A well-defined and future-oriented Target Operating Model is key to a successful M&A system transformation.
Mergers and acquisitions (M&A) allow companies to realign their strategies, exploit synergies and expand their portfolios. Closing an M&A deal is an art in itself, but the subsequent integration phase is no less demanding. This is where success or failure is decided, and it is not uncommon for ambitious goals and high expectations to be dashed.
When two companies merge, cultures may differ, as may processes, organizational structures, governance structures, and enterprise IT architecture. The operating model must be redefined according to the M&A strategy as a new Target Operating Model (TOM). For instance, existing performance management models must be standardized, and business processes have to be harmonized. Material and value flows need refinement, warehouse locations are potentially to be consolidated, production capacities must be reviewed, and supply chains need re-alignment.
Challenges in the integration of IT
Mergers and acquisitions also place significant demands on a company’s enterprise architecture. ERP systems such as SAP S/4HANA are at the heart of business processes and data. The Post Merger Integration (PMI) often requires integrating ERP systems, extracting and restructuring data, and redesigning processes.
Mergers and acquisitions activities typically aim for growth, but also synergies and efficiencies. To achieve this, the system must enable these synergies and efficiencies on a technological level. The Target Operating Model (TOM) provides the foundation also for enabling systems. Once the future operating model is clearly defined, processes, data and systems can be designed and structured accordingly.
Creating transparency about the TOM
A trial-and-error approach cannot be used for an integration and the required work on the enterprise architecture. If the TOM is intransparent or lacks definition, the company will face delays, increased costs and potentially puts the M&A case at risk.
It is imperative to establish transparency of the TOM early on, ask questions, confirm information, identify gaps, and even point out opportunities for improvement. This also establishes a solid foundation for the transformation of the enterprise architecture. Without a precise understanding of the operating model, there is a risk of designing inefficient processes. Central end-to-end processes, such as customer fulfillment or intercompany supply chain, can only be sensibly designed if the future corporate structure is understood at its core.
During a TOM review, information is systematically checked, open questions are clarified, and a common understanding is validated.
Avoiding surprises
In addition to providing a clear picture of the short-term PMI model, it is crucial to take a forward-looking approach. For example, changes in production & logistics footprint need to be understood, as intransparency would result in more than just unnecessary work. If products manufactured there are to be produced elsewhere in the future, it will directly impact the entire process and system landscape, master data and the migration strategy.
The TOM should not only be understood for short term and initial system enablement, but also in the years that follow. This is the only way to ensure that investments in the transformation have a lasting effect, and that systems meet the company’s immediate and future requirements.
Conclusion
A Target Operating Model Review creates transparency and a common understanding of the operating model, identifies gaps, and secures the roadmap for any system related PMI work. A well-defined TOM informs any process, data and system related integration effort and design.
