SOA and M&A

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A majority of merger and acquisitions fail to
deliver planned shareholder value - is there a better way?

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  • SOA and M&A

    1. 1. SOA and M&A – Breakthrough in Merger and Acquisition Practice? David Sprott Presentation made to Enterprise Architecture Conference Europe London, June 2009
    2. 2. Everware-CBDI <ul><li>Independent specialist SOA firm </li></ul><ul><li>28,000+ subscribers worldwide </li></ul><ul><li>Enabling structured SOA, facilitating standards </li></ul><ul><li>Widely used best practices, reference architecture, repeatable processes –all roles </li></ul><ul><li>SOA Solution Business including Education, Consulting, Knowledge products </li></ul>SAE Knowledgebase Face to Face and Remote Education Skills Certification Skills Certification Skills Certification eLearning Systems Skills Certification
    3. 3. <ul><li>a majority of merger and acquisitions fail to </li></ul><ul><li>deliver planned shareholder value . . . </li></ul><ul><li>. . . . is there a better way? </li></ul>
    4. 4. <ul><li>“ Between 1992 and 2006 around 58.3 percent of all mergers and acquisitions not only failed to create shareholder value but actually destroyed it, resulting in a net loss of 1.2 percent across all transactions” Boston Consulting Group </li></ul><ul><li>“ Most elite, world-beating companies are built through savvy, well-executed, M&A strategies . Regardless of sector, getting to the top involves an astute management of a portfolio of businesses” Deloitte & Touche </li></ul><ul><li>“ More than 33 percent of companies did not expect to complete integration for more than two years or could not say when they would complete such integration. Poor documentation of systems, a lack of metadata, diverse and uncontrolled data sources and poor data quality were also reported as significant problems by more than 50 percent of companies. Poor planning of the IT integration process was cited as a significant problem by 54 percent of respondents.” Boston Consulting Group </li></ul>
    5. 5. M&A Models <ul><li>Forms of M&A </li></ul><ul><li>Horizontal mergers </li></ul><ul><li>Vertical mergers </li></ul><ul><li>Congeneric mergers </li></ul><ul><li>Conglomerate mergers </li></ul><ul><li>Management Models </li></ul><ul><li>Buy and hold </li></ul><ul><li>Buy and manage separately </li></ul><ul><li>Integrate into own business </li></ul><ul><li>Fair merger of both companies </li></ul><ul><li>Reverse integration </li></ul>Need to understand characteristics of M&A <ul><li>Nature of Business </li></ul><ul><li>Asset intensive – asset rationalization, integration, disposal </li></ul><ul><li>People intensive - business process optimization, organizational efficiency, better data quality </li></ul><ul><li>Information intensive – systems and channel rationalization, customer value and satisfaction </li></ul>Why did eBay buy Skype?
    6. 6. Airline Case <ul><li>April 2008: Delta acquisition of Northwest in $2.6 billion all-stock transaction </li></ul><ul><li>Creates world's largest airline company by traffic </li></ul><ul><li>$2 billion projected cost savings </li></ul><ul><li>November 2008: begins 12- to 24-month process of integrating Northwest Airlines, now a wholly owned subsidiary of DL </li></ul><ul><li>26 teams formed. Integrating information technology and reservation systems to coordinate people and planes is major priority. (actually migration) </li></ul><ul><li>Airline reservations has de facto industry standard model </li></ul><ul><li>Reservation system &quot;has been a stumbling block on every big consolidation I know of”. David Fields (Airline Business Magazine) </li></ul><ul><li>&quot;It's been pretty much a nightmare for me,“ Northwest frequent flier Doreen Rosimos of Marlborough, N.H., says of her three recent Delta trips. </li></ul><ul><li>Full integration likely to take 5 years </li></ul>The de facto airline industry model doesn’t support reservations and loyalty
    7. 7. RBS and ABN AMRO Case <ul><li>SPLIT </li></ul><ul><li>Break-up cross business systems </li></ul><ul><li>Choose whether to adopt superior ABN solutions </li></ul><ul><li>TRIAGE </li></ul><ul><li>Migration projects: </li></ul><ul><li>Integration project </li></ul><ul><li>Source: ht tp:// www.howbankswork.com/therbsabnamrochallenge.html </li></ul>Early choice of “business systems “ allows rapid but sub optimal decision making
    8. 8. Why M&A often fails to deliver value (rapidly)? <ul><li>Insufficient focus on business systems in Due Diligence </li></ul><ul><ul><li>Numbers </li></ul></ul><ul><ul><li>Organization (efficiency) </li></ul></ul><ul><li>Massive underestimation of systems complexity </li></ul><ul><li>Use of M&A “experts” lacking modern enterprise architecture expertise </li></ul><ul><li>Lack of planning for Post Acquisition Integration </li></ul><ul><ul><li>Inadequate meta data for effective landscape analysis </li></ul></ul><ul><ul><li>Program and application level decision making </li></ul></ul><ul><li>Overwhelming need for immediate efficiencies drives tactical solutions and delays sensible architecture </li></ul><ul><li>Default to message rather than service architecture </li></ul><ul><li>SOA immaturity in one or more parties </li></ul>
    9. 9. Goals <ul><li>M&A Goals </li></ul><ul><li>Cost savings </li></ul><ul><ul><li>Economies of scale </li></ul></ul><ul><ul><li>Standardized, merged resources </li></ul></ul><ul><ul><li>Reduced maintenance </li></ul></ul><ul><ul><li>Remove duplicated resources </li></ul></ul><ul><li>Customer centric </li></ul><ul><ul><li>Single view of customer across all channels and systems </li></ul></ul><ul><ul><li>Consistent customer information </li></ul></ul><ul><ul><li>Higher quality information </li></ul></ul><ul><li>Improved business model </li></ul><ul><ul><li>Broader customer relationship </li></ul></ul><ul><ul><li>Richer products </li></ul></ul><ul><ul><li>Richer business process </li></ul></ul><ul><ul><li>Richer business rules </li></ul></ul><ul><li>SOA Goals </li></ul><ul><li>Cost Reduction </li></ul><ul><ul><li>Business and IT componentization </li></ul></ul><ul><ul><li>Rationalization </li></ul></ul><ul><ul><li>Reduced complexity </li></ul></ul><ul><li>Agility </li></ul><ul><ul><li>Evolutionary business systems </li></ul></ul><ul><ul><li>Response to volatile business requirements </li></ul></ul><ul><ul><li>Standardization </li></ul></ul><ul><ul><li>Reduced complexity </li></ul></ul><ul><li>Time to market </li></ul><ul><ul><li>Multi-channel business and technology </li></ul></ul>How does SOA help?
    10. 10. Structural Improvement and Portfolio Rationalization Product System ERP Z CRM System 1 CRM System 2 E.G. Multiple sources of customer details SOA facade pattern reduces need to decide on business system futures, allows rapid delivery of converged functionality Product-Based System Y CRM System X E.G. Yet more sources of customer details as result of M&A Consolidation/ Selection process E.G. Single customer details service Hiding implementation complexity Reducing impact of change Service ERP X Process Z Partner A Process Y Standardizing capabilities Information Consistency
    11. 11. Principle Based Process Existing Landscape Existing Landscape Migration And Integration Plan Integrated Business Architecture Drive landscape decisions from logical architecture to develop realistic Service Portfolio Plan Canonical Model Service Portfolio Plan
    12. 12. Canonical Model realized as Business Type Model <ul><li>Coherent view of entire business </li></ul><ul><li>Common vocabulary </li></ul><ul><li>Defines key business rules </li></ul><ul><li>Basis for subdivision into domains </li></ul><ul><li>Basis for identifying stable core business services </li></ul><ul><li>Basis for managing stable, consistent schemas </li></ul>Business Type Model facilitates definition of what aspects of business need to be common, what should be variant.; plus domains and domain policy
    13. 13. Layered Service Architecture – Specification View <ul><li>Specialized purpose fractal architecture </li></ul><ul><ul><li>Contain impact of change </li></ul></ul><ul><ul><li>Enable customization </li></ul></ul><ul><ul><li>Enable high reuse </li></ul></ul><ul><li>Variable characteristics </li></ul><ul><ul><li>Stability/volatility </li></ul></ul><ul><ul><li>Change management profile </li></ul></ul><ul><li>Specific Policy </li></ul><ul><ul><li>Patterns </li></ul></ul><ul><ul><li>Architecture & design </li></ul></ul><ul><ul><li>SLA </li></ul></ul><ul><ul><li>Sourcing </li></ul></ul>Order Fulfillment Service Products Service Orders Service Process Services Core Business Services Underlying Services Utility Services Address Reformatting Service Accounts Receivable API Logistics Service Capability Services Units of Measure Commodity Custom Common reference architecture for merged business is essential
    14. 14. Start with the Core Business and Underlying Solution Model Domain Model Current Systems Model Process Driven Data Centric Bottom Up Order Fulfillment Service Products Service Orders Service Process Services Core Business Services Underlying Services Accounts Receivable API Capability Model Function Driven Logistics Service Capability Services But focus on identifying Data Centric services and linkages to back end systems
    15. 15. Core Business Service Architecture Drives Landscape Analysis <ul><li>Targeted landscape analysis </li></ul><ul><li>Mapping logical, business perspective to potentially multiple existing environments </li></ul><ul><li>Focus on identifying Underlying Services </li></ul>To drive “useful” landscape analysis Mapping CRUD CRUD CRUD . . . Mapping CRUD CRUD CRUD TERMS Mapping CRUD CRUD CRUD SUPPLIERS Mapping CRUD CRUD CRUD PRODUCTS Mapping CRUD CRUD CRUD ORDERS Mapping CRUD CRUD CRUD CUSTOMERS Existing Interfaces Business Processes Front End Systems Back End Systems Core Business Type Domain Model Current Systems Model Data Centric Bottom Up Products Service Orders Service Core Business Services Underlying Services Accounts Receivable API
    16. 16. Business Architecture <ul><li>Business Model </li></ul><ul><li>Business Plan </li></ul>Business Platform Business Model AS-IS Business Model TO-BE Business Requirements Business Integration Plan Business Case Business Service Portfolio Business Model AS-IS Use Service Portfolio Plan as bridge between TO-BE Business Model and Business Plan
    17. 17. Perceived SOA Capability Issues <ul><li>Wide variations in capability (within and across enterprises) </li></ul><ul><li>Wide divergence of service architectures (business and infrastructure) </li></ul><ul><li>Cost, time and risk to establish minimum necessary capability </li></ul><ul><li>Need for immediate cost and revenue returns </li></ul><ul><li>Time to develop convergent business model </li></ul><ul><li>Lack of understanding by M&A advisors and business management </li></ul><ul><li>Enterprise architects not involved in M&A planning </li></ul><ul><li>High quality business models do not exist </li></ul><ul><li>Short term numbers view of business plan </li></ul><ul><li>Unwanted additional complexity </li></ul>There may be strong push back against using SOA as a key tool
    18. 18. Outline M&A Roadmap DUE DILIGENCE FIRST 100 DAYS LONG TERM INTEGRATION SOA Capability Assessment Service Oriented Business Model & Triage Service Portfolio Plan Infrastructure Plan Governance Framework Service Organization SOA Practices Business Process Design Develop roadmap that brings SOA into play immediately. Short term decisions based on “application components” are going to be suboptimal at best Common Infrastructure Integrated EA, Provisioning Integrated Governance Board Integrated Practices in Projects Infrastructure Gateways Priority 1 Integration Common Reference Architecture SOA Coordination Organization
    19. 19. Summary <ul><li>M&A Practice needs to embrace emergent IT best practice </li></ul><ul><li>Structured methodology that spans business and IT </li></ul><ul><li>Foundation of Canonical model </li></ul><ul><li>Tactical decisions in a strategic context </li></ul><ul><li>Effective governance over outcomes </li></ul><ul><li>CBDI Report: SOA and M&A by David Sprott </li></ul><ul><li>A breakthrough in merger and acquisition practice? </li></ul><ul><li>Published in the CBDI Journal September 2008 </li></ul><ul><li>http://www.cbdiforum.com/secure/interact/2008-09/soa_and_m_and_a.php </li></ul>Read my report on SOA & M&A – a methodology for managing IT transformation using SOA
    20. 20. Independent Guidance for Service Architecture and Engineering www.cbdiforum.com www.everware-cbdi.com

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