04 fusionsmanagement (2007-04-26) - hasso plattner institute · © 2006, 2007 objectarchitects;...

© 2006, 2007 objectarchitects; Wolfgang W. Keller - all rights reserved 0

Fusionsmanagement„Managing Application Portfolios in Merger

Situations“Vorlesung IT-Unternehmensarchitektur

VL 04; Donnerstag 03. Mai 2007; Raum HPI B-E.2

Fachgebiet Software-Architekturen, Prof. Dr. Robert HirschfeldDipl.-Inform. (univ.) Wolfgang Keller,

[email protected]://www.objectarchitects.biz/


Standort in der VorlesungImmer noch „Anwendungsportfolio-Management“

Stra

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nung

projectsProjects

Projektbegleitung (ARC6)

IT Strategie (ARC1)Unternehmensstrategie

ableiten

Monitoring des Projektport-folios (ARC5)

Mod

ellie

rung

und

Ric

htlin

ien

Entwicklung und Durchsetzung von Richtlinien (ARC4)

Modellierung (ARC3)

IT-Strategie

IT-Anwendungsportfolio-Management (ARC2 )

IT-Strategie Ist

Soll

Proj

ekte


Contents

• What are M&A activities and why would people want tomerge companies

• Forces and Roadmap for the high level pattern language

• The large scale patterns

• More patterns for the detail work


Frequent Scenario

• Two companies A and B perform a merger

• Both companies have similar lines of business. An importantcomponent of the merger is that both intend to benefit from so called„economies of scale“. Usually it is an important aspect to save on ITcosts

• The question here is: Ho do you deal with this.

• This task is a very common one for IT Enterprise Architects.

• There are even management patterns for this class of tasks


Merger Activities are increasingFrom the News (1) ...

http://www.gelon.de/news/Europaeischer_Bankensektor_auf_Konzentrationskurs_21056.html



New York (Reuters) - Hoffnungen auf Fusionen in der Biotechnologiebranche haben dem Handel ander Wall Street am Donnerstag Auftrieb gegeben.

Die Anleger honorierten zudem die Entlassung von zwei Managern des US-Chemieriesen DowChemical, der zuletzt nach einem Zeitungsbericht als Übernahmekandidat galt. Die Spitzenkräftesollen Details über eine potenzielle Übernahme des Chemie-Riesen durch Finanzinvestorenausgeplaudert haben. Größere Gewinne wurden jedoch durch Inflationssorgen verhindert, die dieUS-Notenbank am Vorabend geschürt hatte.

Der Dow-Jones-Index der Standardwerte gewann im New Yorker Mittagshandel um 0,25 Prozentauf 12.515 Punkte. Der breiter gefasste S&P-500-Index legte 0,33 Prozent auf 1443 Zähler zu. DerTechnologie-Index Nasdaq notierte 0,62 Prozent höher bei 2474 Punkten.

"Die Liquidität am Markt ist noch immer hoch, und es wird weitere Übernahmen undUnternehmensbeteiligungen geben. Das ist ein positiver Faktor für den Aktienhandel", sagte PhilOrlando von Federated Investors.

http://de.today.reuters.com/news/newsArticle.aspx?type=marketsNews&storyID=2007-04-12T174111Z_01_HUM263658_RTRDEOC_0_BRSEN-NYSE-ZF.xml


A few keywords from these articles ...

• In some (old) markets, M&As are the only way left if youwant to grow significantly. You need to “buy” marketshare.

• In (old) markets people often hope to improve their costposition by buying a competitor and then realizingeconomies of scale

• In some (new) markets that face a wave of consolidation,M&As are a must if you want to gain market share in orderto just survive


There are more reasons to buy a companyFrom Economic Theory you might know terms as

• Horizontal diversification• Vertical diversification• Forming a Monopoly or Trust

• which should be prevented by “anti trust agencies”• ...

Any of these cases raises the same question:How do I proceed with the IT functions


Contents






Forces

• cost, synergies and economies of scale• socio cultural forces

• who‘s the boss?• NIH syndrome

• risk• functionality• nonfunctional requirements


On the Nature of Forces ...

costrisk

functionality

flexibility

simplicity

NIHsolution


Example from the Financial Industry:Why would you want to merge two financial institutions

5%+

2,5 – 3,5%+

1,5 – 2%

typical edp cost / premium ratios

Small insurance<~ 1 billion Euro

medium insurance~ 5 billion Euro

Large insurance~20 billion Euro


Why would you want to merge two FinancialInstitutions

• multi-channel approaches open multiple new channels tospend more money on the same customers

• Low costs allow you to offer the same products for a lowerprice

• There are significant economies of scale in the financialindustry ..


There are significant Economies of Scale in theFinancial Industry ..

~ 1200employees

in edp

~ 1200employees

in edp

largeGerman bank

+ „large“Austrian bank

~ 1200+xemployees

in edp

merged bank


Socio Cultural ForcesFrom the News ...


Socio-Cultural ForcesWho‘s the Boss?

• Bank A „buys“ Bank B in a „merger of equals“• Bank A‘s managers are slightly more equal than

Bank B‘s

• Which system will be chosen?• => depends

• Who will head the joined edp department• => make a guess


Socio-Cultural ForcesNIH syndrome

• Whose solution will a developer prefer?

• His own solution?• Another developers solution?

• That threatens to put him out of work• That will put him out of charge• That means that he has to learn a lot of new things ..


risk: which migration scenario has lower risk?

System

A

System

B

System

B

System

A

System

B

System

C

t

After

Before

Migrating data from A to B

( or vice versa ) Migrating data from A and B

to a new system C


functionality: compare two established systems

system Acovers ~ 70%

system Bcovers ~ 70%

100% possible functionality


80/20 principlea.k.a. good enough

100% cost

100% functionality

60%

80%


The last two slides imply ...

• often it does not really matter which of two establishedsystems you choose – at least from a standpoint offunctionality ...

• never try to merge a 100% solution from two 70%solutions using code level reengineering ...

• never try to build a system with 100% functionality – it‘stoo expensive


and finally ...

• there‘s also technology and nonfunctional requirementssuch as ...

• technical quality• maintainability• ...• ..• .• object-orientation


This talk is a bit like a pattern language

Steamroller

Cherry Picking

New Town

GovernanceStyles

Ladder of Integration Keep the Data

Toss the Code

Beauty Contest

You have a recurring problem: Mergerand a bunch of recurring solutions

plus a context of supporting patterns


How will you profit from this?

Steamroller

Cherry Picking

New Town

GovernanceStyles

Ladder of Integration

Keep the DataToss the Code Beauty Contest

You will be able todiscuss merger

situations using atleast the following

terms …


Contents






One for the Start. In any ScenarioKEEP THE DATA – TOSS THE CODE

migrate from migrate to

DATA


Pattern: Data Migration

App A

App B

App C

App A*

App B*

App C*

Bank A Bank B

keep the data

toss the code ...


Kind of Anti-Pattern: Beauty Contest

• People will often perform a „beauty contest“ betweenlegacies

• only to find, that each covers 70%-80% of desiredmaximum functionality

• but each one another 70%-80%

Legacy A Legacy B


After the merger a series of workshops startsand people start arguing for two years!

App A

App B

App C

App A*

App B*

App C*

Bank A Bank B

which is better?

politics!

NIH syndrome 1 yeardecision process

100% functionality


The Options for the Beauty Contest


The Options You HaveNew Town - Rebuild the Portfolio

migrate from company A

migrate from company B

migrate to brand new portfolio forcompany A and B

Data

Data


The Options You HaveCherry Picking



migrate to mixed portfolio of bestapps from company A and B

Data

Data


The Options You HaveSteamroller



migrate data of B to portfolio ofcompany A. Drop B‘s apps

Data

done


Why you would favour the“Steamroller” combined with a “Data Migration”


pattern: one infrastructurepattern: one application wins

App A

App B

App C

App A*

App B*

App C*

Bank A Bank BBank AB


one might think it is a good idea to use the best from Bank A andBank B ...

App A

App B

App C

App A*

App B*

App C*

Bank A Bank B

App A

App B*

App C*

Bank AB


but .. each system uses infrastructure like workflow, dialogmanagers, printing ...

printing system

workflowsystem

dialogmanager

Bank A

App A

App B*

App C*

Bank AB

printing system*

workflowsystem*

dialogmanager*

Bank B


therefore ..

• try to avoid a mixed portfolio• if the two systems are well established and support the

business in a sufficient manner, functionality is not really aquestion – because it does not matter, which 70% youhave ..

system Acovers ~ 70% system B

covers ~ 70%

100% possible functionality


other downsides of the „mixed approach“ are

• you need code level migrations to kick out one set ofinfrastructure ...

printing system

workflowsystemdialog

manager

Bank A

App A

App B*

App C*

Bank AB

printing system*workflowsystem*dialog

manager*

Bank B


Pattern: Early DecisionDecide Fast and Hard ...

App A

App B

App C

App A*

App B*

App C*

Bank A Bank B

which is better?

politics!

NIH syndrome 1 yeardecision process

100% functionality


What really happens dependson a bunch of Forces


Force: Power and Politics

• Certain options only work in certain power constellations• try a steamroller in a merger of two parties with almost equal

powers

A B! A? B? A! B


Force: Speed and Time to Market

• The new company should be „back on the market“ with fullstrength in a short period of time after a merger


Force: Costs and Risk

• Building a complete new application portfolio from scratchis often close to impossible for financial reasons

• plus there is a substantial project risk• plus new systems often need years to match a legacy in terms of

performance and functionality• Cherry picking requires rebuilding interfaces and also

migrations• plus you need to adopt systems functionally to a set of common

base functions• Steam Roller is cheapest in most cases


Force: Capability to Perform Future Mergers

• The new company should be able to perform the nextmerger within a short period of time


The ladder of integrationshould be considered in most scenarios

ConsolidatingERP Implementation Concepts

concentrating data centers and infrastructure pays very fast!consolidating application portfolios remains a tedious task!

Concentrating Data CentersConcentrating IT Infrastructure Tasks

Concentrating ERP - Infrastructure

Harmonizingcore business applications

the ladder of integration:steps get highergains get smaller(relatively)

relative ROI

inve

stm

ent a

nd e

ffort


Contents






What we have seen so far ...

Steamroller

Cherry Picking

New Town

GovernanceStyles




Alternative Roadmap ...More Patterns

Keep the Data – Toss

the CodeOne

Infrastructure

Early Decision

ClearVision

Application Architecture

Application Map

Archetype[AOC00]

The Bridge to the New

Town [Kel00]

Keeper of the Flame

[AOC00]

Stepping Stone

[Dew99]

should have

leadsto

is collection of

Is derived fromoften leads to

facilitates

may usemay use

facilitates

One Application

Wins

facilitates


Keeper of the FlameBasis Idea• Problem: How do you maintain the

conceptual integrity of a system,especially a long-lived one, in the face ofpotentially many change requirementsover time?

• Create a role whose function is to ensurethat all subsequently proposed changesare in accordance with, or at leastcontinuous with, the original vision of thearchitect(s).

• Full Paper: Allan O’Callaghan: Patternsfor Architectural Practice;http://www.coldewey.com/europlop2000/papers/ocallaghan.zip


Clear VisionBasic Idea

• Problem: You need to communicateideas about where an applicationlandscape is moving e.g. after amerger

• Solution: Give people a clear visionabout the ultimate goal of theirjourney

• Source e.g. Wolfgang Keller, “A FewPatterns for Managing LargeApplication Portfolios”, EuroPLoP,Irrsee 2001.


Application Mapswill be dealt with tomorrow by André Wittenburg

Quelle Bild: Credit Suisse, Dr. Heinrich Krause, Vortrag aufTagung IT-Architekturen, Deutsche Kongress, Frankfurt 2007


The Bridge to the New TownBasic Idea• Problem: How can you replace a part of

an existing monolithic system with a newcomponent or a complete newapplication portfolio.

• Solution: Install the new system part inparallel to the old system and connectthe two using a Bridge. Cut off any writeaccess to the old system’s equivalentpart (the one to be replaced) and redirectit to the new system.

• Source Wolfgang Keller: “The Bridge tothe New Town”http://www.coldewey.com/europlop2000/papers/keller.zip

Legacy

Part to be

replaced

New system

partBridge

other

legacy part


Stepping StoneBasic Idea


Summary following the Line of Patterns

Steamroller

Cherry Picking

New Town

GovernanceStyles



You have avocabulary for

managingapplication

portfolios in mergersituations


Fragen?

und wenn Ihnen später noch Fragen einfallen ....Wolfgang KellerobjectarchitectsLiebigstr. 382166 [email protected]

04 fusionsmanagement (2007-04-26) - hasso plattner institute · © 2006, 2007 objectarchitects;...

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