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Role of CIO in mergers and acquisitions in focus as M&A activity rises

With mergers and acquisitions expected to rise in 2010, the role of the CIO is increasingly important. In M&A activity, what separates successful from unsuccessful CIOs?

The old complaint from CIOs faced with mergers and acquisitions was that the IT department was late to the table...

-- or worse, the last to know, sometimes to the detriment of the deal. As companies gear up for what could be a spate of post-recession M&A activity, some businesses have a new appreciation for the role of the CIO in these deals -- a role that can go well beyond just the integration of IT systems.

"During an M&A you need really powerful project and program management; you need service management, knowledge of work streams across the company; and quite often those capabilities are unavailable outside of IT," said Dave Aron, vice president and research director in the CIO Research Group of Gartner Inc., who is updating a two-year-old research study of the CIO role in M&As. "We have seen more evidence this time around of IT taking a lead role for the whole integration."

Figuring out your CIO's role in an M&A is no academic exercise. M&A activity is up 18% from this period a year ago, according to Reuters. Sectors from the U.S. food industry and the retail industry to Silicon Valley companies are gearing up for deals. And IT managers, according to Gartner, need to take full advantage if they hope to build a CIO career.

"There is a lot of evidence that for a senior CIO, M&A capabilities are a really important weapon in their armory. The experience and evidence that they can do this is not a nice-to-have but a distinct capability that senior CIOs need in their repertoire," Aron said.

Rick Roy, CIO of CUNA Mutual Group, harbors no illusions that the business will ask his permission to do an M&A. "You'll be waiting a long time for that call," he said.

Roy, who works closely with the company's CEO, has developed a strategy that not only keeps him in the loop at the Madison, Wis.-based insurer but also ensures that his IT organization plays a meaningful role in these labor-intensive transactions. Good thing, too: Last year, CUNA closed on eight M&As compared with the one or two it normally does in a year. None was easy, from the largest -- which ran in the hundreds of millions of dollars, he said -- to the smallest, an $8 million deal that was "a pain in the bu**." In fact, to get to that number of eight, CUNA actually worked at a record pace on 20 transactions, said Roy, who joined CUNA in 2003 as CTO and spent two years in customer operations leading a business process reengineering project before becoming CIO to the IT department in 2009.

Rather than call in an outside posse of consultants to handle M&A work, Roy formed a "virtual SWAT team of high performers" from his IT ranks, who could be mobilized on short notice along with counterparts from other departments as deals materialized. Some members of the IT team had worked on M&As before; all had the interpersonal skills and ability to take on the multiple roles so often required in making a deal.

"We called them the minutemen and minutewomen because sometimes a moment is all the lead time you get," said Roy, who laid out his strategy to a recent gathering of CEOs and CIOs in Madison.

A SWAT team plucked from the IT ranks, like Roy's, is actually one of the factors that distinguish a CIO who succeeds in an M&A from one who doesn't, according to Gartner's Aron.

"The unsuccessful guys say, 'We are going to keep all our star players on their day jobs, and we are going to use lots of external help to get it done.' The successful ones say the opposite: 'We are going to create agile backfill for our star player, or we can release them to be on the deal,'" Aron said.

"What we've found is that having too many contractors and consultants on the acquisition itself is dangerous," Aron said. There is so much uncertainty around M&A deals that it's helpful to have star people who have knowledge on at least one side of the game. Indeed, Aron added, many of the companies Gartner has talked to are tapping people from the businesses they have just acquired to be "accelerators." This practice can be controversial, however, given that the new employees may not be steeped enough in company culture to get it right.

"Hungering for certainty"

Being able to show leadership early on in an M&A is a critical factor for CIOs who wish to have a hand in the deal, according to the 15 case studies that are the basis of Gartner's ongoing research study.

"A very healthy practice -- and another thing that distinguishes successful CIOs from unsuccessful ones -- is having a very early hypothesis of how the merger will go, as opposed to classic deductive IT management where you wait months and months for all the information to come in," Aron said.

There is a lot of evidence that for a senior CIO, M&A capabilities are a really important weapon in their armory. The experience and evidence that they can do this is not a nice-to-have.
David AronVP and Research Director, Gartner's CIO Research Group

Any clarity CIOs can give the business up front on how the merger should go is welcome: for example, what integration style to use (e.g., absorption, merger of equals, standalone); how long it will take; and what the big risks, the costs, the outcomes and so forth, are. "In M&As, people are hungering for certainty. There is no natural body of authority across all parties, so if CIOs can give them some ideas, with the necessary caveats, or 'weasel words,' as we used to call them at McKinsey [consultancy McKinsey & Co.], that is helpful," Aron said.

For CUNA's Roy, having an "M&A playbook" is essential to the agility needed to keep ahead of and on top of the deal. He contends that even CIOs who have not done a lot of deals have elements of the playbook in their IT arsenal, including checklists, asset inventories and application portfolio roadmaps.

"Most IT organizations don't keep it organized so they can put their hands on this material quickly. We started to assemble what we had, and as the SWAT team worked on transactions, we were careful to capture key elements that came up in deals, using that very sophisticated tool called SharePoint," Roy said.

Most important, it is critical that IT be involved early on. So, how can CIOs be in the loop? Deals are "all about people," Roy reminded his CIO peers at the recent gathering in Madison. At CUNA, the people who broker the deals are CEO, CFO and head of operations development. "Our job as technology leaders is to make sure we are hardwired into these relationships," he said.

Let us know what you think about the story; email Linda Tucci, Senior News Writer.

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