How Does a Corporate Takeover Affect the ERP System? Part 2 – Company Acquisition
Corporate acquisitions are par for the course across almost every industry today. But what impact do these mergers have on a company’s IT systems, specifically its ERP system?
This is a pertinent question, as a corporate takeover involves more than simply integrating different systems – usually, the various systems need to be separated as well. As part of the acquisition deal, for example, the merger parties might agree to continue using the existing ERP system for another year, after which the demerged company will be left to its own devices. But will one year really be enough to integrate all business processes into the existing ERP system? Or are there strategic reasons for running two ERP systems side by side?
These are all questions Cadran Consultancy regularly fields from clients. So what are some of the factors to consider? What sort of issues are you likely to encounter, and what approach will you use in resolving these issues? In 2 blogs we have outlined our solutions for both scenarios: Company Sale (part 1) versus Company Acquisition (part 2).
The scenario is altogether different when we’re dealing with the acquisition of a company. In this case, the first step is to determine whether we continue with one or two ERP systems. We have found that the preference is generally for a single ERP system: that of the company making the acquisition (the acquiring party.) For our clients, this means that a new company and ‘new’ business processes must be added to the existing JD Edwards model.
It makes a difference, in this case, whether the acquired company runs on JD Edwards ERP or another ERP application.
Scenario 1: The acquired company does not use JD Edwards ERP and abandons the old ERP system
If the acquired company does not use JD Edwards, we are basically dealing with a regular JD Edwards implementation. In this case we need to be mindful, however, of the existing set-up and processes and procedures at the parent company, which already uses JD Edwards. An analysis is required in order to identify, and compile a list of, all the business processes of the acquired company. Are these processes aligned with the existing JD Edwards processes, or are they different? These processes tend to be incompatible, even if the business of the acquired company is identical to that of the new parent company. Every production facility or distributor tends to have their own procedures in place, or sometimes certain attributes, which may or may not be country-specific. Regulatory requirements can often also come into play.
The trick is to identify and mirror this as soon as possible with the existing processes (and documentation.) Change management or decisions at the appropriate level are key elements here when it comes to causing the least amount of resistance to the integration. This should be based on an integration of systems instead of an all-new second implementation. At the same time, it is also important to factor in the identity and independence of the acquired company.
Another important factor is data conversion: this process should not be underestimated, as it involves the collection, clean-up, elimination or closure of data from clients, suppliers, prices, product data, outstanding invoices, and so on. These are eventually converted into a dataset to be imported into JD Edwards ERP. It may be necessary to deduplicate items if both companies stock identical products.
Another area of focus is the documents used by the company (including invoices, packing slips/waybills, purchase orders, payment reminders, etc.). Have we checked that all documents comply with the relevant government regulations, or are there specific reasons to print certain data? The biggest pitfall in this process is the old “We’ve been doing it this way for years, so why change?” chestnut.
We are obviously not interested in turning all business processes on their head: we simply recommend that clients use their common sense in finding reasons as to why certain things need to be done a certain way, or why they would choose to organize and manage business processes that way.
Scenario 2: Both companies using JD Edwards as their ERP system
You might think this should be easy, but perhaps we need to take a closer look… While the data conversion may be less complex because the table structures are identical, the set-up could obviously be completely different. This might include, for example, the use of category codes for items or clients. This means there is a need for a thorough data conversion analysis and data conversion process. This involves some of the same operations as described above, including data clean-up, deduplication of identical data, etc.
We often also have to deal with two different system versions, for example, JD Edwards EnterpriseOne E9.0 and E9.1. So what is the preferred strategy in these cases?
- Do we choose to upgrade one of the companies and downgrade the other?
- Which customized software do we copy from what systems, or do we combine various customized solutions instead?
- Will we upgrade to a new version together, e.g., E9.2?
In this ostensibly more straightforward scenario, we essentially encounter exactly the same problems as with the integration of two different ERP systems. This creates a need for prioritizing process analyses, documents, formatting/layout, government regulations, sales tax regulations, data conversion, customized analysis, security, menus, etc.
Don’t think this is all there is to it – it’s really just the tip of the iceberg. These outlines of the process involved in ERP separation or ERP integration do not factor in the consolidation of hardware or networks – or aspects such as email integration, for that matter. These are issues that JD Edwards ERP consultants may not deal with directly, but which do play a key role in these processes. The infrastructure, office software and the integration or division of this infrastructure are at least as important, and each of them have their own impact on the ERP projects.
Feel free to contact us if you would like more information about our expertise in the unbundling or integration of ERP systems.
Author: Patrick Brouwer, Cadran Consultancy Project Manager & Senior JD Edwards Consultant – Logistic & Distribution