Software Buying Has ChangedWill
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."
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