Update Jun 2008

How to Buy The Right Software for My Company's and Myself! PART 1

A new business model for buying business software
Since the introduction of packaged business software to the market in the early 1980's, companies and individuals have been struggling with the challenges posed by these innovative new products. Struggles that focus not only on the definition of requirements, but also the methods used to identify, evaluate, and select the most suitable product that meets the need of the company.

This dilemma has combined with a paradigm shift in the way that companies conduct their businesses, both internally as well as externally as they interact with their customers and stake holders. The results have varied, from global success and market leadership on one hand, to crippling defeat - sometimes even insolvency, on the other hand. The productivity gains and efficiencies promised by software vendors have materialized for some companies, but this is offset by the seemingly bottomless pit of investment that has been the experience of many less fortunate companies.

Why is this? Why is it that some companies have benefited from the IT revolution, yet others have not? And, what can you do to make sure that both you and your company do not fall into the same bottomless pit that so many others have tumbled into?

The conventional purchasing method
Companies have been buying and selling since the establishment of the practice of commerce - buying goods and services combined with manufacturing, to sell at a profit. This is at the core of a sound business model.

Purchasing products is a well-researched and documented area. Depending on a company's policies and procedures, purchases of low value items often required only superficial purchasing procedures, but more valuable capital investments required much greater scrutiny and involvement from different levels of management.

The dilemma facing companies intending to invest in high value and often mission critical goods and services has been the focus of conducting sophisticated purchasing procedures. Request for Information (RFI), Requests for Proposal (RFP) and Request for Quotation (RFQ) have all been used extensively to identify the item that meets a company's requirements in the most cost effective fashion.

These well established and proven purchasing processes have been at the foundation of business for many generations of Purchasing Managers. However, the paradigm has shifted. Purchasing business software is as remote from buying conventional goods as selecting a business consultant, but then why are we using the same methods of selecting software that our ancestors used in buying machinery?

The difference in buying software and products
Buying products traditionally relies on identifying a list of quantifiable features such as speed, weight, height, output, etc. to provide a matrix of comparison that when combined with cost can deliver an indication of the choice product. However, software inherently has very few similar quantifiable metrics. For example, when purchasing spares for your vessel, quantifiable metrics like delivery dates and delivery costs are taken into consideration, yet these types of metrics are not applicable in the software arena.

Software by its nature is an intangible. At its most basic level, software is a list of instructions embedded on a CD that costs less that $1 to produce. In many cases, the CD is not enough to ensure that the desired outcome is achieved. We need additional help through services, in the form of consultancy, to configure the software to our own unique requirements.

With no tangible quantifiable metrics to compare one software solution in order to compile the magical comparison matrix, how can we be sure that we are purchasing the right software for our company - an often mission-critical application that will guarantee the support and gratitude of our managers?

First, we need to stop trying to adapt antiquated and irrelevant conventional purchasing practices to a category of investment that has no precedence in commercial life. We have to rethink the conventional process of selection through personal preference and persuasion by flashy demonstrations and sharp salesmanship and instead focus on a sound strategy.

Why do I need software?
This is a question that is posed routinely in boardrooms when managers are faced with a budget request for investment. Why do we need software? After all, the business has been running for many years, successfully, so why do we need to invest so much money in an item that has no guarantee of improving output?

This question is asked time and again, often by board members who are not yet comfortable with the concept of software. Many senior board members started their professional career without the use of software, so their natural reluctance to change means that they are inherently suspicious of any revolutionary business tools. Hence, the natural inclination is to procrastinate and to end up with a situation leading to paralysis by analysis. All too often, critical software investment decisions are held up in the boardroom because of the inabilities of the internal sponsor to clearly articulate why the company needs software and identify the financial and operational benefits that this investment will deliver to the company.

Software investment is driven by various drivers, both internal and external. Regulatory pressures, transparency, access to strategic information, and even the simple desire to align your company with your industry which has already invested in a software solution.

So how do I make sure that I buy the right software for my company? That will be addressed in our next month's circular.