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Customer Data Integration and M&A: Hang Over or Make Over

Overview: The ongoing juggernaut of mergers and acqusitions (M&A) activity will dramatically stress the IT landscape through 2005-06, with most IT departments spending three to five years post-M&A before deriving appropriate IT efficiencies. Business process integration strategies such as customer data integration (CDI) and master data management (MDM - for products, suppliers, et al) are increasingly essential to realization of the intended M&A ROI.  CDI best practices obtained from early adopters in the telco and cable/satellite industries are clearly applicable to M&A strategies for other industries.  To that end, the CDI Institute is conducting a timely, multi-client study based on such early adopters and evaluators of CDI solutions (link to online survey questionnaire regarding "M&A ROI via CDI"). 

M&A as the "Normal" State of Business

M&A has become an invaluable business strategy used by many communications service providers (CSPs) to bring incremental business to their coverage areas, and to increase their competitive advantage. During 2005-06, the pace of M&A continues to accelerate, and the importance of IT therein continues to grow. However, unrealized economies of scale in IT and other key areas are a looming threat to success of these mega mergers.

CSPs (e.g., telcos and cable/satellite companies) are increasingly falling victim to a number of typical M&A integration problems - including lack of M&A process, over-integration, loss of IT staff, and not realizing assets and economies of scale (both post-acquisition and post-divestiture). Coping with multiple operational systems to support LOB-centric customer and product lines has been a way of life for most enterprises whether they evolve organically by adding new product/services or customer segments or by M&A-driven agglomeration.1 Whether it be airlines, financial institutions, pharmaceuticals or retailers, etc. it is quite clear that such M&A deals add new products and customers subsystems to an already overtaxed IT landscape. 

This costly outcome is greatly exacerbated when the scale of the customer and product support systems approaches that of the mega M&A that is taking place in the CSP world.  The good news is that these deep pocket enterprises have tremendous incentives to pioneer the use of new software technologies such as CDI as they look to reap the benefits of their M&A activities.

Specifically, the greatest restructuring of the worldwide communications industry since the Bell system breakup in 1984 is now under way via the gargantuan SBC/AT&T and Verizon/MCI mergers. This market consolidation is in its early stages and over the next several years there will continue to be major M&A and other major partnering among CSPs of all sizes and in all regions of the world. The current network and business model landscape poses serious challenges for the status quo as the pervasiveness of IP has revolutionized the rules of the game.  CSPs must rise above the role of commodity player to create next-generation services - as well as  pricing and partnership models - that will survive and thrive.

Most large businesses (i.e., the Global 5000 largest firms) are moving towards being able to reconcile account administration by "customer view" across channels rather than LOB-centric "product line" view.  This is very common when we look at the customer and product landscapes resulting from business mergers occuring in the worldwide communications industry.  As we all know, telcos added to their product stacks each time they introduced a new product - i.e., they have to add yet another operational environment to support the sales and service for that product.  Historically, each new "product" requires new back office systems, new customer care systems, etc. - all of which further contributes to the business's inability to have one view of the customer.   And the rate of new product introduction is not slowing down. Today, the CSP product marketplace evolves rapidly as both telcos and cable companies roll out voice over IP (VoIP), video on demand, IP television (IPTV), et al.  VoIP is one of the key drivers for the introduction of CDI as the CSPs are being stressed to rapidly deploy such products. In virtually every major telco there is such a proliferation of such products and channels that both the IT landscape and the staff are increasingly stressed. In particular, the CSPs are looking to roll out many different low-end products that captivate (capture) consumers by the stickiness of that application - i.e., once you've integrated such specific functions into your consumer lifestyle, it is increasingly unlikely that you will switch CSP and, therefore, the consumer becomes "captive" and prone to buy more up-scale, high margin services as well rather than switch CSP and go through ramp up and integration of yet another CSP's services.  Such product/service "bundles" are compelling when they work and this is a well known technique in the cable and telephone industries as a way to reduce churn.  

Further stressing the CSP is are the regional disparities caused by regulatory issues that require continuation of product bundling. Generally speaking there is a proliferation of segmentation across consumer/residential, small-to-medium business (SMBs) and large enterprise customer segments.  Historically each of these segments has had their own provisioning/engineering support systems, billing systems, etc. All of this growth has contributed to an inability of the CSPs to rationalize their view of the customer/product portfolio. From a customer perspective this has led to an uncoordinated treatment depending upon which channels and which products you are calling in about.

Hang Over or Make Over

Portfolio management of the customer role is critical and is increasingly being met by off-the-shelf CDI capability.  Telcos are notorious for having tried this for years on a custom-built basis. The good news is now there are off-the-shelf software packages available for such customer hubs as they are often called and these have proven track records. Whether the business outcomes of the M&A result in hang over or make over critically depends upon the ability of the IT organizations to consolidate their staff, operations, data and processes.  CDI and MDM are critical to these efforts and ultimately are the tipping point  as to whether the business outcome is a success.

Often, the rationale for M&A can be summarized as:

  • Ensure survival
  • Increase market share (and international/national/regional strength)
  • Achieve sustained competitive advantage (for super normal profits)
  •   Satisfy executive hubris (M&A is sometimes characterized as "murder and acquiescence")

The CSP's issues will sound familiar to those undergoing M&A in their industries as well:

  • Business continuity - The need to shorten integration activities for customer, product and service operations
  • Marketing leverage - The challenge to overcome latencies in marketing functions (e.g., lack of action-oriented, real-time marketing)
  • Customer satisfaction - Need to reduce customer churn by offsetting inconsistent or undifferentiated service due to lack of 360º view of customer, and product/service history
  • Brand leverage - Need for predictive churn capabilities based on total customer portfolio and experience to increase overall wallet share
  • Operational cost reductions - Difficulties in administering "once and done" end-to-end customer events across the organization (e.g., change of address)
  • Regulatory compliance - Challenges in meeting governmental and societal norms in respecting customers' privacy preferences

M&A Demands Comprehensive and Integrated Customer/Product Profiles

Clearly, integrated master customer and product information is key to addressing the challenges of M&A in any industry.   As pioneers in the application of commercial CDI solutions to these challenges, CSPs further need to acknowledge that:

  •  CSPs' customers currently managed on a line-of-business (LOB) basis such as internet services, VoIP, residential, wireless, etc. must ultimately be managed on a "balanced" portfolio basis.
  • CSPs' customers increasingly operate through a multi-channel environment which today exacerbates the inability to view and treat the customer as a "portfolio" rather than a series of non-integrated accounts.
  • CSPs' marketing efforts are neither integrated nor optimized as effectively as possible for cross-selling and creation of "sticky" service bundles.

The master data management solution to best support large-scale M&A has these requirements:

  • Customer data hub - A persistent enterprise-scalable customer master file that supports a single trusted and authoritative source of critical customer data.
  • Product data hub - A persistent enterprise-scalable product master file that supports a single authoritative source of critical product and service bundles.
  • Service-oriented architecture - Support for Web service-style transactions to identify, view, add and update trusted master data across the enterprise.
  • Extreme RAS (reliability, availability, scalability) - Infrastructure capable of reliable, high volume, real-time performance to support mission-critical master data management processes.

There are a number of related but insufficient software solutions that can feed and participate in an enterprise master data management infrastructure but by themselves cannot provide the functionality outlined above which is clearly critical to the consolidation and evolution of IT systems during the M&A process:

  • Enterprise application integration (EAI) and enterprise information integration (EII) solutions each lack persistence
  • Enterprise data warehouse (EDW), active data warehouses, operational data stores (ODS), and data marts each lack real-time performance
  • Standalone data quality tools do not provide the meta data, data models and real-time performance required for a trusted master system of record

This research highlight report has summarized the master data management issues learned from the current round of large scale communications service providers' mergers. The CDI Institute recommends that all businesses acknowledge the inevitable state-of-affairs that continuous M&A confronts them with. Through it all, executive leadership must control the basic economics of the business while facing major strategic and operational challenges: rapid ROI on new systems development, general systems upgrades and consolidation, to name a few. Industries undergoing major M&A cycles must achieve operational efficiencies through IT streamlining and outsourcing - customer data integration (CDI) provides a proven means.  Whether the business outcomes of an enterprises' M&A result in "hang over" or "make over" depends upon ability of the IT organizations to consolidate their staff, operations, data and processes.  CDI and MDM are critical to these efforts and ultimately are the tipping point as to whether the business outcome achieves its intended ROI.

To receive a free industry-specific scorecard on how your enterprise's CDI strategies map to your industry, spend 15 minutes online and take the CDI Institute's latest Web survey.

To attend a free Webcast on the topic of "ROI of CDI in mergers & acquisitions," register via this link.

References:

1. ag-glom-er-a-tion - a heap or cluster of usually disparate elements.


Aaron Zornes is founder and chief research officer for the CDI-MDM Institute, with headquarters in San Francisco. He is the conference chairman for the Source Media/DM Review CDI-MDM SUMMIT series. Prior to the CDI-MDM Institute, Zornes founded and ran META Group's largest research practice for 15 years. He publishes the CDI-MDM Alert, a free biweekly email newsletter covering the the impact of the application of customer data integration (CDI), master data management (MDM) and data governance on Global 5000 enterprises. Register for the CDI-MDM Alert at http://www.tcdii.com/contactus.htmal. You may contact Zornes at aaron.zornes@tcdii.com.

Visit http://www.tcdii.com/takeoursurvey.html to complete a survey comparing your CDI-MDM implementation to your peers.

Zornes will conduct a CDI-MDM Boot Camp workshop at the CDI-MDM Summit in Sydney, Australia, May 28 and 29, 2007.  Register today at http://www.tcdii.com/events/cdimdmsummitseries.html.

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