The Added Value of Business Consolidation

By Josh Greenbaum

While there is little argument that technical consolidation yields significant benefits, business consolidation promises a much broader ROI that impacts not just the IT organization, but the operational and business side of the enterprise as well. As stated above, these benefits come from the ability to go beyond mere cost-reduction to providing significant improvements in business agility, responsiveness, and operations that can only come from a business consolidation. It’s important to bear in mind that the benefits of technical consolidations are not lost in a business consolidation effort: Business consolidations add additional value to technical consolidations, and indeed most efforts at business consolidation will include a technical consolidation effort as well.

The difference, of course, is in the total value of the consolidation efforts. Major IT research firms, like Forrester Research, confirm EAC’s own research into the value-add of moving beyond mere technical consolidation. In a study published in 2005, Forrester analyst Ray Wang addresses this issue directly:

Wang contends, rightly, that the requirement for business consolidation is even more acute in the case of mergers, acquisitions, and divestitures:

The potential value of business consolidation is supported by a study of 25 Oracle consolidation projects by research firm Mainstay Partners. In this report, Mainstay separated what it termed “infrastructure consolidation” from “information” and “application” consolidation, the latter two forming the basis for business consolidation.

Mainstay’s research shows a similar value-add from information and application consolidation, with the benefits ranging from significant savings due to increased productivity and reduced procurement costs to improved DSO and closing times.

Source: Mainstay Partners LLC, adapted from IT Consolidation: The Art and Science of Doing More with Less

Mainstay’s data, though anecdotal, exemplify the wide variety of benefits from business consolidation that impact day-to-day functionality above and beyond those that a technical consolidation can provide. These kinds of results can also be seen in the analysis of shared services data center projects, which often include benefits that fall directly under the same rubric as business consolidation. One such project that EAC is familiar with – a shared services consolidation at a major apparel manufacturer – not only yielded significant benefits in lower IT costs, but also provided a significant improvement in inventory management that was expected to yield annual savings of $80 to $130 million. Another shared services project – this time at a major automotive parts manufacturer – yielded savings in financial operations of over $30 million per year in addition to considerable savings in IT costs.

This two-for-one effect is what makes business consolidation so compelling. Whereas technical consolidation largely benefits the IT department’s budget and priorities, business consolidation brings the benefits of consolidation to the business as a whole. These benefits can be seen in the examples from the Mainstay study, as well as in the ability to support business events, such as mergers and acquisitions, for which technical consolidations alone are not sufficient to meet the post-event business requirements.

The issue of managing the reporting, regulatory, and business requirements of mergers, acquisitions, and other business events presents a particularly rich case for the value of business consolidation. (For a further discussion, see this article.) These business events are common features of the economic landscape, and pose significant problems for both the selling and the buying party. Whether the issue is adding and integrating data from a merged company, centralizing a data center, or operating a shared service center, a consolidation is required, and a technical consolidation won’t result in as well-designed and implemented business and IT environments as would be possible with a business consolidation.

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Joshua Greenbaum has over 25 years of experience in the industry as a computer programmer, systems analyst, author, consultant, and industry analyst. He spent three years in Europe as an industry analyst and as European correspondent for Information Week and other industry publications.

In his role as an industry analyst, Josh regularly consults with leading public and private enterprise software, database, and infrastructure companies, and advises end-users on technology infrastructure and applications selection, development, and implementation issues.

An award-winning columnist, Josh is widely quoted in the trade and business press, blogs on ZDNet, and is a regular columnist for Managing Automation, Datamation.com, NetWeaver Magazine, and Redmond Channel Partner magazine. Other opinions by Josh may be found on his blog at http://ematters.wordpress.com/ or on his website http://www.eaconsult.com/.