Think American Airline’s acquisition of U.S. Airways; Facebook’s acquisition of Instagram; and Chase’s acquisition of Washington Mutual.
The sheer mechanics of merging two enterprises’ IT suites and disparate systems, or integrating multiple IT operations in another’s enterprise, add additional layers of potential stumbling blocks in regard to licensing complexity. This challenge, sizeable under ordinary conditions, is greatly exacerbated by M&A activity. According to a report by McKinsey & Company, “50 to 60 per cent of the initiatives intended to capture synergies are strongly related to IT, but most IT issues are not fully addressed during due diligence or the early stages of post-merger planning.”
The increasing challenge of managing the complexity of software licenses can cause even the best-run IT organisations to occasionally make errors related to their license parameters, exposing them to costly penalties. Merging businesses and keeping track of two enterprises filled with volume licenses, unlimited licensing agreements, named-user licenses and cumulative licenses – not to mention the myriad specifications within each category – is a Herculean task. Data complexity ranks a close second when it comes to getting in the way of decisions, right behind the growing volume of data.
However, understanding the factors that contribute to licensing complexity during a period of M&A is the first step toward recognising where the dangers lie, and potentially avoiding a costly hiccup during what is already a high-stakes period for any enterprise.
Many mergers fail to deliver the expected returns because they get tripped up by the integration of technology and operations. But having a thorough strategy for IT integration can help avoid the common pitfalls and help these transitions succeed.
Response to Growth
Rapid response to growth and the ability to deliver added value are essential capabilities for staying competitive – and often the driving factors behind a merger or acquisition.
But when integrating multiple enterprises, a lengthy IT assessment must be undertaken before executing plans to properly support this growth from an IT infrastructure perspective. And while these plans for change are in the process of being formed it is easy to disregard elements that are marked for elimination, making it possible to lose track entirely of licensed software assets before they are properly divested. This limbo assessment period is often when the details about the complexity of software license management get lost in the shuffle, only to surface again later in a vendor true-up.
It’s easy to set something aside during an intense acquisition with the full intention of coming back to it later. However, the challenges and unexpected IT priorities that arise during a merger or acquisition cannot be underestimated, and often it becomes impossible to manually track details of licenses and assets. Knowing this, the need to be proactive by establishing an effective asset management practice to catch the shortfalls before they occur is essential.
IT organisations must take precautions to remain hyper vigilant in their license management during the tumultuous growth mode immediately following a corporate reorganisation, or risk introducing increased complexity.
Enabling employees to bring their own devices into the workplace seems like a win-win: On the surface, it reduces corporate hardware costs while meeting employees’ wish for IT autonomy. During M&A activity, BYOD can also have the additional benefit of enabling continuity during the turmoil of reorganisation, making it a particularly attractive option.
However, the software installed outside of the organisation on BYOD devices can easily violate licensing agreements, particularly if assets have been purchased inappropriately. There is no way to guarantee that an employee has installed only legal and safe software on a device that then connects to the enterprise, possibly opening the enterprise up to unknown threats from malware and other security issues.
In an audit situation the enterprise becomes liable for any license violations on its network, whether or not it had any knowledge of or control over them. Claiming ignorance or being overwhelmed by the complexity of a license is not a defense. Employees’ potential reluctance to grant their companies’ access to personal devices limits transparency and further compounds the problem – and the liability.
In an IT enterprise, critical interdependencies require that legacy systems and processes stay alive to maintain continuity and provide support to other, dependent systems. Legacy systems from some of the biggest names in enterprise IT still power important applications in verticals including finance, travel and government. Outdated platforms continue to survive because of the cost and risk introduced by replacing them is outweighed by the benefits they bring if properly updated and maintained.
However, these systems’ varying profiles and requirements mean they are normally not updated at the same pace as the systems that rely on them, introducing additional challenges to tracking and managing complexity.
During M&A activity, that task is suddenly multiplied across several enterprises whose legacy tracking systems may differ wildly. The true challenge is integrating disparate systems, whether they are legacy or new. There are many very effective legacy systems implemented that perform well, but integration of older systems is where an enterprise must decide whether it will develop and support the integration internally or can bear the burden of upgrading.
While increasing license complexity is inherent in the way the modern enterprise operates, taking the first step of becoming educated about that complexity and the common pitfalls is key to avoiding the stumbling blocks, particularly when a company’s future is at stake.
Walker White, President of BDNA