Beyond financial valuation, risk or compliance, how does the company measure up against your investment thesis?
Projections of IT systems costs are increasingly more important.
To answer this important question, we are prepared to summarize the company systems and processes into many categories, sorted by operational impact. We can answer if your investment or spin-off thesis aligns with current IT systems scalability, reduction of costs, opportunities or cyber security risks.
All businesses have become reliant on Information Technology in various forms. At the minimum, clients (customers) expect the business to engage in most modern methods of interaction and communication. This is by far the largest value that business can leverage to unlock and enable growth. This cannot be measured through a summarized dataset. Instead, we map out channels through which a “stream” of CRM engagements or occurs. Each channel is then further analyzed for its specific function:
– ways and means of use by company employees,
– breadth of products and services covered,
– speed of iterations that further yields transactional and real revenue,
– quality of vendors selected for tasks,
– value-to-customer, intrinsic value-cost proposition to company,
– availability, resources, human vs. automated systems cost.
IT Processes supportive, stimulative of..
– or –
is it a risk, a threat to (aggressive) growth targets.
Important conclusions drawn here are usually scalability of people, systems and processes as the company grows, and – alternate solutions in case of market changes.
Each itemized category can then be summarized for its effect on EBITDA and cash flow, growth target deviation and holding period returns.
More so than ever, technology changes can be faster than investment holding periods. With each category of analysis, we can project the impact on the deal value, and more importantly timing of investment hold against current market trend, future trends or “alternative, what-if” scenario in case the market-trend actually ends up “forking” to a currently-lesser-known alternative.
Valuation of IT Systems
We used to consult clients with IT projects that were utilized “in support of” business operations. If a server or a payment system failed, it would be apparent only internally, to the company. Alternative would be in place without a significant impact to company’s operation or day-to-day customers, a famous “back-up system” trend. Future trends are changing in this “me-centric economy” where customer demands everything working all the time, because the IT systems now are used by customers for company operations. This – one of primary reasons for trending keywork of “scalability” of IT systems, and true value of “cloud” environment, as an example. Stakeholders and investors want to know that both back-up systems (catastrophic failure) and de-centralized infrastructure (cloud) is in place and delivering cost-effective reliability. It is important to note that even public companies, which exist mostly through internet operations, do not discuss diligence of owned IT systems in their public filings (citing security, of course.) In reality, systems are old and outdated, improperly managed and maintained, as the management has long ago shifted focus on revenue, and IT systems have become – in their minds “in support of” business operations. There are a few that are different. They innovate and upgrade their entire networks, systems, apps and devices, but consistently fail to turn a profit for the shareholders.
Somewhere in the middle of these models is a business-operation minded executives (or consultants) who will borrow the knowledge of the lessons learned, and foresight of the upcoming technology trends to capitalize on them before the competitor does, or a disaster strikes.