Merging ERP Systems

Corporate mergers may be made in board rooms. But the software unions that follow them can spoil the honeymoon for workers below who toil with corporate information systems.

Under normal operations, business-management software such as enterprise resource planning (ERP) systems can be a headache to install, update and maintain. When differing systems suddenly need to work together, the task of making them communicate can strain even the best business combination.

"Companies are finding that, even if they buy another company that has the same ERP system, the two are notoriously difficult to put together," says Russell Brackett, vice president of CSC Consulting, part of Computer Sciences Corp. (CSC) of El Segundo, CA. A management consulting firm and systems integrator that installs such systems, CSC lists clients that include Ford Motor Co. and General Motors Corp., Mercedes-Benz, Lucas Varity, Federal-Mogul, Motorola and other auto-industry players.

A company's business practices and procedures are tied very closely with this high-level software that figures financial performance, tracks inventory, schedules production and pays employees. "Once the systems are configured and put into production, it's as if you poured cement around your business processes and the technology that supports your businesses processes," Mr. Brackett says.

Still, automakers and suppliers caught up in the current round of mergers and acquisitions are coming up with strategies and procedures to successfully merge their sometimes dissimilar business systems and custom software.

The approaches vary. Some will put the software and systems of the parent in place at the new acquisition. The idea is to keep information technology within a single software family that speaks a common computer language. That makes it easier for different, even distant facilities to share information. It also can make it easier for the corporate information technology (IT) staff to run the stuff; they don't need to learn a variety of applications.

But other merging companies will keep the applications that come with their acquisitions. In these cases, they will install higher-level, over-arching systems that collect data and consolidate vital operations that need to be handled at a corporate level such as accounting software needed to track financial performance.

"There are a lot of practices that can operate separately for at least a while after a merger or acquisition," observes Mehrdad Laghaeian, vice president, information technology of Osram Sylvania Inc. in Danvers, MA. "Local responsibilities such as shop-floor control do not have the same urgency to be integrated as financial systems and production planning."

Getting dissimilar, incompatible software applications to cooperate is an issue for all large companies, because they all rely on a variety of wide-ranging enterprise applications that, at some level, must communicate.

GM uses portions of the R/3 ERP package from SAP of Waldorf, Germany, for bookkeeping and for buying indirect materials - things such as office supplies and cleaning products, which aren't used in vehicles.

But GM's human resources and employee administration operations are managed by parts of another ERP product from PeopleSoft Inc. in Pleasanton, CA. For workers to order goods through the R/3 system, authorization is checked with employee records that reside in the PeopleSoft application. The two distinct software packages communicate via a software bridge, called Mercator, from TSI International Software Ltd. of Wilton, CT.

Commonly called middleware, or enterprise application integration (EAI) software, products like Mercator - and about a dozen others, from vendors including CrossWorlds and Software Technologies Corp. (STC) - help companies create communication links between applications. They can still require a lot of custom programming to set up, but generally EAI tools aim to make integration easier than the traditional alternatives: hire consultants or assign the corporate programmers to write custom integrations from scratch.

Newly combined companies use the same general tools and methods for application integration, but for them the need becomes an imperative. Generally, the companies that succeed realize that before they can integrate business applications they must first figure out the higher-level issues of how the new company will be organized and how it will operate.

That may sound obvious, but research shows that even under normal circumstances many manufacturers approach their IT systems only as an afterthought. A CSC automotive industry survey, due out in July, finds that only about 22% of companies have an IT strategy in sync with their overall, corporate strategic plan. About 35% say they at least keep the corporate goals in mind when developing their IT plans. But the survey shows that in 43% of companies, IT strategy is not tied into overall corporate strategy.

"There's no magic to it at all: Your senior IT person simply needs to be involved in strategic corporate planning," emphasizes Bob Baxendale, principal in the global automotive practice of CSC.

And it's even more important for companies engaged in mergers and acquisitions, because software integration will add to the cost and complexity of the union, emphasizes Chris Stevenson, director of information technology for Johnson Controls Interiors, a unit of Johnson Controls Inc. in Plymouth, MI. "It should be part of the cost analysis of the total cost of acquiring a company," he cautions. "Don't think you can integrate systems without any cost."

"There is no simple, black and white answer" to how to integrate the business systems of acquisitions, Mr. Baxendale explains. "A lot has to do with your corporate strategy and how you plan to meet market demand."

To complement an aggressive buying binge at Federal-Mogul Corp., the IT organization developed a standard method for incorporating recent acquisitions including T&N, gasket-maker Fel-Pro and Cooper Automotive. At its core, Federal-Mogul's unification program tries to match the level of software integration to the level of business integration that's planned by corporate management. "We work with the business people to understand how they're going to consolidate the businesses," says Fred Kerns, vice president, information technology. Rather than going in with a pre-determined blueprint for combining and converting applications, the corporate IT staff first determines how closely the new entities will be tied to existing operations.

"If there are opportunities to help the business by consolidating the companies onto a common ERP system, we will do it," Mr. Kerns says. "But if there isn't, and there isn't anything that's hurting the (acquired) business, we go forward with what they're already doing."

This approach acknowledges that ERP conversions can be difficult. "They are rather significant investments," Mr. Kerns notes. "In order to justify it, there has to be significant economic value-added."

But Federal Mogul also needs immediate financial accountability from new units, so its IT welcoming program immediately ties the new units to Hyperion, a corporate accounting application (from Hyperion Solutions Corp., Sunnyvale, CA). This software bridge doesn't change the new family member's existing practices, but it copies critical financial data into a central corporate database.

That still takes some programming effort, but by standardizing the practice, Federal-Mogul's IT workers have honed skills that make the installation easier. "We have installed it in a wide variety of locations. We know how to do it. It has become a repetitive process," says Mr. Kerns, noting that the conversion takes about two weeks.

Another vital part of the integration strategy involves the psychological aspects of team building. "It is very much a people-oriented activity in the beginning," says Mr. Kerns.

That means first meeting with the new staff, both to build relationships and to look for common systems and practices that can be combined to increase economies of scale. Often those opportunities come in computing infrastructure: e-mail systems and computer networks that can be easily tied together. "We're able to gain benefits like reduced cost to support the infrastructure, or improved reliability," says the executive.

Of course, the same benefits are there when a company uses common business applications like ERP. Federal-Mogul expects eventually to migrate its entire enterprise to standardized applications, Mr. Kerns explains, but it will install them as existing software becomes obsolete or as replacement and depreciation cycles warrant.

The changeover will correspond to the company's evolution from a component supplier to a system supplier to OEMs. "There will be need for more sharing of information between facilities," says Mr. Kerns.

A different business strategy at Johnson Controls is driving a different integration program. JCI is pushing rapidly to position itself as a supplier of complete interior systems. Its 1996 acquisition of Prince Corp. added interior trim to the company's established seating business. And last July it bought trim supplier Becker. To present a unified image, the company moved its wholly owned subsidiaries under the Johnson Controls name last fall. "It doesn't happen overnight with a company this size and with this number of acquisitions, but you have to have a plan of how you're going to get there," says JCI's Mr. Stevenson.

That plan includes moving to standard management applications. As of last November, the interiors division was running the MFG/PRO ERP system from QAD Inc. The seating unit plans to roll out its implementation of MFG/PRO this summer. Becker also is looking at converting to the system.

The standardization may be sweeping, but it's not hurried, notes Mr. Stevenson. "We're doing it on a timetable that makes sense," he says. But software is only part of the process. "If you're truly going to integrate and run businesses as one, you have to make the business processes common," he says. "It's very tough for the systems to do that on their own."

Similarly, Osram Sylvania moved aggressively to place its facilities under a single ERP system following the 1993 merger of Sylvania with Munich-based Osram. The conversion to the R/3 system from SAP has taken close to five years, but it gives the international company a high level of coordination, despite differences that separate its international operations.

"When you are a global organization, there's a lot of coordination to be done to make sure you're optimizing inventory levels, and removing inefficiencies and duplication of effort," says Mr. Laghaeian, the IT vice president.

Osram Sylvania's choice of R/3 also helps it beat the language barriers and currency differences that can bedevil global corporate unity. SAP builds support for multiple languages and multiple currencies into R/3. Thus, workers at the company's Quebec plant operate R/3 in French. But they still enjoy a high level of system integration with counterparts at Osram Sylvania facilities around the globe.

- Jeff Zygmont is a New Hampshire-based technology writer