Due Diligence
Every day Chief Information Officers, venture capitalists, technology vendors – and everyone that buys and deploys information technology – confront strategic and tactical technology acquisition, investment and research and development challenges. Should Starbucks continue to invest in technology-based initiatives to attract more customers? Should Wal-Mart continue to invest heavily in radio frequency identification (RFID) technology? Should a private equity fund spend money on a broadband communications company or a software development company? Should Rohm and Haas, a global specialty chemical company, implement a standard financial reporting system? Should Microsoft build a suite of large scale enterprise applications to challenge those offered by SAP and Oracle?
Due diligence is the formal term for the process by which we screen and select options. It’s organized around a set of constant criteria that can be applied to technology investment decisions of all kinds. The investment targets include everything from software applications, personal computers (PCs), laptop computers, cell phones, personal digital assistants (PDAs), communications hardware and software, data, security and technology services. The lenses used to vet investment opportunities and challenges are organized around the specific requirements that all technology investors – including especially CIOs, VCs and technology vendors – need to satisfy to achieve their objectives.
There are differences among the due diligence that occurs within a company to acquire or deploy technology versus investors seeking a return on their technology investment, and companies trying to develop technology products and services for sale to existing and new customers. It’s not that the evaluation criteria are different; in fact, they’re amazingly similar. The differences can be found in how the criteria are weighted and analyzed.
There’s also a difference among the targets of due diligence. Technology comes in multiple flavors: hardware, software and services. The evaluation of each of these flavors requires a different perspective (in addition to the different perspectives that arise from the source and object of the technology investment). Finally, of course, there are differences in the impact the technology is expected to have. Private equity venture capitalists want to make as much money as they can – as quickly as they can – for their general and limited partners. CIOs want to improve operating efficiencies while contributing to the growth and profitability of the business. Technology vendors want to discover and build the next “killer app” so they can capture more market share.
Here are fifteen criteria that apply to all technology investments – regardless of where you sit or the nature of the deal:
Products and services that are on the Right Technology/Market Trends Trajectory
Products & Services that Have the Right Infrastructure Story
Products & Services that Sell Clearly into Budget Cycles & Budget Lines
Products & Services Whose Impact Is Quantitative
Products & Services that Do Not Require Fundamental Changes in How People Behave or Major Changes in Organizational or Corporate Culture
Products & Services that, Whenever Possible, Represent Total, End-to-End "Solutions"
Products & Services Should Have Multiple "Default" Exits
Products, Services & Companies that Have Clear Horizontal & Vertical Strategies
Products & Services that Have High Industry Awareness Recognition
Products, Services & Companies that Have the Right Technology Development, Marketing & Channel Alliances & Partnerships
Products & Services that Are "Politically Correct"
Serious People Recruitment and Retention Strategies Should Be in Place
Products and Services that Have Compelling "Differentiation" Stories
Company Executives that Have Wide and Deep Experience
Products and Services Companies that Have Persuasive Products/Services "Packaging" & Communications.
These fifteen clusters of questions and issues constitute the framework I use to examine technology investments of all kinds on behalf of a variety of clients The three flavors of due diligence along with the criteria appear below
Criteria are scored and weighted to provide greater insight into the prudence of specific technology investment opportunitiesHere’s a checklist of items that together comprise the template that I use to conduct due diligence analyses:
What are You Buying?
Software Applications
Data, Information, Content & Knowledge
Communications
Security
Infrastructure
Technology Services
Advanced Technology
What Impact are You Seeking?
Internal Efficiencies
Operational Impact
Strategic Impact
Market Share
Competitive Positioning
Revenue
Profit
Acquisition
Public Offering
How are You Organized?
Balanced Team
Technology Expertise
Organization Expertise
Management Expertise
Sales & Marketing Expertise
Optimal Consultants
Schedule
Access
Timing
Business Case Organization
Who
When
Format
Execution
Define Due Diligence Criteria
Right Technology Trend?
Low Infrastructure Requirements/Low Change?
Aligned Budget Cycle?
Quantitative Impact?
Small Changes to Process & Culture?
End-to-End “Solution”?
Multiple Defaults?
Horizontal/Vertical Stories?
High Industry Awareness?
Right Partnerships & Alliances?
“Politically Correct”?
Recruitment/Retention Strategies?
Differentiation?
Good Management?
Packaging & Communications?
Weight, Score & Total Due Diligence Criteria (Weight 0 1.0; Score 1 – 10; Total Weight X Score)
Business Case Development
Investment
No Investment
Seek More Information
This template is summarized in a visual below.
(Click this link to download a printable version of the due diligence template.)
