The Importance of ERP Strategy in Acquisition-Intensive Groups

Why ERP Strategy is Crucial in Corporate Acquisitions

When a group expands through acquisitions, a varied array of ERP systems often follows into the family. Suddenly, management faces a jungle of different platforms, versions and processes. This can range from small, local accounting systems to complex ERP systems with specific industry solutions. Without a unified system strategy, the group risks getting stuck in inefficiency, increased costs and difficulties in leveraging synergies. At the same time, it is important not to lose flexibility or specialised expertise that may exist in the various subsidiaries.

Over the past 15-20 years, we have seen a significant increase in corporate acquisitions driven by how private equity has sought to enter the industry. In our everyday work, we meet many groups driven by an active acquisition agenda. A common situation is that there has been a change of ownership from long-term ownership to private equity-based ownership with an ownership agenda spanning only about 5-7 years. The previous owner had a strong focus on profitability but limited focus on IT investments.

Challenges with a Varied System Ecosystem

The result is that the group is left with an outdated IT environment and often lacks a strategy for how IT should be developed within the group. The challenges quickly become significant when the new owner embarks on an acquisition agenda involving several new acquisitions per year to create an international or global business in a short time. This can involve questions such as:

• Should subsidiaries share systems or use local and different ERP systems?
• Are there synergies in maintaining consolidated master data within the group?
• Is it possible to achieve increased efficiency in supply and logistics by centralising parts of the organisation and the systems used?
• Can investment in a new ERP system create conditions for faster expansion and integration of new businesses?
• Or conversely, will a new ERP system become an obstacle or disruption in development?

As a result of technological development, all organisations need over time to review their strategy and plan for how IT and applications should be developed and maintained. This is both to adapt to the changes occurring in the organisation's business plans and to be able to take advantage of the opportunities arising from new system solutions on the market. Here, a needs analysis and a clear specifications document are crucial to making the right decision.

Common ERP Scenarios in Groups

There is rarely only one alternative for moving forward; rather, it is often possible to identify several different scenarios, each with its pros and cons. The evaluation of each scenario must be done in relation to the ownership agenda and business plan. Also, consideration must be given to the competence and maturity regarding ownership for process and system development within the group. Transitioning from owner-led leadership with limited business complexity to a rapidly growing group driven by private equity represents a major change affecting all dimensions such as governance/management, processes, IT and culture.

Below is a selection of different scenarios we encounter in our daily work:

• A shared group system: All companies migrate to the same ERP system. This provides standardisation, control and enables centralised monitoring. The downside is often high implementation costs and the risk of losing local engagement and anchoring.
• An ERP system per business area: Each business area or division has its own system, adapted to industry-specific requirements. This provides flexibility within each business area but can complicate group-wide synergies and reporting.
• Geographical systems and installations: ERP systems are chosen based on local markets, which can be justified by local legal requirements and availability of local system expertise.
• A combination of central and local systems: Certain functions (e.g. finance) are centralised while others (production and logistics) retain local solutions. A compromise requiring clear interfaces and reference frameworks for maintaining master data.
• Local focus with integration of existing systems: The group allows all subsidiaries to run local systems and establishes a strategy for integrations and maintenance of master data. This provides local flexibility but creates a group-wide complex infrastructure leading to a high need for local system maintenance.
• Hybrid model with gradual harmonisation: A mix where a heterogeneous system landscape is initially accepted and then gradually harmonised in selected areas as business needs change.

It can be tempting to look for a "one-size-fits-all" solution, but reality is rarely that simple. Which strategy is best depends on the group's overall goals, ownership agenda and business plan. Is the ambition to quickly integrate new companies and realise synergies, or do you want to preserve entrepreneurship and local expertise? Is rapid consolidation of financial data required, or is innovation and speed to market the most important?

ERP as an Enabler for Growth and Innovation

It is important to dare to choose a strategy that supports the group's long-term ambitions – and at the same time be prepared to continuously adjust when conditions change. Here, dialogue between group management, business managers and the IT function is central to avoid the strategy becoming a hindrance rather than an enabler.

ERP systems are more than technology – they are a reflection of the group's structure, working methods and ambitions. Establishing a well-thought-out strategy for managing ERP systems is therefore not a one-off effort but an ongoing process that should follow the group's development. By proactively addressing these issues and adapting the system landscape to the business plan, a solid foundation is created for integration, growth and innovation.