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| Home - Industry Article - Apr 06 Issue |
Software Buying Has Changed – Will Vendors Follow Suit?
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Make IT Credible
As one CIO stated, "CIOs should be embarrassed." These CIOs said that the IT industry and the CIOs themselves have a credibility problem. Often, end users see IT as part of the problem, not part of the solution. While many blame the vendors, the CIO shares the blame for not managing the vendor properly or even being "soft on the vendor".
When it comes to vendor credibility, everyone is very aware of the bursting of the dot-com bubble. Yes, that is not recent history, but many people felt it in their 401K or other investment areas. For vendors, it had obvious impacts, for example their stock price or the availability of venture capital. A less obvious impact continues today. Buyers are skeptical of technology investments, including our CIOs.
Buyers remember late 90's and early 2000's when they heard a roar of outlandish vendor claims. Vendors bragged about their products saving billions of dollars. Some of those vendors are now shadows of their former self and these claims have proven false claims or even worse. If vendors could be so very wrong and even unethical about these past claims, why should buyers believe any vendor today? Many software buyers recognize that the same people that were exaggerating software benefits with unsupported claims are many of the same people in the industry today, just working for different companies. Vendor claims are now met with a spoken or unspoken reaction of "Prove it!"
Today, all vendors suffer from a lack of credibility at the beginning of the buying process. Vendors must recognize this lack of credibility and work to overcome it. Without credibility, their claims are suspect at best and their efforts will suffer. Regardless of the true value that their software may bring, without credibility that value sounds like the unsupported, over-hyped claims of the past.
Corporate management sees IT projects as over budget, over schedule, over promised and lacking in real returns. Buyers are more aware of the risk involved in major purchases and implementation projects. The press and analysts have reported the wide spread lack of ROI and run away implementation cost in many IT projects. Tight budgets mean cost of failure is higher, wasting of limited financial and human resources.
Our CIOs were very aware of the statistics on project failure. The Standish Group (www.standishgroup.com) has been doing surveys on all types of IT projects since 1994. Their research, published under the title CHAOS, reveals some facts that, to most, will be astonishing. For the last year that figures are available, 2001, The Standish Group CHOAS database shows a staggering 31.1% of projects canceled before completion. Further results indicate 52.7% of projects cost 189% of their original estimates. The cost of these failures and overruns are just the tip of the proverbial iceberg. The lost opportunity costs are not measurable, but could easily be in trillions of dollars.
For successful projects, the proportion of projects completed on time and on budget is only 16.2%. Even when these projects are completed, many are no more than a mere shadow of their original specified requirements. Projects completed by the largest American companies have only about 42% of the originally proposed features and functions. Smaller companies do better, but there is still a large gap.
Risk comes in many varieties. Total failure tops the list but others include the product not performing as promised, intolerable business disruption, poor ROI and others. In the current employment environment, decision makers and selection teams are also concerned about personal risk, "If I go with this project, and something goes wrong, what happens to me?"
Fewer buyers in the market means increased pressure on vendors. Many vendors rely on new buyers as their major source of revenue. As one vendor executive stated, "We have too many vendors chasing too few deals." That translates to desperate vendors that result in buyer questions about vendor integrity and honesty. Can the vendors keep the promises they make?
Industry consolidation, poor financial results, tight capital markets and the drop in stock prices have led to buyers questioning the long-term viability and independence of even larger vendors. The question of business viability was long limited to smaller or start-up vendors. The questions include, "Will you be in business and what happens to me if you are bought out?"
Summary
These CIOs, from different companies, different industries, and representing an array of company sizes were unanimous in their views of the role of the CIO and the pressures of that job. Their role is to make IT affordable, workable, and credible. Corporate management, users, IT professionals, and vendors need to understand these new realities to be effective as a customer or supplier of IT.
Many vendors report that they have faced some of the most difficult sales cycles in their careers over the past few years. Many of these same vendors remain hopeful that as the economy picks up, things will get "back to normal". "Normal", however, has changed, forever.
The previous overzealous buying environment is behind us, and the new buyer has emerged. Vendors that stick to their knitting and believe that the good times will return have missed the marketplace shift. Leading vendors have recognized this shift and changed their marketing and sales approaches to compensate, or even take advantage of, the new buying scenario.
Vendors should be prepared to answer the questions buyers need to feel comfortable with the selection and project. Vendors must be up-front about concerns and doubts, and address the buyer's demand with more detail and more proof.
The most effective vendors will anticipate the questions and build their policies, products, support, sales and marketing efforts to directly answer these questions and to give their company the credibility required to be believed in these skeptical times.
Olin Thompson is a Principal of Process ERP Partners. He has over 25 years" executive level experience in providing technology solutions to industry. Among his honors, Olin has been called "the Father of Process ERP." He is an author and an award-winning speaker on topics of companies gaining value from business technologies including Supply Chain Management (SCM), e-commerce, Enterprise Resource Planning (ERP), and the impact of technology on the manufacturing and distribution industries. For article feedback, contact Olin at olin@ProcessERP.com
 
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