By Bob Anderson and Eric StettlerWitnessing the flurry of Web Services activity over the past few years, companies are turning to this technology for more than internal integration. They have discovered that the benefits of seamless interoperability, platform independence, speed and cost can apply to merger and acquisition (M&A) transactions as well. Web Services provides a cost-effective way for IT to help achieve corporate merger goals and to contribute significantly to fast, reliable merger synergies. A growing number of companies are using Web Services after a merger for the following reasons:Strategy alignment: Web Services forms the foundation of many business and IT strategies to support customers, partners and internal integration. As a result, the use of Web Services to heighten M&A synergies may be aligned with current IT strategy investments. Speed: Speed is key to successful merger integration, and targeted Web Service interfaces can help to quickly deliver IT synergies for functional areas. The IT organization becomes a key enabler of the resulting cost savings instead of a neutral participant. Support: Web Services is embedded in current enterprise applications. Many enterprise application vendors (such as SAP, SAS, Oracle and Siebel) have newer versions of their software that support Web Services and service-oriented architecture (SOA) standards. Enterprises with these applications may already have a robust Web Services architecture that can ease the M&A transition. Limited initial investment: If the merging companies already have Web Services functionality, the costs of IT integration should be minimal. However, for companies with older technology, the initial Web Services investment at the time of the merger could be cost prohibitive.Platform independence: By its very nature, Web Services technology is independent of hardware and software platforms or application development object models. This platform independence facilitates the use of Web Services as a beneficial enterprise application integration (EAI) tool. THREE KEY TESTS"Don't destroy what you buy" is a simple goal, yet exceedingly difficult to fulfill. Only half of all mergers create lasting shareholder value; and just under one-third exceed expected industry returns. Understanding exactly where and how value is created, and protecting those sources, will improve the odds for merger success.We have worked with many clients to ensure M&A synergies that quickly boost the bottom line. The savings from such synergies can be used to fund more strategic integration efforts, such as IT portfolio integration, which take more time and planning. In our experience, it becomes clear when Web Services is an appropriate M&A integration technologyand when its not.Determining if Web Services should be a key tool in your organizations arsenal of merger support capabilities is never an easy decision. Just as each M&A transaction is unique, the potential for Web Services varies depending on the overall strategy and the participating companies environments.A.T. Kearney uses an integration framework to assess whether Web Services is a viable integration option in a merger. The framework is built on three screening criteria: strategic business rationale, business functionality rationale and integration environment rationale.Strategic Business Rationale What are the strategic business drivers behind a merger, and how do they affect IT? Our first criterion addresses these two questions, which significantly influence whether Web Services will be appropriate to support the integration of the two companies. The rationale for some mergers may have little impact on the IT function. For example, a U.S. company acquiring a European company to expand its geographic footprint may choose to leave the IT that supports Europe largely as is with only minor data integration. Or, a company acquiring an unrelated business to broaden its product or service portfolio may also leave the operations of the acquired company intact. In both cases, little to no IT integration activity is needed, thus reducing Web Services potential value.Web Services becomes critical when the legacy environments of two companies are maintained or selectively replaced in the combined entity; Web Services forms the integration link between the two environments. While this approach may result in lower short-term cost savings, there are legitimate reasons to follow such a strategy. For example, critical capabilities may exist in the legacy systems of the two companies that are too costly to recreate but they provide a distinct competitive advantage to the combined entity. In such a case, a seamless integration layer becomes critical, and Web Services may be the best technology to support it.Business Functionality RationaleInformation technology portfolios of merged companies can include thousands of IT systems; they are typically complex, maintenance-intensive, and high-cost environments. In such situations, the key decisions regarding whether to rationalize or integrate IT are evaluated at the business function level. Our second criterion helps answer the question, "Should the underlying systems (applications, data and infrastructure) for a business function be rationalized or integrated to maximize value?" The answer typically depends on the intended benefits. For example, systems that support functions such as finance and HR are typically expected to generate improved scale efficiencies, which can best be achieved through rationalization of those systems. Such rationalization initiatives should be based on industry benchmarks and on a holistic analysis of the system portfolio to reduce the IT complexity and the associated costs.Web Services becomes critical when companies choose to integrate rather than rationalize systems supporting a certain business function after a merger. In its most basic form, Web Services can act as a wrapper around existing systems to provide consistent methods to access legacy environments. It streamlines the integration with its open messaging and communication standards.Integration Environment RationaleOnce a company decides to integrate its legacy systems, our third criterion considers the question, "Is Web Services the appropriate integration technology given the existing applications, data and infrastructure environments?" Web Services is not always an effective integration tool because of its potentially higher implementation costs. In many cases, legacy systems have little or no existing Web Services functionality. An old mainframe running custom cobalt code over a proprietary database used to manage a specific part of the business may not be the ideal candidate to retrofit with Web Services. The cost of building Web Services wrappers around older legacy systems might not be justified. A more appropriate integration strategy in such cases may be to selectively build custom interfaces to the platform or to focus on upgrading the legacy environment and consolidating the merged entities on new systems.Web Services is most effective if the systems are newer, already have Web Services functionalities, and can support Web Services with little additional integration. For example, procurement is often one of the first functions to be integrated because of the potential for significant cost savings. Web Services can be used to integrate disparate ERP systems, enabling aggregation of data such as sales projections, item master catalogs and inventory information at the corporate level, and in turn, allowing for centralized purchasing and logistics capabilities.Because Web Services is vendor neutral, companies can choose best-of-breed technology components and maintain a high level of supplier flexibility as their systems evolve. In addition, companies can establish or terminate business partnerships without being limited by technology constraints. As Web Services continues to gain momentum in software products, this type of streamlined interoperability will become more common.CONCLUSIONWeb Services is commanding more attention in software development. Established leaders like IBM (Web Sphere) and Microsoft (.NET) continue to push their offerings, and other vendors are making Web Services their development focus. For example, SAP has made Web Services and other open technologies the focus of its development efforts for its enterprise service architecture (ESA), which serves as the foundation of SAPs NetWeaver product. The more software developers integrate Web Services into their application suites, the more prominently Web Services will participate in merger integration.As CIOs develop their IT strategies, they need to consider the role of Web Services, both within and outside of the context of merger and acquisition activity. Making Web Services part of a service-oriented architecture will increase the long-term agility of the IT organization, enabling it to help shape the response to dynamic business needs.Once Web Services capabilities are established, their potential to streamline M&A integration will become more apparent. By asking key questions about both strategic goals and more tactical integration issues, CIOs can determine the best path forward.Bob Anderson is a vice president with A.T. Kearney in IT Strategy. Eric Stettler is a manager with A.T. Kearney in IT Strategy.