Due Diligence:

A due diligence assessment of an organization’s IT function is often required by investors, as part of a merger or acquisition. It may also be required from time to time by the owners of a business, to ensure a better understanding of the opportunities, costs, and risks involved in the IT function. In either case, there are benefits to having a specialized and independent third party perform the assessment.

  • In the case of acquisitions or mergers, investors often treat IT due diligence as part of the general activities performed by the accounting team. Although there is independence, this can be a mistake if the professionals involved do not have in-depth knowledge of IT or routine experience conducting IT-specific due diligence.
  • In the case of an internal assessment, the business owners may assign the job to the IT organization or to consultants who work with the IT group on a day-to-day basis.  Although this approach involves IT specialists, they are not independent consultants and have a vested interest in the outcome of the IT assessment.

Clearly then, the responsibility for IT due diligence should be assigned to a consulting firm that has both the specialized expertise as well as the independence to ensure that the job is done right.

Our IT due diligence consulting service evaluates the current state of the organization’s IT systems, IT infrastructure, people and processes, identifies opportunities for cost savings, assesses risks, and outlines scenarios for future systems. Our IT due diligence assessment covers the following areas:

Current State of IT Capabilities: existing IT systems assessment, and IT infrastructure assessment, an IT organizational review, and an IT process evaluation.

Strategy:

Information technology today is a critical function in most organizations. IT is not only a supporting function, helping to automate routine tasks and promoting process efficiency: It has also become embedded in the products and services of many companies. Even organizations that do not consider themselves “high tech” are now using IT as a core element of their products and services.

Yet, in many companies, IT is only managed as a technical group. The IT systems, IT organization, and IT processes may be designed well from a technical perspective, but poorly aligned from a business perspective. This can be the result of changes in business direction, sudden or long-term growth, or competitive challenges that create dissonance between what the business needs and what IT is providing.

A complete IT strategy includes the following, which can be selectively tailored according to your needs:

  • IT Applications Portfolio: the business applications that the organization will utilize in support of business processes. These commonly include ERP, CRM, HCM, business intelligence, and a wide variety of industry-specific systems.
  • IT Infrastructure: the technical architecture of hardware, operating systems, databases, end-user computing platforms, communications, and facilities. This also includes use of newer cloud platforms to replace on-premises IT infrastructure and systems.
  • IT Service Management: decisions concerning how and where IT services should be delivered and by whom, whether by internal IT work groups or by outsourcing or managed services providers.
  • IT Organizational Design. IT not just a matter of technology–it is also about people. Our IT strategic planning services also include evaluation of current skills and staffing levels, identification of skills gaps, and designing the optimal IT organizational structure to carry out the road map. If needed, we can also assist in the recruiting process for new IT personnel.
  • IT Management Best Practices. IT has its own internal processes, which should utilize proven best practices. These include best practices for IT governance, IT financial management, IT operations, IT security and risk management, and applications development.

Scalability:

Based on our assessment of the current IT capabilities at the target company, we can assess whether the IT infrastructure is scalable to support its anticipated growth. Our IT consultants can also identify corrective actions needed to fix current problems and outline future scenarios for IT. Future scenarios could include expanding, upgrading, or replacing certain systems, integrating IT operations with a new corporate parent or other division, outsourcing some or all of the IT function, or adopting a new enterprise IT architecture. Scenario planning can be done as part of the initial IT assessment, or as a follow-on project in more depth.

Risk Assessment:

During a merger or acquisition, an effective IT due diligence process can minimize risk, improve the odds of success, and increase the value of the deal. The same considerations also apply when we perform an IT assessment for internal purposes.

  • Disaster recovery and business continuity. Are IT systems adequately secured against intrusion or known vulnerabilities? Is there a disaster recovery plan? Are backup/recovery procedures implemented and tested? In regulated industries (e.g. life sciences), are there risks of non-compliance?
  • New initiatives. What system development projects are underway? What is the status? Should they continue? What should be done to ensure successful implementation?
  • Key personnel. Who are the key resources, who need to be retained? What actions should be taken to mitigate the risk of loss of these key personnel?

Budgetary Analysis:

In some cases, IT organizations may have a cost structure that is higher than necessary. In other cases, the organization may be underspending relative to its industry peers.

  • IT spending and staffing benchmark. How do overall IT spending and staffing levels compare with others in this industry? Should this company be spending more, or less, on IT?
  • Opportunities for cost savings. Are there opportunities for data center or server consolidation to create value or improve performance? What maintenance, telecom, and service contracts are in place? Are rates competitive? Is there unneeded or unused coverage? Can certain IT capabilities be more cost-effectively performed by outsourcing? If outsourcing is currently in place, can certain functions be more cost-effectively delivered internally?

Our sister IT research firm, JT Solutions, gives us practical data for benchmarking a company’s IT spending and preparing a useful economic analysis. Our structured methodology allows us to deliver an IT due diligence within short deadlines. And our strict independence from technology vendors gives us an unbiased perspective that is essential, whether for investor due diligence or for an internal assessment.