CTOs build merger foundations

The future gleamed back in 2000 when AOL’s Steve Case shared the stage with a tie-less Gerald Levin, chief executive of Time Warner, to herald their blockbuster marriage of new and old economy. Today, neither Case nor Levin remain at the helm — ditto for mercurial billionaire Ted Turner who resigned in February. And the media giant once poised to usher in a new era of content creation, control, and delivery to the masses is hemorrhaging money and remains largely unfocused.

So, what went wrong? For one thing, despite ambitious technology aspirations, the companies failed to synergize and became bogged down by organizational issues that fostered a continued state of siloed operations. Former AOLTime Warner CTO Bill Raduchel, let go by the behemoth late last year, says attempts at innovative technology integration withered over time due to a lack of care and feeding from the business side of the house.

It’s a cautionary tale for any CTO looking to manage through a merger or acquisition. According to Raduchel, IT executives in his position must understand several things when companies collide. One, mergers and acquisitions are all about the people, who must be motivated behind consolidation for it to work. Two, you need business buy-in. The corporate goals for the acquisition must fuel the eventual technology plan you develop.

At New York-based AOLTime Warner, executives couldn’t see eye-to-eye on managing the two companies’ core businesses in an integrated fashion, by extension making any technology- and systems-level integration “impossibly hard,” Raduchel says. An effort to standardize on a single e-mail system, for example, fell famously flat.

“The truth is, when you are up to your neck in alligators, you forget your objective was to drain the swamp,” Raduchel says. “[AOLTime Warner] had a lot of business issues to deal with, and I don’t think the technology issues were top of mind.”

Does it have to be this way?

AOLTime Warner’s problems are hardly uncommon in such a merger of equals, particularly one of its size and scope, says Bob Mack, group vice president at Gartner in Stamford, Conn.Megacorporate marriages often drown in a sea of executive head-butting and a stubborn reluctance on both sides to adapt to new processes and technologies.

But most acquisitions or consolidations come in one of two more palatable flavors that afford ambitious CTOs the chance to orchestrate challenging integration projects and new technology initiatives that drive business goals, according to Mack. In the most common scenario, the purchasing company fully absorbs the acquired company, imposing its business processes and technical underpinnings as the primary infrastructure. In the second acquisition type, the newly acquired company is allowed to exist as-is, with little melding of systems and applications.

“First and foremost, a CTO must sort out quickly what type of acquisition model their company is using to execute the merger,” Mack says. “Then, it’s all about how to make things happen, and all about the applications. At a base level, you need to decide how the mix of applications will shift to run the business.”

Architecture is key

Enzo Micali, CTO of 1-800-Flowers.com in Westbury, N.Y., understands the need for exhaustive planning from the earliest stages possible. In the two years he has been at the helm of the $500 million-per-year e-tailing giant’s IT operations, Micali has cultivated a strategy designed with acquisitions in mind, based on his company’s stated modus operandi for growth. He sits on the senior management team that reports to the president and participates in the due-diligence process required as part of any potential acquisition undertaking. This deep level of involvement has helped Micali craft a knowing IT strategy for absorbing new companies.

Central to his approach has been an 18-month-long development of an applications and systems architecture that flexibly accommodates mergers in stages.

“This is our blueprint of where we want to go,” says Micali, whose premise holds that once the architectural groundwork is laid, it becomes easier to assign the right human talent and resources to getting the work done. “It’s a roadmap that identifies strategic components that we have to build, such as a sales processor that lets a Web front end talk to it, and then it talks to the back-end transactions systems.”

In the past four years alone, 1-800-Flowers.com has snapped up four different companies, including country design home goods e-tailer Plow & Hearth and gourmet popcorn maker Popcorn Factory. Micali’s goal throughout has been to integrate the front-ends of the new companies quickly, infusing Web sites with similar navigational features and cross-selling capabilities that deliver immediate value to customers. From there, his tactic is to move more methodically toward integrating and consolidating the back-end databases, billing, and other transactional systems of the merged entities, including deciding which systems to keep and which ones to collapse.

The architectural cornerstone has been the creation of an application middle tier sitting between the customer-facing applications and disparate back-end systems of the parent company and its acquirees, Micali says. This tier — based on BEA’sWebLogic application server and a set of custom-developed Enterprise Java Beans — acts as a traffic cop for handling data-streaming to and from the e-tail sites, call centers, and the systems running on the back end.

By brokering transactions this way, Micali is not constrained by having to tightly couple the front- and back-end applications to one another. “We can do this because the architecture lets us abstract the middle tier, which is key,” he says.

Exploiting Web services

Abstraction and loose coupling are two of the much-ballyhooed perks that come with Web services, which, along with XML, are expected to simplify difficult application and business process integration work through standardization. Raymond Karrenbauer, CTO of Dutch financial services giant ING working in Hartford, Conn., is banking on Web services as an integral part of his extensive mergers and acquisitions strategy.

“Everything we are doing [with integration] is based on Web services and using XML to do data transformation,” says Karrenbauer, whose company in the last year and a half has swallowed up rival Aetna and an amalgamation of 20 other companies, leaving him to contend with the thorny problem of reconciling multiple data formats and definitions that don’t match across applications.

Karrenbauer’s first challenge was to extract some expense out of the raft of IT systems, which involved consolidating datacenter and networks. Whether there is an up or down economy, conducting a thorough IT assets assessment after a merger is a must-have fiscal policy for CTOs.

ING’s next phase of consolidation zeros in on improvements to be gained through integrated technologies. Part of that effort at ING currently involves hammering out a common set of data definitions with ING’s business executives that will form the basis for a metadata-based framework that will cut down the amount of change management and maintenance to applications and databases, Karrenbauer says.

As complicated as data mapping can be, Karrenbauer, like former AOLTime Warner CTO Raduchel, contends that the technology piece of a merger is actually simpler to deal with than the people part of the equation. Handling the human component adeptly and compassionately, especially where you have lots of organizations that have been very comfortable running things their own way, is where a CTO can shine or flounder, he says.

“I try to get everyone to behave as one team by being collaborative and letting people express their opinion,” he adds. “But I don’t need consensus to move in a particular direction. You have to strike a balance between mandating everything and having to reach consensus on everything.”

John O’Connell, former CTO at another financial services giant, Chicago-based Aon, oversaw myriad acquisitions during his tenure. His best advice for any CTO in a merger is to internalize the CEO’s business objectives before anything else — then move to execute them technologically.

“From a CTO perspective, acquisitions are an adrenaline rush,” O’Connell says. “It’s a time to use your technical ability, people, and administrative skills to the max. You don’t get too many challenges at that level.”