CHOOSING A MERGER INTEGRATION STATEGY FOR SHARED SERVICES LINK INTEGRATION STRATEGY TO DEAL PURPOSE

Global Finance 360 | Copyright 2011 | All Rights Reserved 1

Global Finance 360

With the increased prevalence of Shared Service Organizations (SSOs) to support back-office processes, it’s likely that any merger or acquisition will involve a decision regarding the rationalization of shared services. When faced with this decision, typical questions include:

• Should we move processes from the target company to our existing SSO and shut

their SSO down?

• Should we leave them operating autonomously to support their existing businesses?

• Are there certain processes that lend themselves to combination more easily than others?

• How does our corporate diversification strategy inform our decision to rationalize shared services?

• How does our future growth strategy play into this decision?

To answer these questions and others, it’s important to look at the strategic purpose of the merger or acquisition. The graphic below illustrates the four types of integration strategy:

Exhibit 1: Overview of Integration Strategy

For each of the four approaches outlined above, the integration team should evaluate the capability, capacity and coherence of each Shared Services Organization. Capability includes the extent to which the SSO supports a variety of processes and the language capabilities available. Capacity involves the volume of transactions that can be handled and the flexibility of the organization to shift work globally as conditions merit; and coherence is focused on the strategic capabilities of the SSO to support corporate strategy and includes the quality of the SSO leadership.

”The integration of

two Shared Services

Organizations as

part of a merger is

an opportune time to

look at the overall

strategy of shared

services in light of

the evolving

corporate strategy.

A comprehensive

approach that takes

into consideration

the capabilities,

capacities and

coherence of each

organization will lead

to an effective

operating model that

supports existing

operations more

effectively and

creates the platform

to support future

growth.

Global Finance 360 | Copyright 2011 | All Rights Reserved 2

About Global Finance 360

Global Finance 360 covers the world of corporate finance and accounting and how these activities are impacted by globalization. Focus areas include Finance Delivery Strategy, Shared Services, Business Process Outsourcing, Process Improvement and Organizational Design.

Global Finance 360 is run by Steve Lynch. Mr. Lynch is a Principal in the Finance Transformation practice of a global consulting company. He is responsible for the marketing, sales and delivery of Finance Transformation services in North America and serves as a key liaison for his company’s global Finance practice. He brings more than 15 years of experience advising global companies on their service delivery strategies and has served over 60 clients in a variety of industries including consumer product and industrial manufacturing, aerospace & defense, transportation, technology, entertainment and financial services. He has also served as a Controller in private industry and as an auditor in public accounting.

Mr. Lynch is an active content contributor on the topics of Finance Transformation and globalization and has presented at various forums including the IQPC Shared Services & Outsourcing conference. He can be found on the web at www.globalfinance360.com.

Contact Information:

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slynch@globalfinance360.com www.globalfinance360.com

If a Consolidation approach is taken to the acquisition, the integration team will need to make an assessment as to the effectiveness and efficiency of each SSO to determine which organizational model should be adopted. This approach should only be taken if one organization is clearly superior to the other.

In the Transformation approach, the integration team will assess the two organizations and use the relative strength of each to transform the combined SSO. Factors include the effectiveness of existing process, the underlying technology that may give enable a

competitive advantage, and the distribution of service centers globally.

A Combination approach takes the best of both worlds, and it the most probable integration strategy. The integration team will develop a new service delivery strategy incorporate the combined capabilities of the new organization. Decisions will need to be made about consolidating similar processes to achieve standardization and economies of scale. The team will also need to consider the regions and lines of business of the combined entity and the future growth plans of the business.

A Preservation strategy is perhaps the easiest approach to deal with. If the corporate strategy emphasizes a diversified portfolio approach, it probably makes sense to leave the supporting SSO alone, particularly if it is handling unique and competitively advantageous processes. Depending on the long-term outlook for corporate ownership, it could be beneficial to combine common processes, such as accounts payable, into one of the service centers to benefit from standardization and economies of scale. The choice of which service center location is chosen will be based on a number of factors including geographic location, countries and regions served, language capabilities and the anticipated long-term government support of each country.

Evaluate the In-source vs. Outsource Decision

Regardless of the integration approach taken, one decision that must be revisited is the in-source vs. outsource decision. The acquiring company likely made its outsourcing decisions based on its existing capabilities and capacities. Under the combined entity, it may be possible that a different decision could be made based on anticipated volume and newly acquired capabilities. Some processes that were previously outsourced due to skill and volume considerations may be candidates to bring back in-house.

Update the Governance Model for the Combined Organization

As part of the updated organizational design, the integration team should update the governance model. This includes the operation of the individual centers and the Shared Services Organization, but also the processes handled by the SSO. It’s important to include newly acquired leaders from the target company as part of the governance model.

Conclusion

The integration of two Shared Services Organizations as part of a merger is an opportune time to look at the overall strategy of shared services in light of the evolving corporate strategy. A comprehensive approach that takes into consideration the capabilities, capacities and coherence of each organization will lead to an effective operating model that supports existing operations more effectively and creates the platform to support future growth.