Excessive M&A Impacts Quality of Service
By Brian Kjera, Top Gun Technology
While we’ve personally witnessed and have Service Quality horror stories told to us by new clients, there appears to be great merit in concern for TPM (Third Party Maintenance) providers choosing strategic growth by acquisition over organic growth by reputation, for high-quality standards and essential investments in technology and engineering expertise.
This blog will explain why Service Quality is often impacted because of excessive M&A activity within the TPM marketplace.
Before I share details to illustrate my point, please begin to consider this when vetting your next independent IT hardware services and support provider. Understand how many acquisitions have occurred within the last 3-5 years, which may be a source for service disruption or misaligned service quality standards. It’s worth a little extra time to be a critical thinker and may save you numerous headaches during the term of your support agreement.
Most Third-Party Hardware Maintenance providers began as small start-up companies, investing heavily in infrastructure (engineering, R&D and systems tools) to demonstrate equal or better service than the OEM, yet still able to provide intriguing cost benefits. As interest in TPM (to extend lifecycles, combat inflation, or offset support costs to buildout other initiatives) has grown the last 15-20 years, so has global TPM revenues. TPM growth got the attention of Private Equity firms, and with it, continued emphasis on growth – organically or through acquisitions. Organic growth takes an investment in education/guidance among data center decision-makers that base their decisions on a vendor’s reputation and capabilities matched to their requirements. In contrast, acquisition-based growth can take several years to blend disparate and dissimilar cultures/standards into a well-functioning organization. Such disruption to daily operations often impacts Service Quality and overall client experience.
As 20-year veteran of the TPM industry, I’ve personally witnessed the frenzy associated with the blending of workflows, standards and client communications throughout multiple acquisitions since 2007. It’s not a pretty sight, nor is it enjoyable for either parties’ staff to experience. I’ve worked for companies that have been acquired and worked for companies rapidly pursuing acquisitions at a pace at which it is simply unprepared for systematic and cultural blending.
Many have tried TPM in the last 10 years, buying the cheapest or the largest, only to experience a poor quality of service that led them to cancel their support agreement and left them reticent to try TPM ever again.
In fairness, not all acquisitions lead to poor service outcomes. From my experience, the acquisitions that least impact Service Quality are those in which one organization is acquiring another organization that provides a niche service or enhances geographical coverage. The integration goes much more smoothly and the client is offered a greater breadth and depth of (tech) support. Yet, the acquisitions within which the integration is destined to struggle is when two similar organizations, with similar offerings and geographic coverage, are meshed together for purposes of cost reduction versus preserving each parties’ original strengths. Unrest and uncertainty and lack of clarity/accountability runs amuck.
Internally, operational teams scramble to understand…Who leads sales? Who leads engineering? Which accounting methods take over? Which part sparing model is communicated to clients? You must realize that such blending (likened to “oil & water”) causes chaos and HAS caused perspectives such as: “We won’t spare. We’ll buy spares only after something fails. Or we will let the client spare.” How might that perspective feel mid-contract or if your SLA definitions aren’t as detailed as they should be?
What else can break down and misalign internal operations, which directly impact client experience:
- Ticketing system adjustments – what are response mechanisms and standards, who is accountable, and will the client be re-informed to any change in procedures?
- Contract systems – originally loaded to one system that will now be abandoned and yet the switch is not yet ready to be flipped. How do we operate with two independent contract management systems?
- Exodus of senior level engineering talent, as they are not readily identified as talented by the acquiring organization, or they simply get tired of the musical chairs scenario that always occurs.
From the client’s perspective, post-merger questions that are rarely answered in a timely fashion and clearly reveal the lack of logical preparation may include:
- Do I need a new call number?
- Do I need to use a new ticketing system?
- How is my contract changing?
- Am I losing my sales rep?
- Am I losing any of my assigned engineers, with whom I’ve trusted over the years?
To help further illustrate, I’ll share a scenario that I’ve personally encountered that pertains to one of the most complex, critical platforms, the IBM mainframe.
IBM Z Mainframe Story:
Following a major acquisition, it is often common for the acquiring company to place a hold on business expenses and even hiring for a period of time, until operational diligence is complete. This was the case at a previous organization, when I went to management for approval to acquire a Z mainframe for our product development and engineering lab. My request (and authority at that time) was immediately turned down due to “No one has any interest in any expenses right now.” The business case easily justified the investment. Prior to being acquired, we would have considered this specific platform as a strategic differentiator and the investment would have been made to maintain our competitive engineering edge. Ultimately, I chose to resign and move to a company that shared my commitment to delivering quality services and transparency to my clients that expect ‘true’ mission-critical support, including ongoing investment in product development and engineering systems.
Inarguably, acquisitions can drive EBITDA growth by way of cost reductions and synergy savings. In some cases, the acquisition is about buying a contract base, talent or taking out a competitor. Many of these acquisitions will continue to be backed by Private Equity firms where the focus is on EBITDA and margin and too often the hard work, infrastructure investments and standards once built by acquired companies is conveniently forgotten.
Mergers and acquisitions will continue to exist not only in the TPM marketplace, but within many industries that offer numerous players and the opportunity for consolidation. As a client or potential client of a TPM provider, do take extra precaution and time to know your provider’s growth strategy and commitment to ongoing investments. Beware of providers that are cutting costs and reducing investments in engineering as means to boost profitability, while deliberately passing the risk on to you.
Blog Author Details
EVP, Product Management