“Shotgun” M&As Put the Heat on IT
Mergers and acquisitions are not usually quick affairs. Just the due diligence process of
examining a company’s enterprise IT systems—the infrastructure, applications,
outsourcing deals and vendor contracts—can take up to a week, according to industry
But as Wall Street imploded in September, entire deals in financial services have closed
over a weekend. Bank of America and Merrill Lynch. JPMorgan Chase buying Washington Mutual.
The Wells Fargo purchase of Wachovia.
These so-called “shotgun” M&As are both a testament to Wall Street’s dire circumstance and a
test of the ability of CIOs and IT staffs to analyze, prioritize and integrate systems in a
hurry. “The shotgun marriages are being arranged—and there is no IT due diligence,”
says Tom Casey, a vice president at Booz & Co.
That type of insight is even more important in financial services, since IT spend typically
is 15 percent of overall revenue, according to Casey. “IT is the backbone of how these banks
operate,” he says, “and you’re not going to get these major [M&A] synergies without
addressing the IT stuff.”
M&As are tricky to get right even in normal times with appropriate due diligence, and many
don’t return the expected value. According to a 2007 study by The Boston Consulting Group
(BCG) of more than 4,000 completed mergers and acquisitions between 1992 and 2006, 58
percent of deals actually destroyed value for acquirers.
There are several technology-related factors that are key to M&A decision making, according
to BCG’s Tom Reichert, a partner and managing director. First is post-acquisition synergies.
“The synergy value should be 10 percent to 25 percent of the combined technology budgets of
the two companies involved,” he says. “That is a significant part of the valuation of
Next is whether there are significant deal breakers—”big security or regulatory issues
that the acquirer is getting into in the tech environment that really need to get solved, or
big contracts that exist,” Reichert says.
Booz’s Casey also points to considerations such as selecting the core systems and
applications that will enable the combined company to grow, and knowing where the
opportunities are to consolidate infrastructure and contracts.
Workforce issues such as layoffs are less troublesome than platform and application
discussions. Casey says that power is the issue here. “If I’m an IT person or business owner
of [that system], then I lose that, I lose that kind of power position,” he says.
The bottom line? CIOs must make do with what they inherit (IT staff, systems, projects) in a
merger or acquisition. “Complaining about it,” he says, “does you no good.”
Economy Dings Financing for Software Deals
Enterprise software investments usually involve huge capital outlays. But now that we’re
living in a world of financial hurt, banks won’t dish out credit for such deals as easily as
What if your company needs financing help with software or services plans? One option, notes
Paula Rosenblum, a managing partner at Retail Systems Research, is to look at software as a
service (SaaS) for tech investments. “Over the short term, capital may be hard to come by.
SaaS allows a company to buy only the number of transactions and horsepower it needs,” she
writes in a report. “Nonintrusive optimization technologies can bring rapid ROI by taking
sales and order information and spitting out better assortment and pricing plans.”
What if you’re a software vendor who can’t close deals because customers can’t get
financing? “Enterprise software and service vendors without proper access to credit lines
may find themselves unable to close deals with clients shut out from the credit markets,”
says Ray Wang, a VP and principal analyst at Forrester Research. But there are solutions. He
points to a deal between software maker Infor and IBM Global Financing. The deal lets
customers go ahead with tech initiatives while spreading up-front payments over time,
conserving cash for other investments.
Wang thinks the ability that big vendors such as IBM and others have to provide financing
deals to customers is critical, given the economy. “Vendor-led financing initiatives may
prove to be the lubricant that keeps tech spending moving forward,” he says.
Why Corporate Fraud Freaks You Out (And It Should)
Fraud is a fact of corporate life today, as a recent Kroll Global Fraud Report notes.
The average company’s losses to fraud increased by 22 percent since last year, and the
average business lost $8.2 million to fraud during the past three years. These sobering
statistics are from a recent worldwide survey of 890 senior executives, commissioned by risk
The survey found that information theft, loss or attack is the type of fraud that most
worried respondents, with 25 percent feeling highly vulnerable and 47 percent feeling
moderately so. And the data shows why: The fastest growing types of fraud are information
theft (27 percent) and regulatory and compliance breaches (25 percent).
Yet while senior management seems to be saying they have deep concerns about fraud, they
wind up underestimating the exposure their businesses actually face today.
In fact, employees working below the C-suite who are closer to an organization’s technology
efforts and systems are over one-and-a-half times more likely than those at the corporate
level to see their companies as highly vulnerable (31 percent versus 19 percent), according
to the report.
“If senior executives are not worried about their vulnerability to information theft, they
should check whether their sense of safety is based on a thorough understanding of the
security deployed by the company, or ignorance of the full extent of threat,” notes the
report. “In this case, too little knowledge could be a dangerous thing.”
Center to Connect on Social Software
IBM recently announced the opening of the Center for Social Software in a move that it hopes
will bring more of its Web 2.0 offerings to the enterprise and allow an exchange of ideas
with business, technology and academic communities.
Big Blue’s Web 2.0 technologies, such as its Lotus Connections, which includes a blog and
social network features, are its fastest growing software product.
“IBM has centered our infrastructure around a bigger investment in social software,” says
Irene Greif, director of the center in Cambridge, Mass. “We want to work more systematically
and take this research and deliver it to customers.”
The center will look for the best ways organizations can utilize social software and set
policies around its adoption. Greif hopes those who interact with the center will give
candid feedback about the company’s social software. “We’d like to have people from outside
working with us, too,” she says.
Initial projects for the center derive from IBM labs including Beehive, an enterprise social
network, and Many Eyes, a free Web-based application that allows users to visualize data in
Web 2.0 formats, such as tag clouds.
While the center will mostly focus on IBM customers and software, Greif says it may work
with other vendors to help provide standards around social software development.
“I am expecting to see us step in and take some leadership in that area,” she says.
Use RFID to Track Servers and Laptops
Accurate, well-planned and highly targeted RFID deployments in tandem with IT-driven
data-integration plans can deliver substantial benefits, according to a slew of recent
surveys and analyst reports.
First, a survey of 186 global organizations by ABI Research found that RFID is being used or
evaluated for applications across a swathe of vertical industry sectors. “Virtually every
economic sector and industry where data needs to be collected or objects need to be tracked
holds the potential for RFID applications,” notes ABI Research Director Michael Liard.
Organizations are also increasingly using and evaluating RFID systems to improve the
tracking of objects, assets, goods and materials within corporate yards and property, on
campuses and in open-loop environments, according to ABI.
Another ABI report finds RFID moving into companies’ data centers. “IT assets are key
infrastructure for any modern business, and IT managers need to be certain that equipment is
documented, traceable and secure,” notes the report. RFID “can deliver quicker, more
detailed and more accurate day-to-day management of these important operational assets.”
This is where RFID makes sense—high-value items that need to be tracked. “Managing and
auditing this equipment is a serious pain point for IT departments, and automating those
applications with RFID can drive clear ROI,” states ABI principal analyst Jonathan Collins,
in the report. He notes that “the density of valuable equipment within a restricted area
limits the cost and increases the efficiency of an RFID deployment.”
One last note comes from vendor Odin Technologies. Its IT asset tracking report shows that
within the last six months, passive RFID technology delivered increased performance on
servers, laptops, blades and other high-value IT assets. For instance, IT staff using RFID
tags could inventory a rack of 40 servers in 12 seconds or identify all IT equipment within
a typical cubicle five times faster than manual methods, with 100 percent accurate data
Limits to In-Flight Wi-Fi
A Delta Air Lines decision to block “inappropriate” websites from its planned in-flight
Wi-Fi service could be the tip of the iceberg for airlines’ control of Internet use. Delta,
which will offer Wi-Fi on some planes later this year and on its domestic fleet in 2009, has
decided to prevent passengers from accessing inappropriate content, according to The Atlanta
In-flight Wi-Fi is emerging on a few airlines and was launched by American Airlines on a
limited basis in August. Both Delta and American will block VoIP, avoiding the uproar over
annoying in-flight cell phone calls. But the prospect of passengers surfing the open Web at
their seats raises concerns about children and others being subjected to objectionable
material, such as online pornography. Delta plans to offer the GoGo service from Aircell,
also used by American. Aircell says it will implement content filtering for airlines if
One privacy rights advocate criticized the idea. “I don’t think it makes much sense,” says
Marc Rotenberg, executive director of the Electronic Privacy Information Center. It won’t
stop passengers from looking at inappropriate material stored on laptops, he says. It also
opens the door to blocking content such as news or political opinions.
Another problem is also likely to come up, says analyst Jack Gold of J. Gold Associates. The
thin, cellular-data pipe that passengers will share means airlines may have to throttle back
heavy users. One person downloading a movie all through a flight could ruin the access
others paid for.
Airlines are likely to guard against this in an automated way. “The flight crew are not
going to be IT managers. The policies are going to have to be set and uploaded to the
systems,” Gold says.
R&D Tax Credit Extended as Part of Bailout
The U.S. House of Representatives voted to extend a research and development tax credit to
U.S. businesses as part of its approval of a giant bailout of the mortgage industry.
Several tech companies, including Microsoft and Texas Instruments, had called on Congress to
extend the tax credit, saying it helps U.S. businesses to invest in R&D and keeps workers in
the country. The credit, which would have expired at the end of 2007, will be extended for
“In today’s challenging economic environment, R&D is a critical catalyst for American
innovation, economic growth and job creation,” said the R&D Tax Coalition, a group
representing the tech, manufacturing, chemical, pharmaceutical and other industries, in a
statement. “The R&D tax credit motivates U.S.-based companies to keep cutting-edge research
projects in the United States while funding high-wage and high-skilled jobs for American R&D
workers across diverse industries.”
The tax credit can cover up to 20 percent of qualified R&D spending. It has expired 13 times
since 1981, despite calls by tech, pharmaceutical and manufacturing groups to make the tax
credit permanent. Lawmakers have resisted making it permanent largely because of its price
tag of about $7 billion a year. Some critics have called the tax credit a government subsidy
for large businesses.
Several tech companies and trade groups also praised Congress for passing the larger bailout
bill. Brad Smith, Microsoft’s senior vice president and general counsel, said in a
statement: “This crisis affects more than just the U.S. financial sector, it affects every
corner of the world economy, and today’s vote will help reinstill confidence around the