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hello i'm bob gorley the chief technology officer of ooda llc this presentation is on the topic of technology debt in mergers and acquisition including a good working practical definition of technology debt in a mergers and acquisition context it also talks about the places where you can find technology debt and some tips on how to mitigate it first a bit about me i've spent a career evaluating the business impact of technology my first career was in the u.s navy as an intelligence officer where i had to understand our own technology to protect it against adversaries who were trying to attack it i also had to understand adversary technologies and articulate assessments for decision makers later after my career in the navy at trw and northrop grumman i helped steer investments to create new technologies which could be used to deliver business value to our end clients back in government as the chief technology officer of the defense intelligence agency my focus was on applying technologies to the benefit of enterprise missions for the last 10 years i've been advising companies large and small helping evaluate technology that they can apply to their business needs as well as conducting due diligence assessments i've helped many for firms in this domain this presentation captures my lessons learned from my experience conducting technology due diligence it's also informed by extensive research into the mega trends of technology it leads to actionable recommendations that will help anyone on either side of an m a here's what i mean on the buy side of a m a assessment say a private equity firm or a strategic acquirer they can use the insights here to understand where technology debt could be hiding and how to mitigate it on the sell side any firm considering an investment or who may be a target of an m a who wants to optimize their own long-term value and achieve more favorable terms will also benefit from this presentation so first some terms what is technical due diligence well technology due diligence is designed to give insights to decision makers on the state of technology for the firm in question this can only be done by experienced technology and business executives it really does require a lot of experience as well as a technical understanding of how things really work now that's technical due diligence what is technology debt well this is what we look for in a technology due diligence it's critically important here i'm going to give you a practitioner's definition of technology debt which may be different than what you might see from other more academic oriented presentations to me technology debt is the accumulated cost and effort it would take to fix problems with technology this includes fixing problems after acquisition so it includes fixing the problems that are required to really get the benefit of this transaction technology debt includes both the technology developed by the firm in question and the technology used by the firm in question technology debt is can be hard to understand i like to explain it with analogies there are a lot of analogies between fiscal debt and technology debt we've known fiscal debt that's easy to study and understand so let's look at the analogy both of them are based on the economics of optimization they are very much about getting the most out of something when you borrow money you say you're going to pay it back you want something quicker than you can afford it similarly sometimes developers take shortcuts they want to field some software quicker and they tell themselves i'll go back and fix this later that is where technology debt gets started enterprise i t leaders also have an ability to take shortcuts in order to field stuff quicker that's a different kind of technology debt these kind of shortcuts may help on the short run to get product to market but if you don't go back and fix what you missed you're going to add up the technology debt for example an enterprise it leader may decide to leverage something without creating a security policy without configuring it appropriately for security that's technology debt that needs to be fixed another kind of technology debt comes from the fact that all businesses operate some degree of legacy equipment and legacy technology some keep very ancient systems running because it saves capital you don't have to replace all that stuff that's a form of technology debt the analogy does break down unfortunately for one humanity has been dealing with fiscal debt for years so many of us have an almost intuitive understanding that if you borrow money you have to pay it back if you have fiscal debt you need to pay the fiscal debt additionally contracts laws regulations and a whole body of best practices exist around fiscal debt because it's not new and the behaviors regarding fiscal debt are taught in schools and even in our own families we have a understanding of what fiscal debt is technology debt is a lot newer which means there are fewer regulatory regimes less experience and we never have a conversation around the dinner table with family about technology debt it's really not part of our human experience which is a key reason the analogy breaks down additionally technology debt can be harder to articulate and harder to understand another way that um technology debt is different from fiscal debt is the fact that it can be much more costly to remediate than fiscal debt depending on the situation uh it could be that fiscal debt is just simply paid off with cash whereas technology debt may require a never-ending stream of management attention and time and energy and friction and money so the analogy is important for a basic understanding of what technology debt is but it breaks down what can the costs of technical debt be well to pay back your technology debt it may require you doing a lot of different things it could be that you have to create new documentation which takes time and energy and work or code may have to be rewritten which is definitely going to take time and be costly it may be that the technology debt requires adding new security protocols or new security monitoring capabilities the technology debt may also require things far beyond just technical solutions for example creating new workflows for users not just the technical team it may also require storing data differently entirely new data architectures including hardware may be required to mitigate technology debt in many cases when we're talking about an acquisition to be merged into a company it may require a lot of additional coding including the creation of interfaces to integrate the technology into the existing suite technology debt also includes the cost of paying for testing including red teaming and security testing a something in general that i really really believe we just see this so frequently the longer you wait to pay this technology debt the more it accumulates it gets harder as time goes on when it comes to finding and reporting technology debt usually when we're asked to do a due diligence assessment we come up with a list of questions that we're asked to tackle shown is a notional list but it's one that i see repeated frequently if you're preparing for a technology due diligence consider putting these on your list the first what is the nature of the technical debt in the target company now this is a broad open-ended question but it usually develops a lot of interesting information that can help drive decisions i always keep at the front of any technology due diligence assessment have we found any show stopper issues any critical red flags that we have to immediately bring to the attention of the leadership team that has asked us to do the technology assessment we also intentionally assess cyber security risk in the context of technical debt understanding the cyber security risk due to technical debt is critically important because it could introduce risks that nobody was considering until that was evaluated another key part of understanding technical debt is the unplanned cost that may arise in mitigating the technical debt cost includes time if you have to do things like modernize a code base we need to understand the time that's going to be required to do that additionally when looking at organizations we always assess the legacy systems can any of those be scrapped scrapping legacy systems can really help mitigate technology debt i mentioned cloud migration and the question of what is the status of cloud migration because we have found cloud a tremendous forcing function in getting rid of technology debt the more you move to the cloud the easier the technology debt problem becomes with that in mind here are a few of my favorite places to look for technology debt it's i believe it's absolutely critical that any technology due diligence look at the proprietary software owned by the company including the proprietary software that's sold by the company this is critically important there's almost always extensive technology debt in there of some form or another additionally there's the custom software that's used for corporate processes this can be totally independent applications created by the company or maybe it is software that kind of stitches together existing applications whatever it is that custom software needs to be evaluated we always find technology debt there technology debt is also frequently found in data architectures i mentioned before the fact that you may need new hardware you may need an entirely new design for how your data is stored and backed up and interfaced with and doing that can really speed things up and help it can be very expensive too so we have to look for technology debt in data architectures i mentioned the legacy applications legacy applications are generally full of technology debt and there needs to be conscious decisions made on do we continue using those legacy applications or do we steer away from them and modernize technology debt can also be found in data centers and the servers that are in those data centers so depending on the nature of the assessment the use of data centers including on-prem or co-located or even cloud needs to be assessed a key place we always absolutely have to look for technology debt in is in the security domain security identity management authorization and monitoring of security posture is almost always full of technology debt and we can almost always find recommendations on ways to mitigate that through prudent action planning some concluding thoughts one technology due diligence should always provide insights into technology debt this includes of course technology produced by the firm to take the market but also technology used by the firm now in a perfect world organizations would all use technology debt responsibly and repay it quickly but in reality this almost never occurs a couple recommendations if you're on the buy side and need due diligence make sure that the due diligence teams focus on technology debt select partners with deep experience required to deliver on these kind of assessments if you're on the sell side sell side company leadership can take action before the due diligence to smartly pay down technology debt external experts can assist here too by providing non-biased professional assessments and prioritized action plans on how to mitigate technology debt what do you do now keep learning about this topic of technology debt whether you're on the buy side or sell side you can do that at oodaloop.com please join us there while there look for the udecast the udacast is available on youtube and all podcast systems the unicast is our way of tapping into the thought leaders who are really helping shape the future and generate lessons learned from their careers another key point which i'd like to underscore we are here to help you need to find a technology due diligence partner before you need to so reach out to us and we'll be glad to set up a conversation and tell you more about our practice buddha has years of experience conducting technology due diligence including diving deep into the nature of technology debt we'd love to be on your team thanks for listening to this ooda loop production for the latest analysis on cyber security technology and global risks please visit www.oodaloop.com you