I was delighted to read a thought leadership article from McKinsey recently, “How to start building your next-generation operating model,” that emphasizes some key themes that I have been pushing for years (the quotes below are from the article):
While they promote organizing IT around business value streams, the McKinsey authors identify a risk to be mitigated in that value streams should start to build up software, tools and skills specific to each value stream. This might be contrary to the tendency in many organizations to make life easier for IT by picking a standard set of software, tools and skills across the whole organization. I agree that it would be a shame indeed if agile and lean principles that started life in IT software development are constrained by legacy IT attitudes as the agile and lean principles roll out into the broader organization.
There are a lot more positive ideas for organizational transformation in the article, so I recommend that you take a few minutes to read it. My only small gripe is that while the authors emphasize organizing around value throughout, they do not mention prioritizing by business value. Maybe at the high level that McKinsey operates in organizations that concept is taken for granted. My experience is that as soon as you move away from the top level, if business value priorities are not explicit, then managers and teams will use various other criteria for prioritization and the overall results may be compromised.
This blog was originally posted at https://www.softwarevalue.com/insights/blog/posts/2017/march/using-software-value-to-drive-organizational-transformation/.
If there is one time when business value is front and center in a conversation, it is during a merger or acquisition process. The acquiring company wants to know the true value of the company it’s acquiring and the company being acquired wants to prove its value as a viable option for acquisition. In the case of a merger, both companies have these same two concerns – what is their real value and what is the value of the company with which they are potentially merging?
In today’s organizations, technology, and more specifically, software is an aspect that needs to be carefully assessed to determine its value to the M&A deal as an asset or potential liability (i.e. requiring significant upgrades or maintenance or performing poorly).
To begin the evaluation process, I recommend looking at the software in relation to the business functions of the target company. Is the software unique to the company’s line of business or is it used for a business function that is common between the two organizations (i.e. HR, payroll, CRM). Most likely, the software that is performing the same function in both companies will be of little business value to the acquiring company as they will choose to keep their existing software.
However, a software solution that is unique to the target company could have tremendous value. The challenge is that the acquiring company may not be familiar with the software and have a limited understanding of its value or the risk associated with that software. In addition, if there are only a few individuals who understand how to use and maintain the software (especially with proprietary software) there is a risk that they will not remain at the company and as a result there will be no knowledgebase to maintain and/or enhance the software.
I recommend taking four key steps during the acquisition process to determine the value of the target company’s software:
A software assessment needs to be an integral part of the M&A process – no matter what end you’re on. It can no longer be an after-thought. Software can provide significant value or pose a huge risk for an organization and that needs to be determined up front.
I’m always interested in hearing from others about your experiences on how your organization has handled the software assessment process during a merger or acquisition. What lessons have you learned?
This blog was originally posted at https://www.softwarevalue.com/insights/blog/posts/2016/november/four-steps-to-assessing-software-value-in-an-ma/.
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