|Home - Industry Article - Apr 06 Issue
Software Buying Has Changed – Will Vendors Follow Suit?
By Olin Thompson, Principal, Process ERP Partners
Software and services vendors talk about agility. They talk about keeping an eye on the market and meeting the needs of the customer. However, do they take their own medicine?
How an enterprise buys software and services has been changing. Buyers are smart about buying technology. They are skeptical, risk adverse, and tighter with their budgets. What are those changes, why did they happen and what does it mean for the both the buying enterprise and the selling vendor?
For some buyers, they are very aware of the changes. For most, the change has been subtler. The subjects they investigate have changed, they are more challenging, they want more detail and more proof. If a software or service vendor fails to recognize and address these changes, selling will become increasingly difficult.
What Changed, Ask the CIO
A recent forum included a panel discussion of CIOs from different companies and industries. They summarized their charter as: make IT affordable, workable, and credible. These realities affect all IT users, professionals, and vendors.
Make IT Affordable
According to one CIO, "Cutting cost is like breathing." He defined the word affordable as getting what the business wants while spending less. The group's marching orders included taking 10 to 15 percent out of the base cost of IT per year, every year. The base cost was defined as the cost of maintaining the existing applications and infrastructure which they estimated as 90 percent of all IT spending. Maintaining applications includes paying support fees, upgrade cost to new releases, and programming involved with existing applications.
Maintaining the infrastructure includes adding storage as databases grow, adding processing power as demand grows, and addressing security issues. They see infrastructure improvements as a requirement to be self-funding. If the CIO wants to spend money on improving the infrastructure, the investment must come from savings in other places within the infrastructure budget. Our CIO panel saw outsourcing, rationalization, and "hitting the vendors" as the path to meet their 10 to 15 percent reduction target.
The remaining 10 percent of the IT budget was for new applications. The result of shrinking budgets and "down sizing" is the lack of the internal resources to implement new applications. Buyers more fully investigate the implementation requirements for any purchases they are considering. The use of service providers can compensate for the lack of internal resources, but budgets are often not available for these services.
Make IT Workable
With new applications, the CIOs were concerned about risk. "An existing application cannot be replaced without considerable business benefit and low risk," said one CIO. "The replacement of a core application is hard to imagine," he continued. His definition of core applications focused on doing business everyday, supply chain execution, inventory, order processing, etc. When asked, "How much risk would he take with core applications?" He strongly stated, "None."
The CIOs saw applications that worked outside the core as a place where they would take a chance with new vendors, ideas or products. The primary criterion is isolating the risk and impact of a failure. For some applications, these CIOs will work with a start-up vendor. In these cases, they expect a say in what is delivered, to have control, and receive a financial incentive. "We decide on the people as much as on the technology," stated a CIO.
A question from the floor asked about single source versus best of breed. The CIOs joked about that being a never-ending debate. The consensus was that single source was always better if the functionality was "close enough". However, they would consider best of breed solutions when they saw a significant functional gap between what the business needed and what the primary vendor offered. The best of breed application being "better" was only relative to the specific needs of the business and the gap between the primary vendor and those needs.
The subject of integration caused one CIO to state, "Well, we do not get very good marks on that front." All saw the need for increased integration and stated it was a significant effort within their shops today. "We need basic integration, not star wars integration," said one CIO who said that most of the vendors who approached him appeared to want to impress him with how complicated they could make it. "We want simple and bullet proof."
IT has to be more manageable. For example, many applications now have an absolute requirement of being available 24x7. With the Internet, users are accessing the system any time and from any place, including worldwide users. Applications requiring 100% up time mean new approaches and investments in infrastructure. It also means new approaches to back up, security, and other operational issues.
With significant investments in applications that have limited flexibility, these CIOs are looking for help in letting their applications evolve with the needs of the business. Business process management was seen as a possible tool in helping evolve their systems. Industries are fragmented and applications need to reflect the normal conditions and operating procedures of the company's industry. The CIOs tell us that users will no longer accept applications to be close to their needs, they are demanding a 100 percent fit.