Integration Savings: Show The Working

An integration savings number can become accepted surprisingly quickly.

It appears in the deal model, moves into the value creation plan and eventually arrives in a board presentation. Somewhere along the way, someone needs to establish exactly what it means and how it will be delivered.

Technology can contribute through supplier consolidation, simpler processes, fewer platforms and a more effective operating model. Those opportunities need a credible connection to expenditure, timing and business performance.

Without that connection, it becomes difficult to distinguish value delivered from a forecast that has been repeated often enough to sound like a result. A saving does not become recurring because the same slide appears at every board meeting.

Be Clear About What Is Being Claimed

Total operating cost savings and recurring annual savings describe different things. So do avoided investment and reduced licensing exposure.

An annual run rate describes the expected yearly effect once a change is in place. It does not mean a full year of benefit has already been delivered. A reduction in potential contractual exposure may be commercially valuable without producing an equivalent recurring saving.

That sounds obvious. It becomes less obvious when several different measures are being added together under a heading called EBITDA improvement.

Finance needs to agree how the benefit is defined, when it can be recognised in management reporting and what evidence is required. The technology team should be able to explain the operational change behind the number.

A clearer description is more useful than a larger claim that falls apart when challenged.

Follow The Saving Back To The Work

A decision to consolidate platforms does not, on its own, reduce the cost of running them.

Data may need moving. Processes may need changing. Contracts may need to expire. Users need to be able to do their jobs on the replacement platform before the old one can be switched off.

Until those dependencies are dealt with, the organisation may be paying for both.

The same applies to suppliers. A negotiated reduction is useful, but the business needs to understand whether it reflects better terms, lower demand or a reduced service. Each has a different implication for the operating plan.

For every material benefit, identify what needs to happen, who is accountable and when expenditure should change. A contract end date may be more informative than the programme’s preferred milestone.

Related: The Deal Is Only the Beginning

Include The Cost Of Getting There

Integration takes effort and money.

Implementation, migration, temporary capacity, contract exits and dual running all need to be visible. The business also needs to understand the continuing cost of the operation it is creating.

Show the gross benefit, the cost of delivery and the timing separately. A saving beginning late in the year will have a different in-year effect from the same saving beginning in January.

Check for double counting. A supplier reduction included in a platform consolidation should not reappear as a separate benefit. Nor should a full annual run rate be added to savings already realised over the same period.

Released capacity needs the same discipline. It may allow the business to grow, improve service or avoid additional recruitment. Those can be worthwhile outcomes. Calling them cash savings before expenditure changes makes the reporting less useful.

Keep The Evidence Manageable

This does not need a new reporting industry.

A material benefit needs an agreed baseline, an owner, a delivery date and evidence that the change has happened. Finance and operations should both recognise the result.

That evidence might be a contract change, lower invoices or the retirement of a platform that was still costing money. Where the benefit is improved operating capacity, show what work can now be handled and what the business has done with that capacity.

Keep forecasts visible as forecasts. Where a dependency moves the delivery date, update the benefit rather than leaving the original number in place because it is already in the plan.

It is easier to deal with an honest change in timing than to explain later why a reported saving never reached the business.

Protect The Operation

Cost reduction is part of integration. So is making the business easier to run and better able to grow.

Consolidating suppliers can simplify accountability, but it can also create concentration risk. Removing specialist knowledge too early can delay migration. Cutting support capacity before reducing the underlying demand can simply move the cost into poor service.

Those trade-offs belong in the decision. A cheaper operation that cannot support the next acquisition may undermine the wider investment case.

The board should be able to see what has changed, what benefit has been realised and what still needs delivering. That is the basis for a credible value creation story.

The savings number should be the result of that work.