IT Due Diligence – convincing investors.
Technology spending is typically one of the high costs in any business. Therefore, it makes sense to perform some form of technology assessment.
But at the time of writing, a higher level of investors do not undertake technology due diligence – some seeing it as an expensive ‘check box’ exercise.
Hence, you can find a tremendous amount of information aimed at Investors, helping them understand the benefits of investing in this area.
For example, there is the well established and regarded Global Private Equity report from Bain & Co. this year (2022), which has an in-depth section asking (Investors) Is Your Tech Due Diligence Good Enough? It’s an excellent report, with storytelling infused to ensure that you are engaged and understand why technology DD is necessary today.
And not to be biassed towards one of the significant firms, here are other documents:
- From Deloitte outlining the key points and benefits of Tech DD for M&A deals.
- KPMG explains the most difficult area to form a clear image of is the value of the IT department?
- EY’s perspective on leading in the Digital Economy (hint: due diligence is necessary)
- IBM show how they are transforming DD using Watson
- PWC provide videos putting the case forward:
The objective in listing these is to demonstrate a tiny amount of high-quality, well-presented thesis with varying methodologies and approaches to technology assessments. It did not take too long to find any of this material.
But all of this material is understandably investor-focused and very little on the people on the ground who will be part of and impacted by the diligence exercise.
In the meantime, people are not seeking methodologies or justifications for a Tech DD exercise. Instead, they are seeking checklists and templates:
IT Due Diligence – convincing the CTO
Unless you are very early stage, you don’t have a choice – if the investor has opted to run a DD project, you will need to participate and provide the information and attend interviews as required. The overhead can be overwhelming, especially as most teams do not have the time to keep their documents up to date.
But even if you don’t have a choice, it is still important to outline the benefits to you and the team. The assumption here is that your technology, team and processes will be reviewed as part of the project:
An external assessment of your environment will likely be quicker than if you tried running the same process internally. With dedicated resources and an investment event underpinning the exercise, speed of execution is critical, and they can be completed within a matter of weeks. Often CTOs report they are surprised so much can be gathered from in such little time.
External validation of the work you and your team have completed or in-flight has been helpful for some CTOs. Whilst it is natural to focus on the gap between where you are today and where you want to be in the future, confirmation of where you’ve come so far is reassuring for many.
Having your environment professionally and tactfully challenged also clarifies the robustness and technology environment’s ‘fit for purpose’, which in many cases is the ability to grow rapidly against a new business growth plan. In addition, collaborative challenge helps uncover new opportunities.
Technology practitioners will understand how your environment grew organically, and they will also experience the differences between the needs of the business and the tech team. Having people on your side to re-present an idea or initiative, which invariably needs more spending, helps provide the backing for positive change. This is a very common outcome in IT, Security and Software Development. The tech will be a new liability for the new owner without the additional investment.
‘Auditing’ is of little value during these projects. More weight is added if external consultants help by combining their experience with the cross-pollination of working with hundreds of firms previously. If acceptable to all parties, sharing ideas can be beneficial for all.
The creativity in technology is like a blank canvas, where every firm builds and operates tech in its unique way. Hence, it isn’t easy to assess every firm against precisely the same criteria. But evaluating the maturity of critical areas is possible, and this can be useful for you as a CTO to know what needs to change and where the strengths are in your team.
A lifelong skill
We notice the people who have been through IT Due Diligence previously as they arrive at the project fully prepared and can participate fully. In addition, learning this skill provides perspective and a good entry point into acquisitions and investment.
Most if not material regarding technology due diligence is aimed at the purse-strings holder, the investor. They need to understand why it is beneficial to start the process in the first place.
This chapter explains why it can be beneficial for those on the ground, which the results of a DD assessment will undoubtedly impact.