Posted in Operations & IT Articles, Total Reads: 1051
, Published on 18 June 2015
The race for market share was never so fierce. With several small companies cropping up and posing as serious contenders, the existing market players are striving hard to create entry barriers and maintain their revenue growth.
Corporate growth or expansion can be achieved through two ways-- organic and inorganic.
Organic Growth is all about expanding your business by boosting your sales or services with increased customer base, launching new products, offering differentiated services or boosting your production and supply chain.
Inorganic Growth is when a company expands by acquiring or merging with another company. Such takeovers or alliances can be mutual or hostile.
Let us now divulge into the inorganic aspect of expansion and how this has changed the competition landscape for the Information Technology industry.
The answer to this lies in “The whole is greater than the sum of parts”.
Apart from the visible benefits of increased clientele portfolio, expansion of footprint across the globe, enhanced expertise in different domains services and jumpstart into various technologies of the target firm, a merger and acquisition can also have a few surprise advantages as well. Some of them are—
Boost company’s equity funding as the parent firm highlights the benefits of the deal to shareholders
Motivate the employees of the target firm so as to perform and thereby consolidate their positions in the new organizational architecture
The parent company gets new synergy as a result of the target firm adding to the parent’s array of services
Steps involved in mergers and acquisitions
Challenges in Merger and Acquisition from an IT perspective
Challenges in an Inorganic growth are mostly in the Integration Phase, wherein the parent firm has to ensure a smooth assimilation of technical, functional and human resources of the target firm. Some of the prominent challenges are:
1 Technological Challenges
Both the companies will be at different level of competencies with respect to the technologies. For e.g. the parent company may be an industry leader in SAP implementation while the acquired firm has a weak SAP competency. This makes it imperative for the parent firm to take effective steps to bring both the units at par in terms of different technologies that they offer to the clientele.
2 Cultural Assimilation
Human resources of the target firm may have a feeling animosity towards the merger or acquisition, especially when it is a hostile one. This coupled with the adjustments being forced upon the target firm employees leads to a sense of grudge towards the parent firm. The challenge lies in ensuring that this work force is motivated to contribute towards the goals and objectives of the coalition.
3 Process Integration
The parent and the target company may have different delivery processes, different transition or different product development processes. The challenge here is to industrialize these processes across both the firms. Intricacies lie in identifying the best practices and assimilating them to come up with better organizational delivery models.
4 Clientele Attrition
The clientele of the target firm may be apprehensive about the parent company. This can lead to client attrition or major changes in the vendor agreement. The parent company needs to take these clients into confidence regarding the quality or delivery, service level agreements and vendor contracts.
With integration of both the firms there is bound to be exchange of confidential information regarding the firm’s credentials or vendor-client contracts. This integration of company specific or client specific information needs to be done in a very efficient and effective manner, keeping all the stakeholders in loop of information security policies and implementation steps.
An effective inorganic growth plan can do wonders to enhance the capabilities and competencies of the company. The recent acquisition of IGATE by Capgemini is one such example. This $ 4+ billion deal is expected to increase Capgemini’s US market share and contribute to enhancing the group’s revenues in the region by 33%. Also, this will increase Capgemini’s expose to newer technologies providing the service firm a niche focus on its expansion roadmap.
The article has been authored by Ashish Baruah, TAPMI Manipal