Successful IT makeovers are aligned, agile & affordable

24 July 2015

As customers are becoming more digitally savvy and digital operations more cost effective, many businesses are transforming or planning to transform their operations. How such transformations are most effectively made within the IT and the wider business environment remains a key question for business leaders however. To identify good practice in IT transformation, Bain & Company looked at the successful transformation of 250 companies.

Digital channels, including the leveraging of big data and connecting with customers through multiple channels, are of increasing concern to businesses. The technology that drives these functions is quickly changing. So quickly, that what was decade ago state of the art may now be part of the seemingly ever growing legacy IT systems.

To stay competitive, companies need to carefully consider how to best develop their IT organisations to meet the challenge of keeping up with changes in customer expectations, as well as technological changes around product development. Starting fresh, by ditching legacy systems and going ahead with a whole new IT system, is one way to go. However, a recent Bain & Company report, titled ‘Rebooting IT: What separates digital leaders from the rest’, highlights that there are a number of strategies available for dealing with IT transformations. The aim of Bain’s analysis is to identify what differentiates leaders in transformation from the laggards.

Digital technology reference model

The report explores the ways in which 250 companies across Europe and the US have dealt with the development of digital capabilities in areas like mobile enablement, a seamless omni-channel experience, next-generation payments, flexible fulfilment and advanced data analytics. These companies are then compared in terms of performance in a number of key metrics to identify what successful companies are doing well and what unsuccessful companies could do better. The study finds that transformation leaders, who successfully manage their IT transformations, are involved in commitments in three broad categories: the alignment of priorities, agile operating models and an affordable journey.

Transforming IT
Aligning priorities is a key factor for the development of a strong long-term business plan in line with the demand of customers. Another factor in this category involves the alignment of business and IT in the development of innovation. The study finds that 71% of the leaders co-created and funded multiyear innovation efforts, compared to 47% of the laggards. When it comes to innovation, leaders tend to prioritise a streamlined agenda. Of the laggards, 37% say there are ‘too many projects’, causing high IT costs, compared to 21% of leaders. The visibility of the CEO is also seen as important in defining the overall success of IT transformations, with 82% of digital leaders and 71% of all companies believing their CEO had clear visibility into IT innovation priorities.

Digital leaders outperforming peers

Agile operations also set precedence as an area in which companies could set themselves apart from each other. The biggest issue highlighted by many companies is the attraction and development of relevant talent. Bain’s research indicates that more than half (51%) of companies say talent is one of their top three issues. In addition, 35% of current IT staff will need to improve their skills for the next wave of IT evolution. Another successful – but short term – solution from leaders is to deploy two-track IT operations, where legacy systems and new developments are segregated under one CIO, to help bridge the gap between systems. Other agility setting processes are the use of DevOps to attain considerable improvements to IT deliverables, reducing costs by more than 30%and cutting development time in half. The final agility gaining stratagem is the use of public based cloud providers, including a modular approach with effective data governance.

The more successful companies also tend to approach the transformation of IT with a cost-cutting, value realisation approach. They refocus on the most critical priorities and embrace next-generation development models and cloud capabilities to reduce costs and speed time to market. This leads to a ‘blank sheet’ approach, which requires functional areas within businesses to justify their use of IT funds, thereby developing a relationship for innovation as well as highlighting that IT is not merely a service provider but also a driver of change.

“A complete IT reboot is a non-negotiable requirement for most large companies,” says Vishy Padmanabhan, co-author of the report and Bain partner in the firm's global IT practice. “If a business can't deliver on customer expectations for transparency, convenience and personalisation, someone else surely will.  The digital leaders that emerged from our research are several years ahead of the competition. They have embraced a holistic approach towards transforming the entire IT operating model designed to support desired business and customer outcomes.”


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8 tips for successfully buying or selling a distressed business

18 April 2019

Embarking on the sale of a business is one of the most challenging experiences a management team can undertake. Even serial dealmakers acknowledge that the transaction process can be gruelling, exposing management to a level of scrutiny and challenge through due diligence that can be distinctly uncomfortable.

So, to embark on a sale process when a business is in distress is twice as challenging. While management is urgently trying to keep the business afloat, they are simultaneously required to prepare it for scrutiny by potential acquirers. Tim Wainwright, an experienced Transactions Partner with Eight Advisory, says that this dual requirement means sellers of distressed businesses must focus on presenting their business in a way that supports buyers in identifying value, whilst simultaneously being open about the causes of distress. 

According to Wainwright, sellers of distressed businesses should focus on eight key aspects to ensure they are as well prepared as possible:

  • Cash: In a distressed situation cash truly is king. Accurate forecasting and day-by-day cash balances are often required to ensure any buyer is confident that scarce cash reserves are under proper control. 
  • Equity story and turnaround plan: Any buyer is going to want to understand the proposed turnaround strategy: how is the business going to enact its recovery and what value can be created that means the distressed business is worth saving? Clear presentation of this strategy is essential.
  • The business model: Clear demonstration of how the business model generates cash is required, with analysis that shows how financial performance will respond to key changes – whether these are positive improvements (e.g., increases in revenue) or emerging risks that further damage the business.  Demonstrating the business is resilient enough to cope with these changes can go a long way to assuring investors there is a viable future.
  • Management team: As outlined above, this is a challenging process. The management team are in it together and need to be consistent in presenting the turnaround. Above all, the team needs to be open about the underlying causes that resulted in the distressed situation arising.  A defensive management team who fail to acknowledge root causes of distress are unlikely to resolve the situation.

8 tips for successfully buying or selling a distressed business

  • Financing: More than in any traditional transaction, distressed businesses need to understand the impact on working capital. The distressed situation frequently results in costs rising as credit insurance becomes more difficult to obtain or as customers and suppliers reduce credit. Understanding how these unwind will be important to the potential investors.
  • Employees: Any restructuring programme can be difficult for employees. Maintaining open communications and respecting the need for consultation is the basic requirement. In successful turnarounds, employees are often deeply engaged in designing and developing solutions. Demonstrating a supportive, flexible employee base can often support the sale process.
  • Structuring: Understanding how to structure the business for the proposed acquisition can add significant value. Where possible, asset sales may be preferred, enabling buyers to move forward with limited liabilities. However, impacts on customers, employees and other stakeholders need to be considered.
  • Off balance sheet assets: In the course of selling a distressed business, additional attention is often given to communicating the value of items that may not be fully valued in the financial statements. Brands, intellectual property and historic tax losses are all examples of items that may be of significant value to a purchaser. Highlighting these aspects can make an acquisition more appealing.

“These eight focus areas can help to sell a distressed business and are important in reaching a successful outcome, but it should be noted that it will remain a challenging process,” Wainwright explains. 

With recent studies indicating that the valuation of distressed business is trending north. With increased appetite from buyers who are accustomed to taking on these situations, it is likely that more distressed deals will be seen in the coming months. “Preparing management teams as best as possible for delivering these will be key to ensuring these businesses can pass on to new owners who can hopefully drive the restructuring required to see these succeed,” Wainwright added.