The Due Diligence Process

As suggested in the preface, due diligence is a process designed to reduce uncertainty and increase the likelihood of productive investments. The focus here is on technology due diligence, or the process by which technology investment decisions are vetted to maximize impact and reduce risk. Research around technology due diligence is sparse. There are only a few analyses and case studies that look at the nuances of due diligence generally and technology due diligence specifically. A literature review reveals very few formal analyses of the overall process, though there are some useful sources, such as Gordon (1996), Harvey and Lusch (1995), Lajoux (2000), Perry and Herd (2004); a few on portfolio management, such as Weill and Aral (2006), and macro trends in business technology (Andriole, 2005). Some analyses have been applied to venture capital due diligence (McGrath, Gunther, Keil, & Tukiainen, 2006), and some in the much larger context of business technology alignment (Prahalad & Krishnan, 2002). As noted in the Preface, very few have focused on technology due diligence. None have focused on technology due diligence from the three intersecting perspectives discussed here. The most relevant discussions for this book focus on merger and acquisition (M&A) due diligence, such as Cullinan, LeRoux, and Weddigen (2004), Breitzman and Thomas (2002), Bing (1996), Lajoux and Elson (2000), Howson (2003), and Perry and Herd (2004). Others focus on venture investing and the due diligence process that some venture capitalists apply (Camp, 2002; Zacharakis & Meyer, 1998). Still others focus on very specific aspects of due diligence—like patents (Panitch, 2000) and, as noted above, very few focus on technology due diligence (Marlin, 1998). This chapter discusses technology due diligence. It first describes the criteria that can be used by Chief Information Officers (CIOs), Chief Technology Officers (CTOs), hardware and software vendors, and venture capitalists (VCs) to vet alternative technology decisions. It then turns to the processes by which due diligence projects can be organized.