THE DATAFLOWS APPROACH TO DUE DILIGENCE

INTRODUCTION

In analyzing whether a particular technology fits your business needs, it is important to understand where that technology is in its evolution and how that stage fits your corporate environment. Conducting due diligence requires that you have a clear and accurate understanding of two subject matter areas:

1. the targeted business application
2. the maturity of the technology

The purpose of conducting due diligence is to either help a company justify a particular technology, or show why it is not appropriate for a given application. The due diligence process incorporates all information germane to the application and the technology and makes it possible to accurately project a company's degree of risk and estimate its return on investment for that particular application.

This section presents an overview of the information you would need to acquire in order to conduct a thorough due diligence. In the Landscape section, we describe the environment in which a given technology typically evolves. We do this by describing the technology producers, users, standards bodies, and sociopolitical issues, along with their roles and their interactions with each other.

At the end of this section, we present DataFlows Technology Stages in a format that might be applied to any technology. Identifying at what stage a particular technology is in its evolution to full maturity is critical to completing your due diligence.

EXPECTATIONS OF A DATAFLOWS DUE DILIGENCE

The following list includes the factors studied when DataFlows assists a CTO in conducting due diligence for a particular technology. The final result of due diligence is to support the CTO in proposing a particular technology to a company's executives or board, to modify a business plan, or to help a CTO explain why this technology is not suitable to the application being studied.

Due diligence evaluates the company's direction relative to:

• the selection of a particular technology to support the targeted business application
• projected improvements anticipated
• impact on various entities internal and external to the company
• maturity of the technology relative to the company's readiness
• the company's resources (qualifications, availability, constraints)
• the company's contracted specialists
• application design, work process and dataflows extraction
• status of standards
• standards compliance
• regulatory requirements
• supplier interface
• supplier specifications
• interoperability
• potential for integration horizontally and vertically
• opportunities to deploy sooner, later, or differently than proposed
• accuracy of projected costs
• accuracy of projected ROI (application specific)

TECHNOLOGY LANDSCAPE

Technology Producers and Manufacturers

Technology producers and manufacturers are those who design, develop, and manufacture the technology. The design and development phases are usually carried out in academic or corporate research and development facilities. It is at this stage that the first prototypes are usually developed and tested. The manufacturers may or may not have designed or developed the original prototypes.

Sometimes serendipitous discoveries come out of left field, but even when they do, the sequence of development follows the same general pattern. Even when a technology or new product captures an entire market seemingly overnight, its stages of development are simply consolidated and accelerated, but not circumvented.

Technology Users

By technology users, we are referring to the companies (as opposed to consumers) that see opportunities to improve their profitability by incorporating sensor technology (e.g., RFID, GPS, biometrics, MEMS, sensor networks) into their business applications.

Standards Bodies

Depending on the technology, different groups of standards bodies are responsible for working out agreements for certain aspects of how the technology operates. Standards bodies may be international or domestic.

Sociopolitical Issues

Depending on the technology and how it is incorporated into various business applications, a number of issues related to such areas as privacy and profiling, and public health and safety can arise. The general public's reaction to those issues can influence how technology users may demand changes to the operation and/or use of the technology in order for the technology to gain acceptance. If the public doesn't see any threat on the immediate horizon, issues may still crop up later, and be pushed through to the technology users by the legislative process.

It typically takes quite some time for the judicial process to catch up to threats to citizens' rights from technology. (Example: It took a major effort to outlaw video voyeurism, which is still not outlawed in all states.) Examples of organizations that influence, or are influenced by, sociopolitical issues include regulatory agencies, consumer organizations, and human rights organizations.

INTRODUCING TECHNOLOGY AT THE RIGHT TIME

Identifying the right time to introduce a new technology is critical to your business's investment. The more effectively you integrate the appropriate technologies at the right time, the better your bottom line results will be.

Three key factors to consider in determining the right time for your own company are:

1. the maturity of the technology
2. your company's readiness for the technology
3. your company's strategic objective with respect to technology investment

Your Company's Readiness Profile

Assessing your company's readiness does not result in a yes/no answer regarding whether you should use a particular technology. Rather, it results in identifying the factors in your company that should influence your decisions in choosing the best possible approaches to adopting the technology.

Some factors that will influence your approach to the technology are as follows:

• Core business functions. Is your company one in which work functions are appropriately addressed by sensor technologies (e.g., supplier chain functions, security access control, biohazardous materials management)? Does your company sell a product that requires physical distribution? What major work functions are integral to your company's ROI?
• Core talent pool. Is the expertise in your company mostly engineering/scientific/high-tech? Or is it financial, marketing, or other?
• Core culture. Is technological innovation a key company value? Are employees comfortable with technology: its terminology, its flux, its promise for improvements, its glitches and challenges?

The description of each of these profile areas would lead you to different decisions regarding whether to:

• develop a custom design versus an off-the-shelf design
• outsource all or part of the application development versus use in-house employees
• deploy the technology early enough in its development that you could influence its standards versus waiting until the technology is more mature
• deploy the technology early in its evolution because of the high potential for it to improve your company's operations and ROI

STANDARD TECHNOLOGY STAGES - DataFlows' Perspective

The DataFlows Technology Stages table identifies activities, sequences, and attributes that are typical in the evolution of a technology. The stages suggest the optimal confluence of a CTO's company application and the stage at which a technology is in its development. At its simplest, these confluence points identify whether it is in a company's best interest to get in on the ground floor of a new technology (due to the high potential for the technology's benefit to outweigh the higher investment in terms of money and resources), or to wait.

Stage 1: Technology Concept Description: The lightbulb moment - someone imagines how a specific technology breakthrough might be used for, or someone struggles with solving a particular problem and says, "If only I could buy an an XYZ, that would fix the problem," thus launching a technologist's applied research to invent XYZ.
Environmental Attributes	CTO's Perspective
• Entrepreneurial or research facility • No preexisting limitations or constraints on the technology's operational environment	At this stage, a CTO would be aware or suspect that such a technology is on the drawing boards only through professional associations, trade journals, and personal contacts within the industry. A CTO would begin hypothesizing about the technology's impact on his or her company. Questions a CTO asks at this stage: 1. Would this technology address any business problems or provide new business opportunities for my company? 2. What is the status of standards drafts and time frame of future drafts? 3. How big is "mainstream" (beyond my company's) interest in the concept?

Stage 2: Technology Feasibility Analysis Description: i) Design component and system architectures (on paper only), ii) Build system prototype; find or custom-build components, iii)Test prototype
Environmental Attributes	CTO's Perspective
• Research Lab • May take place in actual external situations (outside the lab) but would be still under fairly strict control in terms of number of variables to which the components and system are exposed. • Components are mostly custom developed, not mainstream available • Organization bodies such as UCC, EAN, ISO begin to study and take ownership of potential standards process	At this stage, a CTO might choose to participate in feasibility analysis if the technology has strong obvious relevance to the company's business operations. Questions a CTO asks at this stage: 1. At what stage is standards development – how long is it taking for first drafts to be published? (Longer time indicates that there may not be sufficient momentum yet – may never be – to get this technology off the ground.) 2. What other components are involved in interoperability with this technology? 3. In what generation are the components that are required for interoperability?

Stage 3: Alpha Pilots Description: Pilots with third generation prototypes that use components and systems developed by a few select mainstream components and system producers (e.g., Texas Instruments in RFID) in very specific and limited end-user company situation. Process is very similar to Phase 2, in that intent is to further expose any implementation issues. First version of standards have been drafted and submitted for ratification.
Environmental Attributes	CTO's Perspective
• Wider range of business application environments • Multiple component and system providers used in the same application • Existing and newly formed standards bodies identify ownership and responsibilities for relevant standards development	CTO might decide to develop a test pilot at one of their facilities provided the technology has a strong relevance to the company’s business operations. (It’s a question of degree of relevance balanced against the cost of the pilot.) Questions a CTO asks at this stage: 1. How does one vendor's product differ from another – which feature set best matches our requirements? 2. Which vendor has the best upgrade policy? 3. What new lessons learned appeared with the broader base of business applications, and are any of those lessons applicable to our company? 4. What is the cycle time between standards definition drafts? Version 2 should be drafted and proposed.

Stage 4: Beta Pilots Description: Broad distribution of technology into similar business environments and CTOs with pilots underway are expanding to broader (more mainstream) deployment in their operations. First version of standards has been ratified.
Environmental Attributes	CTO's Perspective
• Harsh environmental conditions • Feature set changing rapidly	At this stage, most companies that depend heavily on the type of business application targeted by the technology can assume with a measure of confidence that the technology has been proven in by alpha pilots at other companies. CTOs outside the original target market whose previous business case analysis indicated potential application of the technology but couldn’t prove it in should reevaluate based on latest price points. Questions a CTO asks at this stage: 1. How similar are the business applications to my own? How are they the same and how are they different? 2. Do the differences pose any unique challenges to applying the technology in my environment? 3. Do the harsher environmental conditions meet my operational situations? 4. Does employing the technology affect my existing interfaces to other business? Do I need to begin negotiating with them regarding this technology?

Stage 5: Standard Pilots Description: Version 3 or 4 of the published ratified standards and generation 3/4 of the architecture components are readily available, typically from several vendors.
Environmental Attributes	CTO's Perspective
• Harsh environmental conditions	CTOs who had not previously identified this technology (unable to justify the technology expense/investment) as relevant in their environment should reconsider based on new component price points. Questions a CTO asks at this stage: 1. Has the standard stabilized? 2. Are there risks to my business resulting from competitors' adoption of the technology?

Stage 6: Mainstream Operation Deployments Description: Enhancements of components and systems to differentiate various technology producer vendors, attempting to solidify their market share; shakeout of winners and losers.
Environmental Attributes	CTO's Perspective
• Work in any appropriate environment • Multiple competing component/system vendors; therefore, prices are dropping.	CTOs who had not previously identified this technology (unable to justify the technology expense/investment) as relevant in their environment should reconsider based on new component price points and feature set combinations. Questions a CTO asks at this stage: Which vendors product has the features that best meet my applications requirements? Plus simliar question as raised in Stage 5

Stage 7: Technology Reaches Commodity Price Levels Description: Either components are now in the commodity price range or a single vendor has control of the market and pricing. Enhancements and/or improved manufacturing costs keep various component vendors on the leading edge of competition.
Environmental Attributes	CTO's Perspective
• Work in any appropriate environment • Multiple competing component/system vendors;	Same as for Stage 6.

Contact DataFlows to discuss your company's need for due diligence.

information@dataflows.com.