The document discusses critical IT issues to address in an M&A integration. It emphasizes the importance of IT due diligence before and after a deal is announced to identify risks, costs, and integration challenges. A multi-step approach is proposed: 1) develop an IT integration strategy, 2) conduct integration planning including defining success factors and KPIs, and 3) focus the first 100 days on stabilizing operations and launching integration teams to develop detailed plans. Early focus areas include communications, retention efforts, and identifying projects to pause or complete to facilitate integration.

1. Addressing the Critical IT Issues H. Curtis Herge, Jr. Director, Solutions Development 17177 Preston Road Suite 310 Dallas, TX 75248-1243 http://www.cdi-its.com/ (585) 260-3261 Mobile Curt.Herge@cdicorp.com 1

2. The CIO’s View The Businesses’ View of the CIO 2

4. Open business strategy issues are driving IT spend to tactical projects

5. Lack of funding has caused postponement in technology refresh

6. Strategy and planning processes are focused on annual versus multi-year planning

7. 75% of Global P&L spend is for “keeping things running”

8. IT is viewed as a cost center versus a strategic enabler

10. Competition has driven the core business into a commodity

11. Leverage has not been optimized across the LOB’s/GEO’s

13. Stovepipe business process drive complex IT deployment and costly variation

14. Tendency to postpone technology refreshes

15. Inconsistent use of application development standards and processes

17. Significant portion of IT resources are involved in planning. Managerial and administrative activities

18. Headcount is approximately 75% base and 25% investment related

19. Narrow span of control-(some managers have only 1 or 2 directs) and many layers (up to six)

21. Stovepipe orientation of business processes and application investment have resulted in redundant applications and tactical solutions

22. Lack of data integration is driving business costs

23. Historical application rationalization efforts have not been successful

24. Enterprise Application deployments are falling short of ROI expectations… and this M&A idea only will only make things worse ….

26. Maximize individual capabilities

27. Different strategic implications

29. Integrate into a single business entity

33. No leverage capability

35. Reduce costs

39. How are we going to integrate IT:

40. Applications & Data

41. Technologies & Architectures

42. Organizations & Methods, and

43. Governance?

44. What should IT focus on during the first 100 days to prevent disruption?

45. What should an integrated IT (A, T, O, G) look like 2 - 3 years from now to create and deliver enhanced value to the business?Integration Planning Logic Integration Complexity (H – M - L) Total Budgeted Headcount End-State Concept Of Operation Opportunity (H – M - L) Strategic Integration Impact TargetIntegration Date Business Risk (H – M - L) Target Benefits Gating Factors Dependencies Integration Area Finance and Accounting Human Resources Manufacturing Operations Marketing and Sales Information Technology Research and Development Preliminary priority of integration activities Quantification of opportunities; Reality check of synergies Intent of integrated operation model (consolidated, integrated, central/ decentral, regional/ global, etc.) Factors beyond control can/could effect success Impact of integration- specific areas on overall integration Previous activities other integration areas must do

46. The Selected IT Integration Strategy Dramatically Impacts the Scope and Effort of Planning and Execution With a Consolidationapproach to IT integration, the focus is on risk management for process issues; data conversion for technology issues. With a Combinationapproach, the process focus is systems evaluation; technology focus is systems integration. The result is selection of the most effective “To Be” state. The investment and effort required is only an approximation on the Close date. With a Transformationapproach, the process emphasis is innovation; the technology emphasis is the overall IT architecture. T investment required and effort is only an approximation on the Close date. With a Preservationapproach, stakeholder management and communication between business units is key for technology concerns. 5 Key Message: The selected approach impactswhen, if and what, if any, IT opportunities will exist to use technology to position the business for future growth and change.

48. Combination

49. Shared Services?

50. Transformation

51. Outsourcing?

53. Reputation if integration fails

55. Idea Team

56. Assessment Team

57. Implementation and Transition Team

58. Management Team

60. Management Systems

62. Technology Standards?

63. Application Portfolio Rationalization?

64. Geographic considerations?

66. Cost – Reduction, Containment & Avoidance

67. Responsiveness

68. Quality

69. Availability

70. Capacity

72. Capability/Skills

73. Business Alignment

74. Key Issues

75. Major Risks

77. Customer Satisfaction

78. Employee Skills, Competencies, Training Integration

79. Performance – SLAs

80. Roadmap to Architectural Standards

82. Provide strategic or tactical benefits?

83. Provide leverage to institute change?

84. Manage end-to-end results across the newco enterprise?

85. Drive performance and process improvements?

86. Allow for comparison to best practice performance?

87. Enhance newco’s ability to compete in the future?

88. Drive IT process innovation?

89. Provide predictors of Future Performance?7 Copyright © 2006 IAOP. All Rights Reserved.

92. Acquisition’s business background and IT Organizational stability

93. Acquisition’s Infrastructure

94. Acquisition’s People resources

95. Acquisition’s Tools

97. Processes (Benchmarking, Certification, Continuous Improvement)

98. Technologies (Level of Investment, Leading Edge)

99. Experience (Functional, Industry)

100. Proven Performance; Certifications

102. Service Request Management

103. Service Receipt Verification

104. Performance Management

105. Problem/Incident/Change Management

106. Project Management

107. Security, Business Continuity, Disaster Recovery

108. Operations Management

109. Financial Management

110. Asset Management

112. Loss of productivity during transition

113. Governance (IT cost as % of Revenue vs. industry benchmark)

114. Management Streamlining

115. Potential Scale

116. Labor and Efficiency

117. Assets

118. Facilities

120. Mission and Strategy

121. Relationship Management (Flexibility, Partnership, Trust, Governance and Reporting)

123. Ensure continuity of 100% of day-to-day IT operations

124. Define the IT Plan, priorities and prepare for Close and 1st 100 days:

125. Payroll? Global Address Book? Telecommunications and Voice Mail? Financial consolidation?

126. What must be communicated to align IT executives on end-state integrated business?

127. Compelling need for change, content, impact

128. Where must IT be prepared to conduct immediate triage?

129. shut down of strategically misaligned in-flight projects (e.g., SAP vs. Oracle ERP development)

130. How doesIT organize, manage and measure success?

131. IT CSF and KPI implementation

132. What are the end-state IT structures, operations and systems we desire?

133. Preliminary end state vision

134. What should IT do now to Jump-Start integration?

135. Detailed Project Plans for first 100 days

136. What IT teams should we launch... and what should they do?

137. Post Announcement, but Prior to Deal Closure, Due Diligence

138. IT Stabilization Priorities (“KTBR”)

139. IT Pre-Close Preparation and Planning

140. IT Post Announcement, but Prior to Deal Closure, Due Diligence

141. IT Detailed Risk Assessment and Mitigation Plans

142. IT Day 1 Priorities

144. Step 2: Integration Planning: ‘Pre-Close Jump Start’ Critical IT Issues IT Pace / Risk Critical Issues Post Announcement but Prior to Deal Closure Due Diligence Integration Management, Structure / Resources Define / Launch IT Stabilization Actions Integration with M&A Program Office, Tools, Process, Governances Interim IT Investment Rules Launch Communications Program IT Retention/ Severance Plans Prioritize Day1 and Near Term Deliverables Develop Plans: 100 Day 2 -3 years 11

146. If poorly executed, IT Integration can disable the achievement of the intended value creation. 12

147. We did it! The deal is closed! Day +1. What does IT need to focus on first and why? With the IT Transition Plan written before the deal is closed IT is ready to implement it on Day +1. 13

149. Identify Tier 1 & 2 candidates for leadership team

151. Define IM resource requirements, capital expenditure requirements and risks to implement release plan

152. Identify applications destined for obsolescence

153. Develop technical infrastructure release plan, (sequence / schedule), applying constraints

154. Implement Technology Review Board

155. Pursue short-term cost savings opportunities

157. Disposition in-flight projects

158. Formalize key management processes

159. Scope, prioritize and pace change across all the dimensions in concert

160. Make commitments, accountabilities, and trade-offs across the full executive team crystal clear

161. Find a pacing and balancing of “strategic” investment that the executive team can stick with through inevitable changes and external shocks, but also gives each Business Operating and Functional Executive enough elbow room to accomplish their tactical goals14

162. . 1st 100 Days IT Integration Project Organization:Reporting to the Integration PMO IT Org #1 & 2 Managers of: Transfer & Transformation Communication Program office Work stream Work stream HR Finance Project H01 Project F01 Project H02 Project F02 Project H03 ... etc. ... etc Work stream Work stream Delivery Demand / Supply Work stream Support Work stream Organization The two former IT organizations should set up a mirror program organizations with the same work streams and projects (for projects in which a joint effort is needed) Determine projects with joined effort from both IT organizations for disentanglement, Transfer and Transformation Key Message: The two former IT organizations establish mirror teams to achieve Newco’s near-term IT Integration objectives. 15 Copyright © 2006 IAOP. All Rights Reserved.

164. Development Factory

165. Operations Factory

166. CtO

168. Business Factory

169. Development Factory

170. Operations Factory

171. CtO

172. Security

173. Prioritization

174. Probability

175. Funding

177. LSS / BPR

179. Begin IT Benefits TrackingSurvey & Audits - Compliance Audit Data 18 IT Deployment Compliance Audit Data

181. Maintain a rolling 90-day plan that includes all improvement efforts

182. Keep the end-in mind: Sustainable, effective capabilities the business acknowledges deliver value

183. Use a standard approach to the program methodology. Leverage existing processes in place

184. Simplify complex activities into specific deliverables, focus on deliverables, accountability and timelines

186. Architectures and Standards: …

188. Leveraging programs

189. Investment prioritization

190. Relationship Management

191. Service Request Management

192. Service Receipt Verification

193. Performance Management

194. Problem/Incident/Change Management

195. Project Management

196. Security, Business Continuity, Disaster Recovery

197. Operations Management

198. Financial Management

199. Asset Management

201. Implementation of common, consistent processes

202. Global proliferation of best practices

203. Process integration from an end-to-end perspective

204. Common tools

205. Implementation of common tools, templates and reusable components

206. End-to-end monitoring across all clients, servers, networks, storage systems and applications

207. Global accountability

208. Accountability for work, by function, location and process

209. Delivery function and location model

211. Consolidate IT Functions / Geographies Integrate Business Operations (example) Services Program/Project Management (includes delivery methodologies) Business Management The Business Customers Users Security Management Service Management Service Delivery Service Level Mgmt Incident Mgmt Problem Mgmt Capacity Mgmt Configuration Mgmt Financial Mgmt Change Mgmt Availability Mgmt Service Support Release Mgmt Service Continuity Applications Management Service Desk Information and Communication Technology Infrastructure Management Architecture & Strategy Engineer & Deploy Operations Technical Support Partners 21 21

213. Deployment immediately follows release and is concurrent with next release

215. Quality Management Methodology: (CMMi / TIQM)

216. Outsourcing and other best practices (OPBOK)

217. Program Methodology (PMBOK)

218. Project Methodology (SDLC)

219. Service Management Framework: ITIL v3

220. IT Enterprise Management ApproachBig Rule: Rolling 90 Day schedule

221. . Lessons Learned – From Failed IT Integration Management Experiences IT Integration planning was not a key activity on the M&A management team plan for inclusion (3 Step M&A Strategy, Planning and Execution process) IT Integration planning was done in a vacuum and did not have a “buy-in” by all parties involved – IT business unit customers such as sales and manufacturing or supply chain management teams IT Integration plan was not fully developed and documented due to lack of inclusion until “late in the game” IT Integration plan did not cover all aspects of the needed IT Integration activities (people, processes, assets and financial) and all phases – from Day +1 through ongoing “Future Mode” of governance (budgeting, decision making, priority setting) IT Integration plan implementation management team was not identified before the M&A deal was signed so that the activities could begin Day +1 IT Integration management team was neither involved in developing the M&A strategy and business case (and became the basis for the deal) nor had a longer term accountabilityto create stability of integrated business operations The IT focus was Applications, Data and Technology. Human Change Management was not considered a vital part of IT Integration management Key Message: Learn from these mistakes. Identify Critical IT Risks in Step 1 and have a Risk Mitigation Plan in place. 23

222. Summary While there are many hurdles that must be surmounted in any M&A transaction, the one that most frequently poses a challenge is how to plan for and execute the post-merger IT integration. Proper selection and execution of a post-close IT integration plan in a timely manner can help achieve any anticipated synergies from the M&A transaction. Experience indicates: the better the post-close planning and execution, the better to overall merger results, and a key attribute to effective post-close integration is a high level of integration between IT and the business. 24

223. Thank you! H. Curtis Herge, Jr. Director, Solutions Development 17177 Preston Road Suite 310 Dallas, TX 75248-1243 http://www.cdi-its.com/ (585) 260-3261 Mobile Curt.Herge@cdicorp.com 25

224. Backup 26

225. Why Good Deals Go Bad Due to IT: What We Often Find No Pre-Planning:IT is unprepared to hit the ground running at the moment of close… no jump-start... lost opportunity “Fire-Ready-Aim”:IT is only “near-term project and activity focused” versus conceiving of and driving for “long-term” value preservation, realization and creation stemming from IT strategies. IT runs development and systems integration projects on a daily basis. IT organizations rarely have Multi-Year Plans focused on delivering value creation for the business. Don’t Invest in the Integration: Calculate the deal in terms of acquisition cost and benefits rather than total cost of ownership. IT integration strategies are often focused only on reducing IT operating costs. However, the IT Strategy should also identify where/how/why savings can be re-invested to create longer-term value 2-3 years from the M&A close. Discounted Degree of Difficulty: IT integration is often treated as a near term project to “keep the business running.” However, IT value creation opportunities can be very sophisticated, complex transformation programs. Unrealistic Expectations: Leadership fully expects the projected benefits to be immediate…accretive Day One. IT integration that delivers value can take 1 – 3 years. Misaligned Work Priorities: Top-down directive is “Integration is “job #1”, IT reality is “Keep The Business Running”. People are confused, anxious, over-committed, spread too thin and under-appreciated. 27

226. Four “models” or approaches of post-merger IT Integration Consolidation — Calls for the rapid and efficient conversion of one company to the IT strategy, structure, processes and systems of the acquiring company Combination — Means selecting the most effective IT processes, structures and systems from each company to form an efficient “To Be” operating model for the new entity Transformation — Entails synthesizing disparateIT organizational and technology pieces into a new whole Preservation — Supports individual companies or business units in retaining their individual IT capabilities and cultures 28 Key Message: Step 1: The IT Integration Strategy must comprehend the M&A business intent and define a corresponding IT Integrations Strategy to enable the deal.

227. 29 How IT Integration Can Impact the Business Case IT solutions can directly contribute to P&L by helping reduce operating expenses: IT solutions should reduce expenses by reducing IT’s portion of SG&A expenses Net Income is a direct function of SG&A. Reduction in IT’s portion of SG&A increases Net Income. IT Integration solutions can generate a direct negative effect on revenues: Slow integration of Order Entry, Accounts Receivable or Customer Facing Web Sites and customer databases can have serious negative impact on customer relations. Customers quickly recognize the lack of integration and feel like they are now dealing with two disorganized companies. Customer satisfaction and loyalty can be negatively impacted. Sales force integration may be impossible as a direct result of the lack of IT application and data integration. Positive Contribution Negative Impacts Key Message: For IT to enable the M&A business case they must be part of the core team from inception.

231. All In-Scope Activities

232. Total Costs (often times IT spending is not consolidated in one budget)

234. Support Services ... management, human resources, finance & administration

235. Capital Costs ... useful life, depreciation, market value

236. Assumptions ... future volumes, service level requirements, technologies, service provider costs (e.g., DR)Key Message: Step 2 “Integration Planning” requires many IT financial assumptions which must be validated in the Post Announcement but Prior to Deal Closure Due Diligence process. 32 Portions Copyrighted © 2006 IAOP. All Rights Reserved.

238. Ongoing Costs

239. Tangible

241. Transition Costs ... staff (planning and testing), travel, professional services, transfer fees, termination penalties, relocation costs, stay bonuses, taxes, severance packages

242. Termination Costs … transition of work back or to another third party as a result of termination (normal or for cause-convenience)

243. Oversight Costs ... staff, travel, professional services

244. Additional Costs & Risks ... Goodwill, operational disruptions, personnel turnover, exchange rates, risks and risk mitigationKey Message: IT Integration analysis addresses more than software, hardware and payroll costs. 33 Portions Copyrighted © 2006 IAOP. All Rights Reserved.

246. Ongoing Benefits

247. Tangible

249. Focus... reduced competition for capital, cash infusion, reduced cost of capital, resource redeployment, management focus

250. New Revenue Opportunities

251. Additional Benefits & Rewards ... Speed, flexibility, innovation, organizational change, employee morale, unexpected synergiesKey Message: Many “soft” benefits are also associated with IT’s role in the M&A decision. 34 Portions Copyrighted © 2006 IAOP. All Rights Reserved.

252. The IT Integration approach will have to deal with different management and cultural issues. The typical IT leadership style in a Consolidation approach is an authoritarian approachthat imposes the will of the acquiring company. The IT culture of the acquiring company is also imposed (as much as possible) on the new entity. In a Combinationapproach, the IT leadership is more collegial and there is a knitting together of corporate cultures. In a Transformationapproach, there is often a small team of inspirational IT leadership that seek out new ideas and synergies. There is often a new corporate IT culturethat is sculpted from select parts of the prior cultures. In the Preservationapproach, the IT leadership style is effectively described as respectful. Leaders of both companies retaining autonomy. The cultures of each company remains largely unchanged. 35 Key Message: The selected IT Strategy has dramatic impact on the need for IT organizational and cultural Change Management.

254. The Same Methodology Can be Used to Assess the Level of IT M&A Integration Maturity Within an Organization.

255. Companies That Frequently Consider M&As as Part of Their Overall Business Strategy Develop Mature Repeatable Processes for Assessing the IT Aspects of a M&A deal.Assessment vectors considered include: M&A competency Strategic coalition Customer impact Sourcing capability Process expertise Governance style Relationship management Key Message: The mere ability of an IT organization to effectively support the M&A Integration 3 Step Process is a function of how often they have done it before. If the IT Leadership has not done this before, they may require coaching. Ad Hoc 36 Portions Copyrighted © 2006 IAOP. All Rights Reserved.

256. . Outsourcing Maturity – e SCM Key Message: Just as is the case in improving an IT organization’s Outsourcing Maturity, an IT M&A Enablement Maturity can be benchmarked. Gaps in IT’s ability to support the 3 Step Process can be identified and addressed. Key Message: There are methodologies your IT organization can leverage if involvement in an M&A deal is foreign to them. 37 Portions Copyrighted © 2006 IAOP. All Rights Reserved.

258. Project WBS & Schedule

259. Tracking & Reporting Dashboards

260. Deployment Completion Signoff

261. Quick Start Guide (deployment section)

262. Training Recipient Identification

263. Self Assessment Audits