Vertical integration occurs when two companies in different parts of the supply chain merge to capture a larger share of the market. Such mergers often lead to operational cost reductions, increased entry barriers to competitors, and expansion of core competencies. Vertical integration strategies are a key consideration for organizations looking to expand and control more of the supply chain. For example, consider a shoe manufacturer that merges with (or acquires) a chain of shoe retailers in order to minimize its own costs and adversely affect its competitor’s costs. A more recent example is Microsoft’s foray into the tablet market, with the hopes of dampening Apple’s current stronghold.
Software capabilities, among other things, need to be reassessed whenever any type of merger takes place. Vertical mergers specifically pose a number of challenges owing to widely different business processes that span the vertically integrated firms. Some of these processes will naturally overlap between the two firms, but others will be completely new.
Once the merger is announced, employees from all corners of the business are often pulled in to assess software needs as a result of new financial, human resources, and operational requirements, to name a few. For example, organizational restructuring following a merger will require creating new report-to relationships in your new enterprise system. This is a complex problem that your current system may or may not be able to handle. Any missteps in assessing your capabilities along the way can seriously impede your business operations, relationships with your customers, and as result, your bottom line.
Painless transitions after vertical mergers are unlikely, but doing your due diligence is the first step in ensuring a seamless transition. If you are not aware of your current system’s full capabilities or unsure whether it adequately supports your needs, you should ask yourself these questions in order to assess your post-merger situation:
If you’re unable to answer these questions within your organization or your information technology (IT) resources are constrained, you may need to seek outside help. Determining how flexible your current system is to support the new organization’s business processes is paramount. This often begins with understanding your system’s true capabilities (i.e., what features are and aren’t available) and your organization’s business requirements. With a solid blueprint of your system and an understanding of your needs, you’ll be able to determine the functional gaps and make better informed decisions about whether to upgrade, modify, or replace your system. In some cases, the cost of unifying your applications following a merger may outweigh the costs of managing disparate ones. But even if you decide not to unify your systems right now, you may need to eventually. A solid understanding of what your system is equipped with and having IT documentation to back this up is the first step to making the most out of your enterprise software system.
Underestimating the amount of work and assessment needed after a merger is common. However, by creating a well laid out strategic roadmap and engaging the right people, you’ll be able to better understand how you can get the most out of your enterprise software systems and support future growth and change.
Technology Evaluation Centers (TEC) offers software capabilities assessment services to help you discover how well your software solutions support the needs of your organization. We have a proven best-practice methodology to help you make well-informed IT decisions. Complete our brief questionnaire or contact our Selection Services team for more information on how TEC can help.