OPERATIONS Due Diligence An M&A Guide for Investors and Business JAMES F GREBEY New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto Copyright © 2012 by James F Grebey All rights reserved Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher ISBN: 978-0-07-177851-0 MHID: 0-07-177851-9 The material in this eBook also appears in the print version of this title: ISBN: 978-0-07-177761-2, MHID: 0-07-177761-X All trademarks are trademarks of their respective owners Rather than put a trademark symbol after every occurrence of a trademarked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the trademark Where such designations appear in this book, they have been printed with initial caps McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales promotions, or for use in corporate training programs To contact a representative please e-mail us at bulksales@mcgraw-hill.com This publication is designed to provide accurate and authoritative information in regard to the subject matter covered It is sold with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, securities trading, or other professional services If legal advice or other expert assistance is required, the services of a competent professional person should be sought —From a Declaration of Principles Jointly Adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations TERMS OF USE This is a copyrighted work and The McGraw-Hill Companies, Inc (“McGrawHill”) and its licensors reserve all rights in and to the work Use of this work is subject to these terms Except as permitted under the Copyright Act of 1976 and the right to store and retrieve one copy of the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon, transmit, distribute, disseminate, sell, publish or sublicense the work or any part of it without McGraw-Hill’s prior consent You may use the work for your own noncommercial and personal use; any other use of the work is strictly prohibited Your right to use the work may be terminated if you fail to comply with these terms THE WORK IS PROVIDED “AS IS.” McGRAW-HILL AND ITS LICENSORS MAKE NO GUARANTEES OR WARRANTIES AS TO THE ACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUDING ANY INFORMATION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTHERWISE, AND EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE McGraw-Hill and its licensors not warrant or guarantee that the functions contained in the work will meet your requirements or that its operation will be uninterrupted or error free Neither McGraw-Hill nor its licensors shall be liable to you or anyone else for any inaccuracy, error or omission, regardless of cause, in the work or for any damages resulting therefrom McGraw-Hill has no responsibility for the content of any information accessed through the work Under no circumstances shall McGraw-Hill and/or its licensors be liable for any indirect, incidental, special, punitive, consequential or similar damages that result from the use of or inability to use the work, even if any of them has been advised of the possibility of such damages This limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or otherwise To Winnie above everything else This page intentionally left blank PREFACE IX ACKNOWLEDGMENTS XIII PART ONE PLANNING YOUR ASSESSMENT Chapter Due Diligence What Is Due Diligence? Self-Assessment as a Management Tool How Do You Score the Assessment Questions? 13 The BS Quotient 15 10 Chapter The Due Diligence Process 19 Planning for Discovery 21 Nondisclosure Agreements 23 On-Site Assessments 25 Virtual Deal Rooms 28 Assessment Reports 30 Chapter Infrastructure Assessment Areas 35 Operations Infrastructure Areas 35 Operations Transaction Points 38 v Downloaded by [ Singapore Polytechnic Library 85.244.23.165] at [05/05/18] Copyright © McGraw-Hill Global Education Holdings, LLC Not to be redistributed or modified in any way without permission C O N T E N T S PART TWO EXPLORING IN DEPTH 41 Chapter Assessment of the Customer Satisfaction Infrastructure 43 Customer Satisfaction as a Competitive Discriminator 45 Customer Satisfaction Metrics 49 Human Factors Engineering 50 Product Specifications 52 Evolutionary Development 54 Product Testing 56 Product Support 64 Product Training 68 Summary of the Customer Satisfaction Infrastructure Questions 69 Chapter Assessment of the Production Infrastructure 73 Product Development and Production 74 Product Life Cycle 77 Product Development and Production Risks 81 Third-Party Products 81 Summary of the Production Infrastructure Questions 83 Chapter Assessment of the Information Management Infrastructure Information Management System Design 86 Information Security 88 Information Management Network Usage Policy 88 Baseline Control 90 Software Tool Licenses 91 Development and Production Tools 92 Disaster Recovery and Business Continuity 93 Communications Systems 95 Summary of the Information Management Infrastructure Questions 96 85 Downloaded by [ Singapore Polytechnic Library 85.244.23.165] at [05/05/18] Copyright © McGraw-Hill Global Education Holdings, LLC Not to be redistributed or modified in any way without permission CONTENTS vi vii Chapter Assessment of the Sales and Marketing Infrastructure Marketing 101 Market Awareness 103 Contact Management System 107 Market Analysis 107 Strategic Planning 109 Product Management 111 Sales 113 Summary of the Sales and Marketing Infrastructure Questions 119 99 Chapter Assessment of the Organizational Infrastructure 123 Command and Control Structure 125 Corporate Culture 132 Virtual Environments 136 Ethics 139 Physical Safety and Security 142 Summary of the Organizational Infrastructure Questions 143 Chapter Assessment of the Personnel Infrastructure 145 Employee Benefits 147 Employee Compensation 149 The Business-Employee Relationship 151 Fair Employment Practices 152 Hiring, Firing, and Everything in Between 153 Employee Value and Quality 161 Job Placement 162 The Hero Employee 164 Employee Motivation 165 Employee Stability 166 Employee Training 168 Summary of the Personnel Infrastructure Questions 171 Downloaded by [ Singapore Polytechnic Library 85.244.23.165] at [05/05/18] Copyright © McGraw-Hill Global Education Holdings, LLC Not to be redistributed or modified in any way without permission CONTENTS CONTENTS Chapter 10 Assessment of the Financial Infrastructure 175 Financial Authority and Responsibility 177 Operations Linkages to the P&L, Balance Sheet, and Cash Flow Reports 179 Program or Project Management 187 Operations Reviews 192 Labor Rate Calculations 193 Product Warrantees and Guarantees 194 Prescheduled Growth 195 Employee Ownership and Options 195 Banking 196 Summary of the Financial Infrastructure Questions 197 Chapter 11 Assessment of the Legal Infrastructure 201 Contracts, Agreements, and Other Binding Documents Legal Signature Authority 205 Government Contracts 207 Compliance 209 Intellectual Property 210 Insurance 212 Document Retention Policy 212 Privacy Protection 213 Summary of the Legal Infrastructure Questions 215 204 Chapter 12 Assessment of the Institutionalized Processes 219 Summary of the Institutionalized Processes Questions 228 APPENDIX: REVIEW DOCUMENTS TO BE COLLECTED 231 INDEX 235 Downloaded by [ Singapore Polytechnic Library 85.244.23.165] at [05/05/18] Copyright © McGraw-Hill Global Education Holdings, LLC Not to be redistributed or modified in any way without permission viii Operations Due Diligence has emerged from my personal experiences while working with a wide range of businesses owners, managers, and investors It represents two sides of the same coin It was written as a due diligence guide for investors trying to determine the sustainability of a business, and it also serves as a much needed operations checklist for managers and business owners trying to improve the sustainability of their business It is the result of many hard lessons learned while trying to help these groups grow their businesses I don’t feel that my experiences have been unique My work has been “in the trenches,” tugging, pulling, trying to make things happen Some things have worked, and, I must admit, some have not In some cases, the lesson has been in the form of a mental note: Don’t ever that again There are lots of people working in those same trenches every day They include investors who are trying to figure out how to capture their next opportunity while minimizing their risk and business owners and managers who are struggling to improve their business Operations Due Diligence isn’t an academic dissertation It is a very practical look at what makes businesses operate successfully and a “roll up your sleeves and get to work” approach that will be a useful tool that I hope will help the people in the trenches In 1971, I worked in a shipyard in Pascagoula, Mississippi At that time chess was a resurging fad During lunch breaks the chess boards would be pulled out and the games would begin Everyone was either playing ix Downloaded by [ Singapore Polytechnic Library 85.244.23.165] at [05/05/18] Copyright © McGraw-Hill Global Education Holdings, LLC Not to be redistributed or modified in any way without permission PREFACE PART 2: Exploring in Depth outgrowing its operations infrastructure Toyota’s response to the problem was to look inward and to launch improvements to its operations infrastructure including improving the time engineering has to verify new designs, adding new employee training centers, restructuring its management staff to improve accountability, improving its internal problem reporting and communications, establishing cross-functional review teams, and increasing its safety engineering staff The actions taken by Toyota in response to its safety issues are in stark contrast to the actions taken by the U.S automobile manufacturers in response to their economic issues Toyota, almost instinctively, went to its infrastructure for root cause solutions The cost of these infrastructure improvements probably seems trivial compared to the loss of public confidence in its vehicles By contrast, the U.S manufacturers instinctively looked outward and responded to their problems by launching hybrid and electric vehicle models aimed solely at increasing their market share without making substantial changes to the way they operate their businesses The automobile manufacturers now seem to have reset the competition along the lines of infrastructure development that the U.S manufacturers had previously lost Summary of the Institutionalized Processes Questions Does the business operate in an ad hoc manner, or does it operate in a determined focused manner that it constantly seeks to improve? Does the business routinely document its operational policies and procedures, and is there evidence that employees are following them? Does the business include ERM in its institutionalized methods? Has the business institutionalized the ISO 31000 risk management standards? Does the business follow any formalized methodology such as ISO 9001, CMM/CMMI (ISO/IEC 15504), Six Sigma, TQM, or Lean Manufacturing? Is the business certified in the process methodology for the primary market it serves? Does the business collect process data to support its future cost and schedule estimates? Downloaded by [ Singapore Polytechnic Library 85.244.23.165] at [05/05/18] Copyright © McGraw-Hill Global Education Holdings, LLC Not to be redistributed or modified in any way without permission 228 229 Is the process certification transferable, or will there need to be a new certification assessment conducted after an acquisition? Is the cost to maintain the institutionalized processes included in the budget? 10 Does the business monitor product improvement trends, such as reduced defect rates, to justify the ROI for its process improvement program? 11 How committed is the business to following its institutionalized processes? 12 If the business is in the certification process, how many legacy projects can it qualify, and how long has it been deploying this methodology? 13 Does the business recognize the connection between managing its processes, quality assurance, customer satisfaction, and improved sales, and has it established goals in these performance areas? 14 Does the business have a process improvement group that meets on a periodic basis? 15 Does the business create an annual process improvement plan? 16 Is there a list of the existing documented processes, supporting forms or other data, and evidence that the process is being followed across the entire business? 17 Does the business maintain rigid development standards and defined levels of tolerance for the performance of its products? 18 Is the operations infrastructure sufficient to support the business’s projected future operations? Downloaded by [ Singapore Polytechnic Library 85.244.23.165] at [05/05/18] Copyright © McGraw-Hill Global Education Holdings, LLC Not to be redistributed or modified in any way without permission CHAPTER 12: Assessment of the Institutionalized Processes Downloaded by [ Singapore Polytechnic Library 85.244.23.165] at [05/05/18] Copyright © McGraw-Hill Global Education Holdings, LLC Not to be redistributed or modified in any way without permission This page intentionally left blank Review Documents to Be Collected As part of the due diligence process, the assessment team will request and review a number of operations documents from the business The following list includes a common set of documents to be requested This list should be expanded and contracted as required All effort should be made to identify and review these documents prior to the on-site assessment in order to allow the on-site review to verify that the business complies with its own documentation ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Organization chart Organization mission statements Job descriptions Current and past customer lists Risk management plan and/or process and current data All existing documented processes and historic evidence that they have been followed Ethics policy Performance appraisals for each employee for preceding three years A management team skills matrix and a management team skills arachnid A list of all of the employee benefits offered by the business 231 Downloaded by [ Singapore Polytechnic Library 85.244.23.165] at [05/05/18] Copyright © McGraw-Hill Global Education Holdings, LLC Not to be redistributed or modified in any way without permission APPENDIX ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ A list of all full-time, part-time, and contract employees currently employed by the business or employed by the business within the past three years The personnel file for all employees The performance appraisals for each employee for the preceding three years A list of all employees who are currently on performance notices A copy of each employee’s résumé or CV A copy of all employment contracts A staffing curve showing staff loading over time and explanations for any downturns in relation to the profitability of the business at the time A list by element (salary, bonus, options, and so on) of compensation for each employee for the last three years and a list of all scheduled or promised future compensation Pro forma revenue projections for at least the next three years A breakdown of the loaded labor rates A list of all pending or suspected customer claims based on known product defects A copy of all standard document templates, with those identified that have been through a legal review A list of the captured intellectual property and copies of all existing patents, copyrights, and trademarks A list of all assets the business considers proprietary that have not been captured as intellectual property Software development life cycle process descriptions Engineering design documents and product artifacts Hardware test plans for all products Software test plan for all products Test bug or deficiency logs Customer training plan Employee training plan Compensation plan Sales process Marketing plan Strategic plan Current sales pipeline and lead trend charts Downloaded by [ Singapore Polytechnic Library 85.244.23.165] at [05/05/18] Copyright © McGraw-Hill Global Education Holdings, LLC Not to be redistributed or modified in any way without permission APPENDIX: Review Documents to Be Collected 232 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ 233 List of current customers including contact information for key customers Profit and loss statement Balance sheet Pro forma projections Cash flow statement Capital investment and depreciation schedule Policy on financial authority Copies of the business’s tax returns for the last five years All contracts All insurance policies All present, prior, pending, or potential litigation All strategic agreements All royalty agreements All vendor or reseller agreements All nondisclosure agreements All employment and labor agreements Legal authority policy Document retention policy Data privacy policy Network usage policy Downloaded by [ Singapore Polytechnic Library 85.244.23.165] at [05/05/18] Copyright © McGraw-Hill Global Education Holdings, LLC Not to be redistributed or modified in any way without permission APPENDIX: Review Documents to Be Collected Downloaded by [ Singapore Polytechnic Library 85.244.23.165] at [05/05/18] Copyright © McGraw-Hill Global Education Holdings, LLC Not to be redistributed or modified in any way without permission This page intentionally left blank Accountability of directors, 141 Advertising, 104 e-mail and direct mail, 106 print and electronic, 104 Agile development, 55–56 Agreements, 204–205 Aldrin, Edwin E., 61–62 Amazon.com, American Society of Safety Engineers (ASSE) standards, 221 American United Mortgage Company, 213–214 Apollo 11 mission, 61–62 Armstrong, Neil A., 61–62 Assessment questions: for customer satisfaction, 69–72 for financial infrastructure, 197–200 for information management infrastructure, 96–98 for institutionalized processes, 228–229 for legal infrastructure, 215–217 for organizational infrastructure, 143–144 for personnel infrastructure, 171–174 for production infrastructure, 83–84 response method for, 31 for sales and marketing infrastructure, 119–121 scoring, 13–14 as tools to guide assessment team, 23 uses for, 26–27 Assessment reports, 20, 30–34 Assessment team, 20, 22 Atocha, 19, 20 Authority: financial, 177–179 signature, 205–207 Automobile industry (see U.S automobile industry) Balance sheets, 180–181 Banking, 196–197 Bell curve, 57 Bell Labs, 56 Benefits, employee, 147–149 Blogs, 67 Bluebird revenues, 184 BS Quotient, 15–18 corporate culture and, 134 indicators for, 17 market position assessment and, 108 sales prospect assessment and, 116 Budgets, 184–187 Business-employee relationship, 151–152 Cadillac Automobile Company, 219 Cash flow statements, 181–182 Cash reserve management, 182–184 Castle cultures, 135–136 Change control boards (CCBs), 54 Chief information officer (CIO), 86 Citizenship, 141 235 Downloaded by [ Singapore Polytechnic Library 85.244.23.165] at [05/05/18] Copyright © McGraw-Hill Global Education Holdings, LLC Not to be redistributed or modified in any way without permission INDEX Click-through licenses, 91–92 CMM/CMMI certification, 220–223 Cold starting, 95 Collective bargaining, 150 Collins, Michael, 61–62 Command and control structure, 125–132 Communications systems, 95–96 Community, 141 Compensation, 149–151 Competitive analyses, 109 Competitive discriminators, customer satisfaction as, 45–49 Competitors, due diligence by, 23–24 Compliance, 209–210 Conferences, 105 Confidentiality, 23–24 on-site assessments and, 27–28, 29–30 privacy laws and, 30 Configuration management/data management (CM/DM) systems, 91 Contact management systems (CMSs), 107 Contracts, 204–205 government, 207–209 Corporate culture, 132–136 castle cultures and, 135–136 changes in, 134–135 Cost: as competitive discriminator, 46–47 of employee training, 168–169, 170–171 of hardware tools, 92–93 Cost curve for product development and production, 75, 76–77 Cost variance, 191 Criticality of mission, product reliability and, 60–61 Cross-functional transaction points, 38–39 Customer advocates, 66–67 Customer assessment, 115–116 Customer satisfaction, 43–72 assessment questions for, 69–72 as competitive discriminator, 45–49 evolutionary development and, 54–56 human factors engineering and, 50–51 metrics of, 49–50 product specifications and, 52–54 product support and, 64–68 product testing and, 56–64 product training and, 68–69 training about, 49 Customer training seminars and webinars, 105–106 Data: collected in self-assessment, 27 confidential, 27–28, 29–30 format of, 29 Data holds, 213 Davis, Jacob, 43, 47, 49 Deming, W Edwards, 225, 226 Demonstration products, 75 Direct mail advertising, 106 Director accountability, 141 Disaster recovery, 93–95 Document(s): binding, legal infrastructure and, 204–205 electronic, lifespan of, 29 Document retention policy, 212–213 Dot-coms, Dotted-line organizations, 129–130 Due diligence, 3–18 assessment questions for (see Assessment questions) BS Quotient in (see BS Quotient) by competitors, 23–24 definition of, 4–6 facets of, 5–10 (See also Financial due diligence; Legal due diligence; Operations due diligence) process of (see Due diligence process) self-assessment and, 10–13 Due diligence process, 19–34 assessment reports and, 20, 30–34 on-site assessments for, 20, 25–28 preparation for, 19, 20, 21–23 team conducting, 20, 22 Eagle lunar module, 61–62 Earned value measurement systems (EVMSs), 191 eBay, Edison, Thomas, 3–4, 73 Edison Electric Light Company, 3–4 Edsel, 99–100, 102 Electric power, 73, 79–80 Electronic advertising, 104 Electronic data discovery (EDD), 213 Electronic documents, lifespan of, 29 Downloaded by [ Singapore Polytechnic Library 85.244.23.165] at [05/05/18] Copyright © McGraw-Hill Global Education Holdings, LLC Not to be redistributed or modified in any way without permission INDEX 236 Electronically stored information (ESI), 85, 212–213 E-mail advertising, 106 E-mail support, 66 Employee(s): hero, 164–165 HR policies and, 207–209 Internet access for, 89–90 involvement in self-assessment, 12–13 offshore, 138 virtual, 136–139 (See also Personnel infrastructure) Employee mentoring programs, 170 Employee ownership and options, 195–196 Employee relations, 141 Employee training, 168–171 about customer satisfaction, 49 in ethics, 141 expense of, 168–169, 170–171 safety, 142 Endicott, Henry B., 145 Endicott-Johnson Corporation (EJ), 145–146 Enterprise Risk Management (ERM), 221 Environmental impact, 141 Equal employment opportunity, 140 Ethics, 139–141 nondisclosure agreements and, 22, 23–24 Evolutionary development, customer satisfaction and, 54–56 Fair and Accurate Credit Transactions Act (FACTA), 213–214 Fair employment practices, 152–153 Federal Acquisition Regulations (FARs), 207 Federal Rules of Civil Procedure (FRCP), 213 Federal Trade Commission (FTC), 213–214 Financial due diligence, 6–7 Financial infrastructure, 175–200 assessment questions for, 197–200 authority and responsibility and, 177–179 balance sheets and, 180–181 banking and, 196–197 budgets and, 184–187 cash flow statements and, 181–182 cash reserve management and, 182–184 employee ownership and options and, 195–196 237 labor rate calculations and, 193–194 operations linkages to P&L, balance sheet, and cash flow reports and, 179–187 operations reviews and, 192–193 P&L reports and, 180 prescheduled growth and, 195 product warranties and guarantees and, 194–195 program or product management and, 187–192 Firewalls, 88 Fisher, Mel, 19, 20 Ford, Edsel, 99 Ford, Henry, 99, 219 Ford Motor Company, 99, 102, 219 Fourteenth Amendment, 201–202 Freeware, 82 Fringe benefits, 138–149 Funnels, sales process as, 114 General Electric, Goals, establishing in advance of assessment, 21 Government compliance, 141 Government contracts, 207–209 Growth: organic, prescheduled, financial infrastructure and, 195 Guarantees, 194–195 Hardware failure, 60–61 Hardware tools, cost of, 92–93 Henry Ford Company, 219 Hero employees, 164–165 Hierarchical organization charts, 127–128 Hiring process, 153–156 Hockey sticks, 183 How to Read a Financial Report: For Managers, Entrepreneurs, Lenders, Lawyers, and Investors (Tracey), 180 HR policies, 207–209 Human factors engineering, customer satisfaction and, 50–51 Inception phase of product life cycle, 77–79 Industry working groups, 105 Downloaded by [ Singapore Polytechnic Library 85.244.23.165] at [05/05/18] Copyright © McGraw-Hill Global Education Holdings, LLC Not to be redistributed or modified in any way without permission INDEX Information management system, 85–98 assessment questions for, 96–98 baseline control for, 90–91 communications systems and, 95–96 design of, 86–88 development and production tools and, 92–93 disaster recovery and business continuity and, 93–95 network usage policy for, 88–90 security and, 88 software tool licenses and, 91–92 Information technology (IT) group, 85–86 Infrastructure: areas of, 35–39 (See also specific areas) institutionalizing, 37 In-house product training, 68–69 Institutionalized processes, 219–229 assessment questions for, 228–229 Institutionalizing the infrastructure, 37 Insurance, 212 key employee, 165 Integrated product teams, 136 Intellectual property, 210–212 International sales, 141 ISO 9001 certification, 220, 221 ISO/IEC 15504 certification, 220, 221 ISO/IEC certification, 220, 221 Job descriptions, 126 Job placement, 162–164 Lester Boot and Shoe Company, 145 Lester Plan, 145, 146 Lester-Shire, 145 Levi jeans, 43, 47, 49 Licenses, software, 91–92 Lincoln Mercury, 99 Loaded labor rates, 194 Maintenance agreements, 65 Malcolm Baldrige National Quality Award, 224 Management, 130–132 Management reserves, 187 Management team skills arachnids, 131–132 Management team skills matrices, 130–131 Market analysis, 107–109 Market awareness, 103–107 Marketing, 101–103 McMahon, Paul, 55 Mean time between failures (MTBF), 63 Metadata, 213 Metrics, customer satisfaction, 49–50 Morgan, J P., Motivation of employees, 165–166 National Aeronautics and Space Administration (NASA), 61–62 National Highway Traffic Safety Administration (NHTSA), 227 Network usage policies, 88–90 Nondisclosure agreements (NDAs), 22, 23–24 Nontransfer clauses for software, 91–92 Key employee insurance, 165 Labor rate calculations, 193–194 Layoffs, 160–161 Legal due diligence, 7–8 Legal infrastructure, 201–217 assessment questions for, 215–217 binding documents and, 204–205 compliance and, 209–210 document retention and, 212–213 government contracts and, 207–209 insurance and, 212 intellectual property and, 210–212 privacy protection and, 213–215 signature authority and, 205–207 Legal structure, 124 Lester, Horace N., 145 Obsolescence phase of product life cycle, 79–80 Offshore employees, 138 Old Economy business failures, Oldsmobile, 99 Online forums, 67 Online product upgrades, 67–68 On-site assessments, 20, 25–28 assessment questions for, 26–27 confidentiality and, 27–28 schedule and duration for, 25 On-site product training, 68–69 On-site support, 66 Open source software, 82 Operations due diligence, 8–10 Operations infrastructure areas, 35–39 Downloaded by [ Singapore Polytechnic Library 85.244.23.165] at [05/05/18] Copyright © McGraw-Hill Global Education Holdings, LLC Not to be redistributed or modified in any way without permission INDEX 238 Operations reviews, 192–193 Operations transaction points, 38–39 Organic growth, Organization charts, 127–130 Organizational infrastructure, 123–144 assessment questions for, 143–144 command and control structure and, 125–132 corporate culture and, 132–136 ethics and, 139–141 layers of, 124 physical safety and security and, 142–143 virtual environments and, 136–139 Organized labor, 152–153 Paternalism, 146 Patient Protection and Affordable Care Act, 147 Performance appraisals, 156–157 Person-centric organizations, 128–129 Personnel infrastructure, 145–174 assessment questions for, 171–174 business-employee relationship and, 151–152 employee benefits and, 147–149 employee compensation and, 149–151 employee motivation and, 165–166 employee stability and, 166–168 employee training and (see Employee training) employee value and quality and, 161–162 fair employment practices and, 152–153 hero employees and, 164–165 hiring process and, 153–156 job placement and, 162–164 performance appraisals and, 156–157 promotions and, 157–158 terminations and, 158–161 (See also Employee entries) Physical safety and security, 142–143 Pipelines, sales process as, 114 P&L reports, 180 Planning for due diligence process, 19, 20, 21–23 Press releases, 104 Price, quality perception and, 47 Print advertising, 104 Privacy laws, 30 Privacy protection, 213–215 Pro forma projections, 182, 184 239 Process certification, 220–224 Process maintenance, 224–228 Process management, 220 Product(s), third-party, 81–83 Product destruction tests, 61 Product development, 74–77 cost curve for, 75, 76–77 evolutionary, 54–55 human factors engineering in, 50–51 risks associated with, 81 specifications in, 52–54 Product life cycle, 77–80 Product management, 111–112 Product quality: ethics and, 140–141 in inception phase of product life cycle, 78 of third-party products, 82–83 Product representations, 140 Product specifications, customer satisfaction and, 52–54 Product support, customer satisfaction and, 64–68 Product testers, 66–67 Product testing, customer satisfaction and, 56–64 Product training, 68–69 customer satisfaction and, 68–69 customer seminars and webinars for, 105–106 Product warranties and guarantees, 194–195 Production cost curve, 75, 76–77 Production infrastructure, 73–84 assessment questions for, 83–84 Production process, 74–77 risks associated with, 81 Profitability as investment target, 76–77 Program office, 188 Program or product management (PM), 187–192 Promotions, 157–158 Quality: of employees, 161–162 of products (see Product quality) Quality control, statistical sampling for, 56–57 Railroads, legal status of, 201–202 Reliability as competitive discriminator, 47–48 Requirements creep, 52–53 Downloaded by [ Singapore Polytechnic Library 85.244.23.165] at [05/05/18] Copyright © McGraw-Hill Global Education Holdings, LLC Not to be redistributed or modified in any way without permission INDEX Responsibility, financial, 177–179 Revenue variance, 191 Risks and opportunities report form, 31, 32, 33 Robert, Henry, 123 Robert’s Rules of Order, 123 Rube Goldberg designs, 86–87 Safety, physical, 142–143 Sales, international, 141 Sales and marketing infrastructure, 99–121 assessment questions for, 119–121 contact management systems and, 107 customer assessment and, 115–116 market analysis and, 107–109 market awareness and, 103–107 marketing and, 101–103 product management and, 111–112 sales process and, 113–115 sales prospect assessment and, 116–117 sales territories and, 117–118 strategic planning and, 109–111 Sales process, 113–115 Sales prospect assessment, 116–117 Sales territories, 117–118 Santa Clara County v Southern Pacific Railroad, 201 Saylor, Mark, 226–227 Schedules for due diligence process, 22 Security: for information management system, 88 physical, 142–143 Self-assessment, 10–13 businesses’ reluctance to conduct, 11 data collected in, 27 employee involvement in, 12–13 proactive use of, 11–12 Sexual harassment, 140 Shareware, 82 Shewhart, Walter A., 56–57 Signature authority, 205–207 Social media networking, 105 Software: licenses for, 91–92 protection, 88 shareware, freeware, and open source, 82 Software failure, 61–64 Southern Pacific Railroad, 201 Specifications in product development, 52–54 Statistical control methods, 225–226 Statistical sampling for quality control, 56–57 Strategic planning, 109–111 Strauss, Levi, 43 Stress tests, 61 Sunsetting products, 80 Sustained sales phase of product life cycle, 79 Telecommuting, 137 Telemarketing, 106 Telephone support, 65 Terminations, 158–161 for cause, 158–160 voluntary, 158 without cause, 160–161 Third-party products, 81–83 Toyoda, Akia, 227 Toyota, 46, 226–228 Tracey, John A., 180 Training (see Employee training; Product training) Training effectiveness, 68 24/7 support, 66 Underwriters Laboratories (UL) standards, 60 U.S automobile industry: economic recession of 2008 and, 10–11 Ford Edsel and, 99–100 mass production process in, 219 U.S Constitution, Fourteenth Amendment to, 201–202 Usability as competitive discriminator, 48–49 Validation testing, 58 Vanderbilt family, Verification testing, 58 Virtual deal rooms (VDRs), 28–30 Virtual environments, 136–139 Virtual jobs, 136–137 Virus detection, 88 Waite, Morrison R., 201–202 Warranties, 194–195 Waterfall, 52 Websites, 104 Westinghouse, George, 73 Word-of-mouth referrals, 106 Yahoo!, Downloaded by [ Singapore Polytechnic Library 85.244.23.165] at [05/05/18] Copyright © McGraw-Hill Global Education Holdings, LLC Not to be redistributed or modified in any way without permission INDEX 240 Jim Grebey is a hands-on executive with a history of success He has been able to apply his engineering background and analytic skills to become a leading operations analyst and business problem solver with a track record for building high-performance, winning teams He has accomplished this for both large and small businesses by implementing successful growth strategies, resulting in increased revenues, lowered operating costs, and improved customer satisfaction As Chapter explains, business operations is a broad field with no single method at its foundation This is the very essence of the need for this book Only an executive who has been working “in the trenches,” solving operations issues, would be capable of writing this type of book Grebey has focused his efforts on improving the sustainability of businesses by improving the infrastructure that guides their continuing operations He has led online forums, published articles, and presented papers on numerous technical and management subjects Grebey was honored to testify before the U.S Congress as an expert witness following the terrorist attacks of September 11, 2001 His testimony on methods for providing secure identification of transportation workers was given before the Aviation Subcommittee by invitation of Representative John Mica of Florida In 2000, Grebey moved to Singapore where he was instrumental in helping manufacturers throughout Asia bring their products to market in the United States, assisting U.S businesses seeking offshore partners and helping offshore investors find compatible U.S businesses for investment Downloaded by [ Singapore Polytechnic Library 85.244.23.165] at [05/05/18] Copyright © McGraw-Hill Global Education Holdings, LLC Not to be redistributed or modified in any way without permission ABOUT THE AUTHOR Downloaded by [ Singapore Polytechnic Library 85.244.23.165] at [05/05/18] Copyright © McGraw-Hill Global Education Holdings, LLC Not to be redistributed or modified in any way without permission In 2000, Grebey formed Diligent Consulting, which he continues to operate today (now Diligent, Inc.) Through Diligent, he has had the opportunity to work with many businesses, both large and small His success with Diligent has resulted from his ability and willingness to work hands on with clients to improve their operations Grebey has been responsible for presenting clients to investment groups and for supporting their negotiations with investors, and he has participated in numerous M&A due diligence events Grebey doesn’t work as a “touch-and-go” consultant Instead, he takes an active role in coaching his clients, tugging, pulling, mentoring, and trying to make things happen The readers of Operations Due Diligence will find they get smiles of familiarity on their faces saying, “Yup, been there, done that,” and they will relate well to an author who speaks from their shared experiences .. .OPERATIONS Due Diligence An M&A Guide for Investors and Business JAMES F GREBEY New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore... was written as a due diligence guide for investors trying to determine the sustainability of a business, and it also serves as a much needed operations checklist for managers and business owners... products Due diligence should assess all three facets of a business Conducting an effective due diligence requires performing a full Operations Due Diligence along with a legal and financial due diligence