Firms neglect IT in dash for expansion

Survey Companies report systems inadequate to support growth.

Incompatible systems and excessive stock are creating an expensive logistical nightmare for companies on the acquisition trail.

Cap Gemini, the European services and consultancy company surveyed finance and IT managers in the logistics sector and found nearly a quarter wanted to expand by acquisition in the next 12 months. However, 40 per cent said their companies' IT systems were adequate at best and many admitted they were poor at supporting a growing business.

The report revealed that pressure for companies to move towards globalisation lay at the root of the problem.

Poor integration of merged systems caused distributors to weigh and price consignments inaccurately, resulting in an estimated seven per cent being knocked off the bottom line.

Peter Rigby, marketing and communications director at CHS Electronics, which acquired Metrologie in June, said the distributor had a special budget of cash and manpower specifically allocated to systems integration.

He said: 'It is something we have made into a priority. We wanted to integrate the two systems very quickly because that is an area where losses could be made.'

Another cause for concern identified in the report was the problem of distribution companies holding on to inventory unnecessarily. The report found businesses that took action by reducing and consolidating stock were likely to save 14 per cent on costs over the next 12 months, and 16 per cent of outgoings and staff time could be cut by avoiding duplicating orders.

David Soanes, director of systems integration at Bull, said companies looking to acquire or merge should consult IT experts long before the due diligence stage of negotiations takes place.

'It's usually left too late then you have to make your decision without very much knowledge,' he said. 'This way it is almost impossible at the time of acquisition or merger to have an accurate idea of the cost of IT integration.'

Tom Marsden, systems division director at Cap Gemini, said: 'The main driving force for consolidation is that customers expect companies to be global and to have support globally.'

According to this year's Holway report, expansion and globalisation were identified as a strong trend in the UK, and local companies are expanding overseas rather than being bought by foreign acquisitors.

The results of the Cap Gemini survey showed that 27 per cent of UK companies were planning to purchase home-based businesses and 19 per cent were looking to make an acquisition overseas.

Soanes said: 'The question one has to pose is whether you rate IT systems highly enough when looking for acquisitions. The answer has to be that they are crucial.'

Without a proper integration plan, CHS and Metrologie could face problems when operating two different sales systems, which could even result in the two companies being pitted against each other.

Rigby said: 'It is a critical time for us and it is important we don't have disruption.'