Showing posts with label due diligence. Show all posts
Showing posts with label due diligence. Show all posts

Monday, December 22, 2014

If you sue your vendor, who loses ?

The project had all the trappings of success beyond belief; everyone was of the opinion that this would be the project that will change the way the industry uses IT, at least for this specific use case. The vendor proclaimed success in the global markets with large companies and leaders in the industry. Published case studies were flourished and accepted on face value. The CEO claimed to know a member of the board which added to the halo around the company and derived credibility; and thus the high cost project got off to a ceremonial start.

A team of business users were dedicated to the project along with IT; the vendor CEO himself ran the workshops and requirement gathering. He almost knew the subject and talked the language of the business; any shortfalls were disguised under the barb of the users’ ignorance of global trends. He churned out voluminous and complex documents that did not really say a lot and thus remained under discussion and clarification for a long time. Timelines started slipping as he rebuked the users for lack of participation.

Soon everyone wanted to get busy with other work and not be part of the project that had serious communication challenges. Team members wanted to get off and pleaded to their managers to get back to their previous roles. With withering participation evidence continued to stack up against the business with no sign-offs while payments to the vendor continued as per milestones which according to him were achieved. No one challenged the situation afraid to upset the board member with whom the CEO claimed be chummy.

The board member was involved in the project during inception but had gotten off the team somewhere in the middle of the journey after he saw the flamboyant display of expertise. He believed the project was in safe hands and functionality appeared transformative. By the time the noise filtered through to him it was crisis time. He reviewed the situation and was aghast by what he saw; the project appeared irrecoverable and the blame game pointed fingers everywhere. The vendor threatened to stop work and sue for recovery of dues.

A senior member was appointed to review and assess the situation; his maturity and balance were the strengths which were the hallmark of a seasoned professional. He reviewed past credentials of the vendor, current team members from both sides, process of engagement, documentation, project plan, communication, minutes of meetings, allegations on both sides, and deliverables received thus far. He engaged an independent technology consultant to review the efficacy of technology architecture, and solution delivered thus far.

The vendor’s company really had no past or for that matter employees in any number to talk about. It was almost a one man team and his Secretary who had worked on the projects which he had claimed against his name, though only as an external consultant to another company. Effectively there was no depth in the company that made lofty claims on global case studies. The relationship with the board member was barely an acquaintance; no one had really asked the board member about the level of camaraderie and assumed rather than risk asking.

The documentation was sketchy and inadequate, technology framework in line with generally accepted industry trends, the solutions delivered partially useable specific use cases. Users had not read through the volumes that described the process automation and functionality; their ignorance evident in the remarks and clarifications. Compliance to schedule of meetings and reverts was far from satisfactory thereby leaving gaps which were exploited by the vendor to his advantage. The absence of business leadership in the project was glaring.

The vendor sued for un-cleared dues and the company sued for non-delivery; compromise was ruled out. They decided to go into arbitration lasting over 3 years; in the interim neither could use the limited solutions created. Business continued to use their legacy solution while the vendor CEO had collected many times the value of the deliveries made. The industry continued to evolve with newer solutions whereas the leadership step taken by the company failed to bring any benefit because of lack of due diligence, ownership and perceptions of team members.

The above case is based on reality though has been exaggerated for impact. Suing each other kept everyone with a bad taste and frustrated experience. With passing time the relevance faded away and it appeared to be a futile exercise. A collective failure that could have been averted easily ! When customers sue their vendors or vice versa, what is the cost of a win to either ? Time, effort and opportunity loss cannot be easily quantified especially when the industry is evolving at a rapid pace. It is better to break free and move on !

Tuesday, October 12, 2010

Doing business with startups, due diligence and lessons

Every CIO gets many calls from startup IT companies wanting to bounce their million dollar idea—to seek the CIO’s advice and understand whether it makes sense in the enterprise. Some of these are self-funded, while a few may have angel investors or private equity already in place for growth. The steady growth of such small startups in the recent past has created an interesting problem for the CIO. Why is it a problem?

In quite a few cases, there is not much to differentiate one startup from the other. So how does the CIO separate the chalk from cheese? What is the due diligence required before getting these vendors on board?

A majority of these startups are seeded in institutes like IIT and IIM (globally pertinent equivalents may be the Silicon Valley or MIT kind of institutes), where the idea takes shape fuelled by the entrepreneurial bug. Most such ideas take a while before they gain traction with their target audience. These are the real gems, and being an early adopter of such startups provides an immense advantage.

Having worked with a few such companies, I realize that it does take a lot of effort to get the product/service aligned to enterprise processes and direction. As the first or amongst the first few customers, the value proposition is almost always attractive. Their reference checks largely depend on their mentors (professors or others) who are able to provide the details behind their continued support to the new entity.

The second category of startups comprises breakaway groups from existing companies, where a group of people have decided that their ideas have higher value than what they currently see within a large entity. This group typically specializes in services for a specific technology, domain or application. Such companies do well to begin with as they are patronized by existing customers (supported by them) who see a price advantage with a smaller startup. Such entities pass the tipping point within 12-18 months by either reaching a steady state, or falling apart. The due diligence is thus largely dependent on the team’s leader and its past track record as they continue to offer similar services.

A variant of the second category is a group being lured by an investor who believes that unlocking the potential has good upside for everyone. The service offering is thus no different from the above. A private equity institutional player invests in existing entities that needs funds to scale up or laterally, but in this case the carving out was initiated by the investor. How does one ensure that the entity will survive and make it to the tipping point? The team comes with impeccable credentials; the unknown factor is the investor who may pull the plug. In such a case, it is critical to conduct diligence on the investor and his past track record. Search engines come to your rescue in such cases, as past footprints cannot be obliterated.

Either way, put in safeguards to protect your enterprise’s interests with financial, legal or even escrow accounts to address sudden disruption. Work with your legal team for once, ask all the questions even if they make the other queasy; at least you will be able to sleep with ease.