In all but the most mature industries, constant MD&A activity seems to be the norm these days. For the large corporations that result from inorganic growth, one of the biggest challenges is how to deliver expected synergies (cost reductions, efficient shared services, etc.) while allowing for the continued individual growth and agility that the individual businesses require to continue thriving post-merger.
I will break the discussion in three parts:
Part 1 (this post): an introduction to the legacy innovator challenge in large multi-business corporations
Part 2: how to “find the potholes”? An explanation of the framework to address the challenge
Part 3: considering the options: an SAP point of view on “filling the potholes”
The following ideas come from multiple conversations with large “multi-business” corporations (holding companies with diverse business entities but a common corporate back-bone) that came to SAP looking for help transforming both their application architecture (how to merge systems) and their organizational structure (how to merge companies and processes)
Like most transformation efforts, the first (and arguably, most important) question is “Why?”
The answer to “Why do we need to transform?” will change significantly depending on who you ask. The corporate groups looking to achieve synergies and drive value out of the elimination of silos will have a different answer than the individual business owners that will need to be convinced that giving up their independence and agility will be worthwhile for the greater good of the mothership.
At the same time, the “legacy innovator challenge” will have to be dealt with. That is, legacy processes and systems will weigh down on innovative initiatives both within the individual businesses and across business lines. Modernizing these legacy systems for the sake of modernization is rarely a worthwhile effort. Also, integrating these processes and systems for the sake of the proverbial “single global” system without a vision that all business units buy into is usually detrimental and leads to long integration projects that are eventually abandoned. Today more than ever fast beats big.
To address this challenge, I like to borrow an analogy from one of our customer discussions: you have to find the potholes.
Supporting a corporate consolidation initiative is not unlike paying for taxes. You pay taxes to the government and have very little direct choice on how much of those taxes goes to your town (your department), your state/province (your business unit) or your federal/national government (the corporation or holding company). At the end of the day, if you’re not worried about an impending international conflict in your back yard, you will care more about fixing the pothole in your street than about funding the nation’s military. But once all your local needs are met, you will probably have no issues if your taxes are used to protect your national (corporate) sovereignty and long-term viability.
That is why all successful MD&A integration strategies need to consider, understand and address local needs (the potholes). Conversely, they should limit efforts and investments that would interfere with individual business requirements for which global standardization and centralization drives no business benefit.