vertical integration, the more the requirement for integrated ERP (notice I said integrated ERP – not necessarily one ERP). We will come back to this thread later too. 

Product market analysis: If both Company A and Company B each manufacture separate products (but probably related across a common theme), we need to examine the geographies they sell into, and the overlap in customer base, if any. If there is an overlap in customers, is there a unified sales force selling into these countries, or are their separate sales forces by product line? Most companies operate with separate sales teams. 

Netting out the analysis:

• In general, Company A will want Company B to switch its ERP. This will be the last thing that Company B will wish to do.
• Some companies maintain a dual strategy – one ERP solution for larger companies in their portfolio and a second solution for smaller companies. This is a reasonable approach as long as the number of ERP vendors is kept to two or three.

Some long-term considerations for the CIO and business leaders of company A to ponder:

• Cheaper: Will it be less expensive to have Company B switch? What will happen to the day-to-day operating expenses of Company B? Will the overall infrastructure be cheaper? Can Company A manage training for Company B? Can Company A run a help desk across geographies?  Faster: Will results be available more quickly if both companies are on the same ERP? No doubt the books can be closed faster (once Company B settles on a new ledger)? But, how much faster? And, is it worth it?
• More effective: Vertically integrated companies may lean toward a single ERP system. And, if customers are managed globally across product lines, the same might be true. But, today, with the power of networks, middleware and data warehouse technology, companies that wish to be integrated are integrated, no matter what the dispersion of ERP systems.

I wish you all happy mergers!