When one business acquires another, it merges people, processes and technology while maintaining operations. Redundancies are assured and business leaders are left to assess what stays and what goes.
Looking at technology, there’s a natural order. If a larger company acquires a smaller one, it’s standard to default to the larger company’s systems. If two companies are like-size, technologists will have a solutions bake-off, determining what is best for operations and the bottom line.
What if three companies come together at the same time? That’s exactly what happened when hard disk drive and data storage company Western Digital completed its acquisition of Hitachi’s hard disk drive business and SanDisk Corporation in fiscal year 2016.
“There isn’t a lot of times where you’re in a situation where you’ve got three, like-size companies coming together,” Steve Phillpott, chief information officer of Western Digital Corporation, told CIO Dive.
Each company had a different legacy, on-premise ERP. With three separate systems, at a minimum, at least two-thirds of the newly-formed company would need to change its technology stack.
Western Digital could have chosen any one of the three systems and made it through a three to five year journey to migrate onto a single system, Phillpott said. But at the end, everyone would have realized they would need to move to the cloud eventually, requiring yet another migration.
The company decided to use the acquisitions as an opportunity to move the equivalent of three, Fortune 500 companies using more than 3,000 applications to a single next-generation technology stack and ERP system.
Decisions to consolidate, modernize systems and move to the cloud are not borne of efficiency alone.
When M&A activity arises, it acts as a driver to streamline the business and realize the associated savings from modernizing, according to Steve Hall, president, ISG EMEA and partner, digital advisory services at ISG.
Projects, long on hold, can become a priority. Take a mainframe, for example. Reliable, companies are not as pressured to upgrade and CIOs and IT leaders struggle to build a business case, said Hall, in an interview with CIO Dive.
But M&A gives companies the chance to refactor systems and invest in technology upgrades.
“It always comes down to money on those decisions,” Hall said.
The road to rationalization
Phillpott joined Western Digital in 2013, coming in as the CIO of Hitachi Global Storage Technology (HGST). Once the companies merged, the plan was for him to take over as the combined entity CIO.
Western Digital agreed to acquire HGST for $4.3 billion in 2011. But for the acquisition to go through, China’s government required the two companies to “hold separate” and operate without combining the businesses, according to SEC filings.
China lifted the restrictions in October 2015. The following May, Western Digital completed its $19 billion acquisition of SanDisk.
Western Digital began the daunting task of technology rationalization planning in the 2015-2016 time frame, Phillpott said.
The company broke the effort into three chunks:
Collaboration and communication tools: The first bucket required consolidating the collaboration and communication technology footprint, tools such as Office 365, Box and Webex.
Application functional roadmaps: Next, Western Digital looked at key workforce applications, including Oracle Cloud ERP, Workday and Salesforce.
Interim or integrated reporting: Before the company could deliver the full transformation, it required interim capabilities to get to the end point. It included mobile capabilities, for example, because not all applications have mobile-ready workflows.
The interim part of transformation is often overlooked, when many companies are focused on the end product.
“It’s that transition stack that allows us to bridge the gap before we finish everything that was in the second bucket,” Phillpott said. “How do you continually help the business run as you’re also trying to transform it?”
Now, Western Digital is more than two-and-a-half years into a four year modernization effort. Phillpott expects the majority of the organization will be through the transformation effort in December 2020.
A trio of ERPs
Enterprise resource planning systems are notoriously complex, woven through departments such as sales, supply chain, HR and finance. Unwieldy, the systems are starting to emerge in the cloud era, but have to move beyond the reputation they merely work with data and create reports.
The ERP market is expected to grow from $32.4 billion in 2017 to $49 billion by 2023, according to Market Research Future.
When a merger happens, CIOs and other technology leaders have to understand their landscape, including the blocking and tackling on the security side and understanding IT costs, according to Hall. They will make decisions on what instance of Oracle or SAP ERP to invest in, then create a whole series of two to three year plans associated with the environment.
If there’s significant overlap, companies have to “normalize” the stack, aligning products and supply chain, said Hall.
Moving to a cloud-based ERP is a big bet for businesses, because the technology is relatively new. To mitigate risk, Western Digital executed a phased approach in moving business functions to Oracle’s cloud ERP:
Western Digital’s 4-phase ERP migration
|Go live date||Phase|
|June 2017||Financials and accounting|
|July 2018||Additional financials and indirect procurement, supply master|
|(Expected) Aug. 2019||Order orchestration and management, customer master and related financials|
|(Expected) Fall 2020||Manufacturing including components, HD and flash factories and direct procurement|
Phasing implementation with ERP allowed Western Digital “to basically stop the project at any point if the company wasn’t ready, if the product wasn’t ready,” said Phillpott. “We didn’t want to find ourselves in a position where we are forced to do something that we we’re ready for.”
“It’s all about reducing risk when you’re working on these large ERP implementations,” he said.
But the decision to move to a cloud-based system does not contribute to the risk; it’s where technology is going.
The ERP upgrade has had a direct impact on process improvements, in part because its capabilities scale. Prior tasks that took 17 or 18 steps are now reduced to four or five steps, according to Phillpott.
One of the biggest benefits Western Digital has seen with migration are the continuous upgrades.
Since going live with the first phase in July 2017, Western Digital has done eight or nine system upgrades, all of which were done during a normal, day-to-day working team, according to Phillpott.
It’s a far cry from the large capital projects of ERP’s past.
“Traditional ERP systems, to be honest, in most companies probably hardly got upgraded more than every couple years, let alone two to three times in a year,” Phillpott said.