Recent Searches
In brief
Failure to successfully integrate software R&D teams is one of the top reasons why M&A between software companies falls short of expectations. Yet, R&D integration is often an afterthought during M&A.
Software companies typically merge to sell existing capabilities to new customers and/or sell new capabilities to existing customers. During M&A integration, management may decide to serve the two customer bases on one unified software platform, which can require software investment and development to integrate platforms and migrate customers. It can also yield significant downstream savings and efficiencies. Implementing this strategy likely requires not just technical integration work, but also organizational integration efforts so that the two software R&D teams are working as one.
Moving forward with one combined organization requires many integration steps, all of which start with and are enabled by addressing the R&D team’s structure and accompanying processes. Aligning on appropriate and effective organizational designs, company culture, software development practices and road map governance approaches can be crucial first steps toward a successful M&A integration.
How EY-Parthenon can help
EY-Parthenon software strategy consulting brings real-world software CTO and CPO-level experience to drive value. Learn more.
Read moreEY-Parthenon was engaged by a large company after it acquired a smaller, more modern company with the goal of leveraging the company’s newer and more modern technology to serve both customer bases. The parent company faced many challenges in implementing this strategy. Challenges ranged from R&D team integrations to technology consolidation and new product rollouts. The parent company overlooked the importance and complexity of properly integrating the two R&D teams at the beginning of the integration, which differed in organizational structure, software development lifecycle and company culture. By attempting to tackle technological integration initiatives before addressing go-forward R&D team considerations, the company was at risk of missed development timelines, overspending on R&D and bringing to market a disjointed product portfolio. This story highlights the importance of R&D team considerations during an integration. EY-Parthenon stepped in to help the combined entity redesign a thoughtful integration plan, addressing R&D team integration in a manner that aligned with the broader vision of the combined company, avoiding further delays and inefficiencies.
Three steps appear to be critical to the successful integration of R&D teams. These considerations are enablers of all other integration activities and require thoughtfulness and planning during the early stages of an integration. Subsequent integration steps such as consolidating technology, migrating customers, rearchitecting software, remediating technical debt or bringing new products to market often cannot occur successfully unless the company has a unified, cohesive and effective team with accompanying processes to plan and execute on road map items.
How EY-Parthenon can help
Discover M&A advisory services from EY when you buy and integrate. We help enable strategic growth through integrated mergers and acquisitions, joint ventures and alliances.
Read moreTwo merging organizations might have differing organization reporting structures, which may need to be reconciled or streamlined to promote communication and development efficiency. Some teams are separated into engineering and product divisions, while others have integrated these functions. Some organizations might follow a model with more middle management at the team lead level, while others may have teams that report directly to a chief technology officer or head of engineering. There are many flavors of R&D organization design, and having a consistent approach is critical for cross-organization collaboration.
Within a software R&D team, it is important to have well-balanced scrum teams that are appropriately staffed for development needs. Scrum teams emphasize daily communication and flexible assessment of plans to manage software product development work. Work is typically divided into short two-to-four-week sprints. Properly staffing combined organization levels in key positions, such as developers, quality assurance (QA) personnel and product managers, can help:
Determining the optimal staffing levels and role ratios, such as a software developer to QA tester ratio, depends on the situation, but EY-Parthenon teams leverage a proprietary benchmarking database to help organizations understand how their current and aspirational peers have structured their R&D organizations.
It is critical to clearly define roles and responsibilities. Some considerations are more obvious than others, such as whether developers are responsible for their own quality control, or how dedicated quality assurance personnel specifically tasked with testing code output will be involved within the software development lifecycle. But more specific, and sometimes overlooked, differences, such as the responsibilities of DevOps personnel, have impacts on R&D team efficiency and productivity, if roles and responsibilities are not clearly defined during an integration period.
It can often be just as important to developers or product managers as the work itself. Especially in cases where a more established, mature software company is acquiring a less mature company, setting expectations up front so that team members are aware of – and become flexible to – potential change will enable easier and faster integration, and can reduce personnel attrition from the combined entity.
On a strategic level, during an integration process, divergent road map planning and governance processes can be identified and addressed to enable any future integration efforts that require combined development efforts, such as data migration, software rearchitecting and tech stack consolidation. Being able to effectively govern, plan and execute on road maps is critical to software development in general, but is especially important for complex activities that are of high importance, high risk and usually time-sensitive – such as those taking place during an integration process.
A combined organization can first identify the stakeholders involved in differing road map governance processes to facilitate effective planning of future integration steps and software development. Some companies operate top-down (i.e., mostly executive decision-making), while others more heavily rely on product managers and middle management to steer the company’s vision. Both approaches work in different situations, but it is critical that all levels (executive to middle management to junior developers) are aligned around one governance process and company vision. Avoiding inefficiencies stemming from disagreements between different stakeholders in an organization is critical for M&A integration success and long-term growth and development.
Additionally, the road map governance process, especially as it relates to inputs and cadence, is key to planning subsequent integration steps. Some companies rely heavily on customer feedback and input to form road maps, while others may conduct return on investment calculations to make road map prioritization decisions. The inputs and requirements gathering aspects of road map planning may not necessarily need to be standardized across an entire organization, but they should be reviewed, understood and evaluated if they are appropriate for a specific team’s requirements.
Within the software community, Agile and Waterfall are two common processes for managing software development. Each have numerous variants stemming from companies molding a software development framework to fit their specific requirements. While there is evidence that following the Agile methodology translates into more benefits to software companies, the Waterfall methodology can be appropriate in some specific use cases. Within the integration process, executives can identify any differences in SDLC processes and align on what may be the most effective and efficient for the combined entity. Using different SDLC methodologies without the proper thought and planning can result in divergent development timelines, testing methodologies and release cadences, which can disrupt overall cohesiveness and innovation. SDLC considerations are particularly important if R&D teams from both companies are expected to work together in an integrated fashion, either temporarily or permanently, to integrate their respective platforms and continue to build them together and create a cohesive technology portfolio.
Standardizing on similar toolsets within the SDLC can bring uniformity to an integrated company, which can be especially important if company management wishes to allow members of an R&D team to switch teams without much disruption in a multi-product organization. It can also enable more efficient future software development if all teams are using similar (or compatible) tools to develop, test, maintain and implement software.
The thoughtful R&D team integration is an often overlooked but critical step to a successful merger of software companies. Companies can save time and money and help to ensure M&A success by focusing on three key areas, including people and processes, road map planning and governance, and software development lifecycle practices.
Thanks to EY-Parthenon’s Ben Feldman and and Kate Maher for contributing to this article.
In software company integrations, addressing the R&D team and organizational aspects of M&A early is fundamental to the success of more technical integration processes that may follow.
We help tech and non-tech companies make the right software strategy and investment decisions to stand out in the software economy.
Related articles
Three important digital M&A product strategy questions for the c-suite
Product development can be transformed with digital M&A if leaders articulate how technology and innovation leads to growth and value. Read our insights.
Three hidden private equity value opportunities in software deals
Software due diligence can help private equity investors uncover value creation opportunities that can support deal execution.
