MTR/KCRC
Merger IT Integration as a Key Enabler to Buiness Merger Success

A merger between MTR and KCRC, the two biggest railway operators in Hong Kong, was first initiated by the Government in February 2004. After intense discussion in the Legislative Council with bills and regulations passed and approvals from the two corporations?Managing Board and minority shareholders sought, MTR officially merged with KCRC on 2 December 2007, or the Appointed Day (or A-Day for short). Amid all challenges faced by senior management, differences in the business models, company structures and corporate cultures of the two corporations add to the merger complexity. MTR, which has been a listed company since June 2000, has long been running under prudent commercial principles and developed a sophisticated corporate model of its own, contrasting with KCRC’s government-owned operation style that has been working since its virgin run in 1910.

In particular, the integration of the IT landscapes and organisations across the two corporations posted specific challenges to management: aligning application portfolios and architectures of the two corporations, eliminating duplicate systems, standardizing and conversing business-critical enterprise data and developing an overall implementation roadmap to guide and orchestrate hundreds of integration projects needed for a successful merger. For both MTR and KCRC, the challenges facing them were especially pressing for their asset intensive nature of operation. To run safe and undisrupted railway services, the corporations simply rely on IT to manage assets like tracks and carriages, handle back-end fare processing for Smart Card transactions, provide customer hotline services, manage lost property at stations, just to name a few. Without a smooth integration of the IT systems, business simply cannot run optimally. Indeed, starting from the early stages of the merger planning, the senior management from both corporations already recognized that IT acts as a critical enabler in drawing business synergies, aligning processes and helping them realize merger success. Given the time constraint faced by the corporations to integrate more than 120 IS/IT systems, MTR turned to IBM Global Business Services (GBS) for professional assistance.

MTR selected IBM GBS as the consultancy partner for its deep industry expertise, extensive business and technology consulting experiences in asset management and its experience in merger and integration. With close to 1000 global practitioners and over 400 projects in asset management, it has developed sound methodologies and proven techniques in system integration planning and implementation. Over the 20 months of close partnership, IBM GBS offered consultancy services in 4 key areas: Merger IT Integration Strategy, IT Integration planning and enterprise architecture, program management office and ERP implementation services.

In view of the intricacy and time-criticality involved in integrating the two railway corporations?IT landscapes, a balanced strategic framework and a well-planned approach to merger IT integration greatly enhanced merger success rate. Drawing on first-hand experience in this large-scale merger system integration, three guiding methodologies that helped stride across the integration hurdle are identified.

1. Adopt and go

Considering the cost of introducing completely new systems and given the time pressure to implement more than 20 systems before the A-Day and 100 systems within 1 year, it was obvious that no time was allowed to build a new IT system for the merged company. Indeed, it is suggested that companies should always choose from the existing system landscapes of the two merging entities rather than building a third. This way, the amount of overall systems integration required, time, effort and risks involved to complete the integration process can be effectively minimized.

One key integration strategy named “Adopt and Go?was adhered to by both corporations through and through. This fundamental principle entailed adopting the “best practice?system model from either MTR or KCRC with minimal or no change to ensure rapid transition so that programmes could run tightly according to schedule. “Best practice? however, does not mean the system that provides best capabilities or highest performance as it is usually understood. Rather, it means the one that provides the functionalities and support processes to best match the future business operating model of the merged entity. In merger and acquisition cases where one partner is truly dominant, selecting the best practice system model is usually straightforward as the merged entity usually retains the entire IT landscape of the larger company. In merger cases of equal, however, the situation is more complex as managers from both corporations would like to have their own business processes and IT systems retained. In such occasion, a transparent, professional and rational selection method that compares and contrasts the systems is crucial.

2. Assemble the best fit

In any merger, it is hardly possible for a corporation to possess IT applications that are all on the upside compared with those of its rival, therefore an all-or-nothing approach almost seldom appears in application portfolio selection. Moreover, selecting any one IT landscape without solid rationales easily creates discontent among staff. For instance, MTR and KCRC operated different core ERP (Enterprise Resource Planning) systems, with the former using Oracle and the latter using SAP. Choosing any one ERP system was doomed to hurt emotions of either side as the process was perceived to have a bearing on staff’s future career prospects in the merged company. A transparent and objective application portfolio selection process is thus needed.

To start, the existing application system portfolios from both corporations were identified and grouped according to business functions and comparability with each other. With the respective systems broken down into groups, the merging company can compare business fitness, technical adherence, ease and cost of integration and compatibility of the groups and design a new IT landscape by combining better groups. To heighten objectivity in the selection process, the importance of professionalism in their selection approach was highlighted over and again to all IT staff and users. It is important that choices and decisions were considered from the perspective of the future merged company rather than from their own. Objectivity aside, transparency is another qualifying criterion for a rigorous portfolio selection process. In order to do ensure this, IBM consultants were committed to bring in an objective assessment using their proven framework. Together with IT senior management from the corporations, they also gave many “town hall?briefing meetings to IT staff and relevant users in each business area to ensure that everyone clearly understood the system selection process. Logical rationale of the final decisions was also explained and approvals for all the individual system decisions were also gained from the relevant business managers in both corporations.

Since such sensitive selection discussions can possibly drag on for years with no consensus reached while delays only destroy synergies and topples the merger timetable, it is part and parcel to set rigid deadline for portfolio selection tasks in order to force decision-making. With the IT integration planning and portfolio selection activity finely contained within 13 weeks, a “To-Be?system application architecture was successfully identified. Taking into account all the business priorities, system dependencies, risk management and resource levelling involved, an optimised IT Integration Programme Plan for the following 11 month implementation timeframe was then crafted.

3. Design a fitting programme management methodology

In the MTR/KCRC Merger IT Integration, there were over 100 systems to be integrated, with 19 Day-1 IT project systems to be launched simultaneously on the A-Day and items on the Day-1 Readiness Checklist actually soared over 1000. To ensure that no single task got derailed from the merger IT integration roadmap, all IT implementation programmes were closely monitored. To realize this, a Merger IT Programme Management Office (ITPMO), comprising an experienced PMO consultant and seasoned IT professionals from MTR and KCRC, was set up to manage all day-to-day operation of all integration programmes as well as to tackle sensitive issues in coordinating them. It was aimed to establish a tracking mechanism that provided centralized control over intermediary project milestones and increased transparency of the whole IT integration’s progress.

Another critical value add of the IBM ITPMO engagement was to ensure communication and linkages to the MIO (Merger Integration Office), ITIMC (IT Integration Merger Committee) and the various project managers of the Integration Projects.

During the last 30 days before the merger, an IT Changeover Command Centre also came into operation to proactively and effectively monitor Day-1 projects and other IT-related Day 1 Readiness activities on a minute-by minute basis. To inject military precision and discipline in the implementation programme, any items falling behind schedule were flagged and resolved immediately. Meanwhile, it also safeguarded service quality and continuity to customers throughout the merger changeover period.

With IBM’s assistance, significant merger synergies were fully realized. All Day-1 projects went live ahead of schedule with 100% success rate without any system problems or failures reported during the 30-day period after A-Day. A single integrated corporate-wide IT platform and unified customer-facing IT systems and services were also enabled to help the business go through the merger transition with minimal service disruption. A single integrated brand image was also facilitated by the integration success. All these boosted public confidence in the merged rail corporation in the face of intense public and media interest.

Moreover, the realignment of IT systems also enabled the merged business to commence delivery of 5% to 35% fare savings to 3.4 million passengers. Although the number of system users has increased, significant IT cost savings were nonetheless achieved through reduced systems maintenance and support costs, reduced aggregated number of staff in the merged IT Services Department and economies of scale from bundled procurement. Indeed, lowering the total cost of IT ownership while enhancing productivity is one key characteristic benefit brought by meticulously-planned and -executed merger IT integration. With IT investment saved, more resources can be allocated to identify new business initiatives and improvement opportunities, helping the company acquire new niches and landscapes.

Of course, the IT integration success can never be possible without the professionalism and execution excellence dedicated by the staff. It is clear that people issues will always remain a critical factor to merger success, especially as we are not only merging the systems but also the teams. In order to get the programmes running, mobilizing the MTR and KCRC teams posed specific challenges to senior management. Issues as to how to handle staff selection and separation and take care of staff’s emotions, how to close the cultural divide, how to retain useful skill sets, etc. were all to be addressed. In particular, it is of primal importance that dual chairmanship in project committees should always be avoided. Very often, companies may want to go for dual heads to lower political sensitivity as nobody seems to occupy a more superior position than his counterpart. However, such indecision is only unfavorable to responsibility ownership and dampens decision making, resulting in poor team synergy and self-imposed bureaucracy. Some other factors contributing to the integration success included sufficient planning for the integration schedule and activities, early agreement sought from management about project approach, adopting one common set of methodology across the organisation, single IT project managers, extensive risk management as well as deep commitment from users.

In less than 20 months, all multifaceted integration programmes were complete and the two largest public transportation providers in Hong Kong were successfully merged. Apart from realizing genuine merger values for the public like fare reduction and increased convenience in interchange arrangement, the merger is also bringing Hong Kong’s transport service to a new era.

Daniel Lai, Chief Information Officer, MTR Corporation Limited
Gautam Bardoloi, Partner, AP Lead, IBM Asset Management Services
with Chun Yin Mak, Rachel Yan & Timothy Jones, (IBM GBS Hong Kong)

About IBM Global Business Services
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