Last week, we talked about cold feet syndrome, a process in which – though companies that buy a plant and spend months of preparation to integrate ERP systems – companies put off ERP integrations long term to reduce costs.
This week, we are going to talk about why you shouldn’t put it off in two words: your wallet!
Here to break down the complexity and potential integration fees is D4M International COO Jean-Yves Durocher.
I sat down with him this week in order to elaborate on the potential costs that could arise from putting off plant integration including the change in technology, ballooning scope of integration projects (especially, with companies that wish to grow fast), and the potential legal costs if you don’t have quick access to data (with financial institutions like the IRS or CRA).
Jean-Jacques: So, it seems to me that no matter what you think the ERP situation is between the plants that you have versus the plants that you’re buying, there is always some kind of IT transition team necessary in order to get everything working. It’s not necessarily a question of, “oh you have to upgrade or, you have to transition to something else.
Jean-Jacques: It’s just the simple fact that to get things working smoothly, like you said before, even if you have two identical versions of SAP products, they don’t necessarily speak to each other well.
Jean-Yves: That’s correct. And – mind you – with ERPs, if you look at the transition checklist, the ERP is just one line of the process. You have a checklist that will include security software, telecom, etc.
Jean-Yves: Are you on AT&T versus XYZ telco company? What kind of Wi Fi do you have? So, the checklist of things that needs to be done to potentially integrate plants is several pages long and ERP is just one line out of that it of that long checklist.
Jean-Yves: Mind you, it’s a big item – one that’s more costly, more complex, and it will take more time versus trying to put everybody on the same email or cloud, but globally, ERP be is a big item.
Jean-Jacques: So, just to try to maybe come up with ways that managers can rethink this whole transition model, how much money is spent in the end to transition to a new ERP software versus how much a company will lose – in terms of ratios – to upgrade SAP systems now as opposed to waiting for the deadline?
Jean-Yves: It’s really hard to put a number, even a ratio because it depends on so many factor that I think it would be misleading to say that should cost between X and Y.
Jean-Yves: There’s too many variables on this. And – indirectly – this is often why some corporation just decide to wait before they integrate anything. They take a path where they just decide to run the company they just purchased as is for a while. They want to see it running, observe how they work, THEN jump into the process.
Jean-Yves: They don’t jump too quickly because it’s costly and it’s relatively complex. So, to answer your question, how pr what is the ratio? How much should it cost or how much will it? I think it’s it depends on too many factor to put a number on that.
Jean-Jacques: And, like you said before, the ERP is just one part of the whole, global process at the end of the day.
Jean-Jacques: AND, when one part of the road map process includes legal teams, licensing costs, even going into the the minutia of what Wi Fi to use or phone companies they will use during the merger, clearly, there’s a lot more to do when you just bought a company.
Jean-Yves: Correct, and just to give you an example, you might think the company you’re buying might have signed a contract for five years or x number of years with a provider – whether it’s SAP, Amazon, or what have you – may have signed the agreement for 3, 4, 5 years engagement and suddenly a company is being acquired and you don’t need those licenses anymore because you’re going to be using another product since the buyer is using a different platform.
Jean-Yves: Suddenly, you have in front of you a three year contract and there’s only one year and there might be two years left in your contract; and, this is just the legal aspect of licensing! Then, you have Microsoft and every other software that the company might have purchased over the year.
Jean-Yves: It’s not necessarily complex; the complexity of the projects comes from the sheer volume and the amount of detail that you will have to go through in a short period of time.
Jean-Jacques: Okay. In closing do you have any thoughts regarding D4M and its place in the M&A process? Any advice you could give for directors and VPs to keep in mind when purchasing a plant.
Jean-Yves: I think in terms of advice or suggestion – the do’s and don’ts of MnA – I think the one thing to obviously to keep in mind for corporation going through this, obviously, we can assist them in many ways; its not just “option A and option B”.
Jean-Yves: We could be there during the due diligence only; we could just be part of the transition and so on. It’s not a “one size fits all” – not only in terms of how D4M can assist you in an acquisition but the MnA process in general. My advice from the perspective of our clients is if you look at integration, if you find out that to integrate something this year or a short period of time after the acquisition, if it costs, say, a million dollars to do it this year, right after the acquisition. If you park it for a while and you wait two years, three years, it’s not going to get cheaper.
Jean-Yves: If it’s a million dollar or X dollar to integrate the project now and you delay it for a year, two year, three years, ne thing is sure it: will not be cheaper later because there will be more applications, more data, plants to integrate, etc.
Jean-Yves: We haven’t talked in the last hour about the data, but there’s obviously the main reason to integrate two plants is around saving the data. What do you do with the data? How long do you need to archive the data? Who owns the data? And, in front of the auditors, in front of the the authority – like the IRS? That’s a whole other topic can of worms.
Jean-Yves: But, to get back to my point, whenever you don’t integrate immediately, one thing is sure, it’s not going to be cheaper in three years; and, I think that, in some cases, postponing the integration process is a mistake. It always seems simpler to postpone; but then, you get into a situation where your company might grow very fast and, next thing you know, you go through another acquisition and you hardly have time to catch up your breath before you move on with another and then another.
Jean-Yves: So, at the end of the day, you could end up five years down the road running a bunch of different ERPs across multiple plants because you have been acquiring companies left and right. If over the years, you didn’t take the time to integrate any of those plants, you end up with multiple ERPs and none of them have been integrated.
Jean-Yves: This is a scenario that happens very often. It’s a common situation in the industry in general.
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