Creating your exit plan? Five signs your IT environment is ready
The right IT environment is key to support value creation and streamline sell-side efforts. Does yours measure up? Achieve these five best practices and optimize your IT environment.
An organized IT department helps to create value over the duration of your investment. Having professional IT will help your sell-side efforts by eliminating technical debt and showing how you’re invested in using technology in operations to digitally enable the business. Conversely, if your IT environment consists of an outdated, disparate set of systems, your business might not realize efficiencies or be poised to support growth opportunities.
Put simply, strategic use of technology depicts value and maturity. If you can achieve the following five key goals, you’ll know your organization offers a professionally managed IT environment that’s more likely to be viewed as mature — and demand more value.
Goal #1: Appropriate IT staffing levels supplemented by qualified, well-managed service providers
At exit, the percentage of total employees who are full-time IT staff must be within a defensible range of industry benchmarks. For many industrial and services businesses, this is about 2–4%. Your IT staff should be organized in a conventional structure, such as a functional matrix, and led by an experienced, knowledgeable IT leader.
At exit, the percentage of total employees who are full-time IT staff must be within a defensible range of industry benchmarks.
Supporting service providers should be qualified and governed by an updated service agreement, including service level agreements (SLAs). It’s critical that you conduct business with established, reputable IT vendors. This will help maintain continuity in service quality and simplify your future buyer’s due diligence process. Using a sourcing framework or set of criteria can help you onboard the right IT partners.
Goal #2: A sensible, modern portfolio of enterprise applications
One of the most visible indicators of a mature technical environment is the use of contemporary, industry-appropriate, enterprise software. Tools should be used to automate manual business processes, an internal business intelligence (BI) competence should be established, and operations should leverage a rationalized, high-value set of applications that are governed cross-functionally.
Oftentimes, potential buyers can discern financial reporting inefficiencies and the full extent of manual business processes simply by learning which enterprise resource planning (ERP) or accounting system has been implemented. For example, a manufacturer who only has accounting software such as QuickBooks, likely has limited visibility into work-in-process inventory, real-time inventory levels, scrap costs, supplier performance, and related operational insights. Similarly, a process manufacturer who has software intended for discrete manufacturing might have inventory issues or lack appropriate master data.
Using professional IT also means having in-house BI capabilities and tools for visualizing data, such as Microsoft PowerBI, Tableau, or Domo. These capabilities will likely be tested during data-intensive sell-side processes.
Goal #3: Documented and established IT operations
Professional IT operations are defined by the documentation and implementation of standards, policies, and procedures. IT operations include activities such as applying system updates, or “patching,” data backup, incident response, help desk functions, and disaster recovery. An up-to-date network diagram and a register of all IT assets should also be maintained. A buyer can’t see that your is in good shape if the seller can’t even produce documentation detailing what’s in the environment.
The need for established and documented procedures is true even if the services are provided by third parties, for example, performing functions such as data backup, patch management services, or network administration services.
Goal #4: Modern, supported hardware such as servers, storage, phones, and network equipment
Prior to exit, you should eliminate unsupported, legacy hardware and software platforms, to the best extent possible. Antiquated technologies that present immediate security and reliability concerns are the basis for technical debt. With cloud technologies, modernization projects don’t need to be capital-intensive, and you can remediate technical debt prior to exit.
Prior to exit, you should eliminate unsupported, legacy hardware and software platforms, to the best extent possible.
A mature IT environment doesn’t necessarily need to feature the most innovative offering from every technology vendor. However, all your systems should be supported, ideally with a multiyear runway prior to the vendor’s sunset or obsolescence date for the specific system. We recommend that all hardware, including PCs, servers, storage appliances, switches, routers, and firewalls, be on appropriate “refresh cycles” that reflect the life expectancy of the equipment.
Goal #5: A proactive, formal approach to cybersecurity
A cybersecurity strategy is a must in a professional IT environment. This means that organizational responsibilities have been properly assigned, key policies, such as an information security policy, have been implemented, and industry best practices are being followed. Other indicators of cybersecurity maturity include business-grade anti-virus solutions, a secure network architecture, robust management of users and system access, appropriate monitoring and logging activities, and other non-negotiables such as end-user awareness training.
A professional portfolio company will be able to produce documentation on the quality of controls and absence of vulnerabilities in your IT environment. Examples include monthly vulnerability scanning reports, results from an annual penetration test, and third-party security assessment reports.
Bottom line: A holistic exit strategy always includes IT
Sophisticated investors and management teams have learned that IT is much more than taking care of computers; it’s part of a larger business strategy. Therefore, if you want to unlock considerable value, mitigate risk, and prepare for a smooth sell-side process, then it’s critical to understand and aim for a professional IT environment prior to exit. Questions? Give us a call.