In a literal sense, consolidation and expansion seem to be opposing viewpoints. However, in the realm of financial services, both of these activities serve to enlarge an organization. When financial organizations consolidate, two – or more – companies merge to become one larger entity. And with expansion, an organization scales its territory, service offering, or operations, gaining organic market share.
Regardless of which method is used, the result is a growing number of financial services firms that are expanding their operations.
A well-planned strategy for IT integration is foundational to success
In their article “Understanding the Strategic Value of IT in M & A,” Global Management Consulting Firm McKinsey & Company finds that more than half of the synergies that can be realized in a merger are strongly related to IT. These includes things like:
- Lower IT infrastructure costs
- Reduced IT head count
- Increased volume discounts for IT procurement
- Integrating functional systems to reduce finance and HR costs
- Route optimization to lower logistics costs
- Integrating customer data to improve cross-selling revenue
Within Financial Services, those factors account for 60 percent of the synergies. To make the most of these synergies, McKinsey & Company suggests that the foundation for IT success from M & A is flexible and streamlined IT architecture. Organization that have flexible IT systems in place are better positioned to capture the 10 – 15 percent cost savings that M & A can produce. Additionally, they can usually ramp up at a faster pace, so these savings begin sooner.
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