Navigating Software Technical Due Diligence: Key Aspects and 7 Emerging Trends
In the dynamic and ever-changing realm of business dealings, the importance of technical due diligence has escalated significantly. As businesses aspire for expansion, ingenuity, and longevity, the imperative to evaluate the technical facets of potential ventures or collaborations has never been more pronounced. Technical due diligence stands as a critical process in managing risks, identifying opportunities, and ensuring the triumph of transactions in today’s intricate business landscape.
Since the enactment of the Securities Act of 1933, due diligence has been indispensable, particularly in M&A transactions. Shockingly, statistics reveal that a staggering 70% of M&A deals fail to realise their anticipated synergies. Within this context, technology due diligence holds a pivotal role in discerning potential synergies between acquirer and target entities. However, studies indicate that a significant portion of M&A transactions fall short of achieving their intended objectives. By meticulously conducting due diligence, organisations can uncover concerns regarding technological compatibility and potential hurdles that could hinder the realisation of synergistic benefits.
Why Technical Due Diligence Matters in Software Systems
In today’s digitally-driven landscape, software systems play a pivotal role in the operations of businesses across industries. However, they also bring forth a host of potential risks and challenges. One such challenge is the prevalence of software failures, which can have profound impacts on business operations and financial outcomes. For instance, a study by Tricentis found that software failures cost the global economy an estimated $1.7 trillion in financial losses in 2021 alone. These failures can result in downtime, disrupting critical processes and services, and leading to productivity losses. Moreover, software inefficiencies, such as slow performance or lack of scalability, can hinder business agility and growth. According to a report by Dynatrace, 74% of organisations experience performance-related issues in their software applications, impacting customer experience and satisfaction.
The consequences of software failures and inefficiencies extend beyond operational disruptions to financial repercussions. Research by the Consortium for IT Software Quality (CISQ) revealed that software defects cost the U.S. economy an estimated $2.84 trillion annually, with each software defect costing an average of $1.13 million to remediate. Furthermore, software security breaches pose significant financial risks, with the average cost of a data breach reaching $4.24 million globally, according to IBM’s Cost of a Data Breach Report.
Given the substantial impact of software failures and inefficiencies on business operations and financial outcomes, conducting technical due diligence specifically for software systems is imperative. By thoroughly assessing the code quality, system architecture, security protocols, and performance scalability of software systems, organisations can identify and mitigate potential risks early in the due diligence process. This proactive approach not only helps safeguard investments but also enhances the likelihood of successful outcomes in software-related transactions. Additionally, technical due diligence enables organisations to align software capabilities with business objectives, optimise resource allocation, and drive innovation, ultimately bolstering their competitive advantage in the market.
Key Aspects of Technical Due Diligence in Software Systems
In the realm of software systems, conducting technical due diligence entails thorough assessments across various key aspects to ensure robustness, reliability, and alignment with business objectives.
Code Quality Assessment
Assessing code quality is paramount as it forms the foundation of software reliability and performance. Poor code quality can lead to a plethora of issues, including bugs, system failures, and maintenance challenges. Code reviews, testing methodologies, and adherence to coding standards are essential practices to maintain high code quality standards, ensuring the stability and longevity of the software system.
System Architecture Evaluation
Evaluating the architecture of software systems is crucial for scalability, performance, and maintainability. Architectural flaws can impede the system’s ability to handle increased workload or adapt to evolving business needs. Assessing the alignment of system architecture with current and future scalability requirements is essential to ensure that the software system can grow seamlessly alongside the organisation.
Security and Compliance Review
Security and compliance assessments are critical components of technical due diligence. Security breaches and non-compliance with regulations can have severe repercussions, including financial losses, reputational damage, and legal penalties. Evaluating security measures, data protection mechanisms, and regulatory adherence helps mitigate risks and ensures that the software system meets industry standards and legal requirements.
Usability and User Experience Analysis
Usability and user experience are integral aspects of software systems, impacting user satisfaction, productivity, and support costs. Poor usability can lead to user frustration and decreased adoption rates. Conducting usability testing and gathering user feedback during the due diligence process enables organisations to identify usability issues early on and prioritise enhancements to optimise the overall user experience.
Case Study: Illustrating the Impact of technical app due diligence
In our technical app due diligence services at Devision, we employ a comprehensive approach to assess various aspects of our clients’ applications, ensuring robustness, scalability, security, and efficiency. Here’s an overview of the general practices we follow:
Design & Architecture
We conduct a thorough review and analysis of the existing application architecture, including its components, communication patterns, and scalability.
Our team evaluates the security aspects of the application architecture to identify potential vulnerabilities and risks.
Technology & Tools
We audit the technology stack used in the application and review libraries, tools, and their versions to ensure compatibility and security.
Our experts analyse code quality, adherence to best practices, and test coverage across backend, frontend, and mobile components.
Database
We review the existing database structure and assess its scalability, security, and adherence to best practices.
Our team evaluates the security measures in place for storing and managing sensitive data within the database.
Infrastructure
We review the existing infrastructure setup for development, testing, and production environments.
Our team conducts scalability and security analyses of the infrastructure, ensuring resource optimisation and access control.
Processes
We review the existing development process, source control processes, and CI/CD processes to streamline workflows and enhance efficiency.
Our experts identify areas for improvement and provide recommendations for optimising development and deployment processes.
Deliverables
Our deliverables include a detailed report with the outcome of all activities, including a score (on a scale of 1-5) for each criterion and a total score for the entire application.
We provide recommendations for improvements and specific actions for each section, along with a plan or roadmap for implementation.
Now, let’s delve into a specific case study that illustrates how we applied these practices to address the challenges faced by one of our clients, Securly.
Case Study: Transforming FlexTime Manager for Eduspire Solutions (now Securly)
Eduspire Solutions faced a critical need to modernize their product, FlexTime Manager, in order to accommodate high-quantity scaling while maintaining a manageable cost structure. The existing monolith application was struggling with scalability issues, unable to support the increasing user load, which led to stability and performance challenges.
To address this challenge, our team conducted a comprehensive audit of the existing application. Subsequently, we proposed a modern solution leveraging microservice architecture built on cloud-native technologies. This approach allowed for greater flexibility and scalability, addressing the limitations of the monolithic architecture. Additionally, we redesigned the user interface (UI) to enhance user experience and implemented modern frontend frameworks to improve performance and responsiveness. Simultaneously, backend processes were optimized for scalability and efficiency, ensuring seamless operation even under high loads.
The results of our technical and design interventions were remarkable. The transformed FlexTime Manager was now capable of supporting 10x to 100x growth in user base. The application became more resilient, scalable, and cost-effective, aligning perfectly with Eduspire Solutions’ objectives for their digital transformation journey.
This case study serves as a testament to the tangible impact of modern trends in technical due diligence. By adopting innovative solutions and leveraging cutting-edge technologies, we were able to deliver a transformative solution that not only addressed the immediate challenges faced by Eduspire Solutions but also positioned them for future growth and success.
Through such successful case studies, we demonstrate our commitment to helping clients achieve their business objectives and drive success in their digital transformation endeavours.
Advancing Trends and Essential Tools in Software Technical Due Diligence
The landscape of software development is continually evolving, shaping the trends and tools employed in software technical due diligence. Here’s an overview of the emerging trends and the essential tools driving this field forward.
1. Automation in Code Analysis
The adoption of automated code analysis tools accelerates and enhances the assessment of software systems. Tools like SonarQube and Checkmarx utilise advanced algorithms to scrutinise code quality, detect vulnerabilities, and streamline the due diligence process.
2. Integration of Machine Learning
Machine learning algorithms are transforming code review processes by enabling sophisticated anomaly detection and predictive analysis. Platforms such as TensorFlow and Scikit-learn empower organisations to identify patterns, predict risks, and gain valuable insights into code quality and security.
3. Cloud-based Due Diligence Platforms
Cloud-based platforms like AWS and Microsoft Azure are gaining prominence in software technical due diligence. Offering centralised document management and collaboration capabilities, these platforms facilitate seamless communication and collaboration among stakeholders, thereby enhancing the efficiency of due diligence processes.
4. Security Assessment and Compliance Tools
Specialised tools such as Nessus and Qualys play a crucial role in evaluating the security posture of software systems and ensuring compliance with regulatory requirements. Conducting vulnerability scans, penetration tests, and security audits, these tools help identify and remediate security weaknesses, safeguarding against cyber threats and data breaches.
5. Open Source Software (OSS) Scanning
With an increasing emphasis on managing risks associated with open source dependencies, OSS scanning tools are becoming essential. Tools like Black Duck and Snyk aid organisations in identifying and mitigating security vulnerabilities and licensing issues, ensuring the security and compliance of software systems.
6. Focus on Data Privacy and Compliance
The growing stringency of data privacy regulations underscores the importance of compliance management tools. Solutions such as Veracode and Fortify automate compliance assessments, monitor regulatory changes, and generate compliance reports, enabling organisations to adhere to legal requirements and mitigate compliance risks effectively.
7. Usability Testing and User Experience Evaluation
Recognizing the pivotal role of user experience, organisations are increasingly investing in usability testing platforms. UserTesting and UsabilityHub facilitate user research, conduct usability tests, and gather user feedback, enabling organisations to identify usability issues and enhance the overall user experience of their software products.
Incorporating these emerging trends and leveraging the corresponding tools enables organisations to conduct comprehensive software technical due diligence. By identifying risks, ensuring compliance, and enhancing user experience, organisations can drive the success of software projects and achieve sustainable growth in today’s dynamic environment.
Conclusion
In conclusion, technical due diligence plays a pivotal role in ensuring the success and longevity of software systems. It serves as a proactive measure to mitigate risks, enhance security, and optimise usability, thereby safeguarding the interests of businesses and their stakeholders.
Throughout the due diligence process, several key aspects warrant thorough consideration. Code quality assessment is essential to ensure the reliability and maintainability of the software, while evaluating system architecture helps gauge scalability, performance, and alignment with business objectives. Security and compliance reviews are crucial to safeguard sensitive data and ensure adherence to regulatory standards. Additionally, usability testing and user experience evaluation ensure that the software meets the needs and expectations of its intended users, ultimately driving user satisfaction and adoption.
Given the ever-evolving landscape of technology and the increasing prevalence of cyber threats and regulatory scrutiny, businesses must prioritise technical due diligence. By doing so, they can effectively identify and address potential vulnerabilities, compliance gaps, and usability issues early in the development lifecycle. This proactive approach not only minimises the likelihood of costly setbacks and security breaches but also maximises the potential for achieving business objectives and delivering value to customers.
In conclusion, by investing in comprehensive technical due diligence, businesses can confidently navigate the complexities of software development, mitigate risks, ensure compliance, and optimise the usability and effectiveness of their software systems, positioning themselves for sustained success in an increasingly competitive marketplace.