The Call of Duty
Gray may not have had a seat at Salomon Smith Barney's table but her opinions cast a long shadow over it. She believes that CIOs have a duty to involve themselves keenly when a merger looms. "The quality of the IT in the target is very important. And by that I mean how robust and resilient the system is. The IT systems are core, so you need to understand the state of those systems and be asking through the due diligence process about the production environment," says Gray. "I'm not saying that they have to be at CMM [Capability Maturity Model] Level 3 or 4 or 5; but I want to understand it. If there is flaky IT, which is up and down, then that could well be contributing to customer attrition."
Gray acknowledges that due diligence, even in friendly takeovers, is "very difficult" to do. "Obviously you go through all the material in the data room, anything in the way of reports that helps you understand the IT situation. And you ask for, but you don't always get, presentations by the IT staff," she says.
In a hostile situation, getting that information would be even more challenging. This could be very significant. "If you went ahead with the wrong information then you could destroy a heck of a lot of the value of the merger," Gray says.
While she has never been involved in a hostile takeover, an event which she acknowledges would be "very difficult and quite risky", Gray believes it would be possible to glean some information about the company's IT shop from peers and competitors, or published data in some cases. Those efforts would perhaps establish what a company used in its IT shop, but it would be difficult to ascertain how well the technology was being used. In the end, the IT element of the due diligence process would have to be accepted as an assumed risk.
There are, however, some warning signs to help assess the risk in the more open environment of friendly mergers. Gray says that if during the due diligence process it became clear that the target was redeveloping core systems from the ground up, she would be wary of recommending the merger. More attractive from her point of view are companies with relatively standard technology platforms, both from the technology aspect and skills availability.
She would also want to see more than an IT "blueprint". She would want to see clear evidence that the blueprint for information systems was merging with the overall business model of the organisation, and that the IT team was meeting its service level requirements at an appropriate cost level.
Gray uses a check list when performing due diligence on potential targets, which she constantly refines. "In our case I see it as an important part of my role to be M&A ready, with a small 'A Team' working on it."
One of her tests to gauge how well Suncorp and a potential merger partner might mesh is what she calls the "strawman hypothesis", where she looks at the merged entity and determines the best underlying information architecture for the merged business. If that back-to-basics analysis determines that the current Suncorp information systems are still appropriate, then it greatly reduces the risk and increases the comfort factor associated with the plan.
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