Investing in software: ROI - the big lie
In their desperation to sell software licenses at a time of economic difficulty, software vendors are increasingly looking at return on investment exercises as their way of encouraging customer spend.
But the technical basis on which some of the return on investment calculations are made defies belief. Without naming names, it seems the largest component is opportunity cost of not buying the product. Give me a break ? please. History can teach us a lot so it is worth taking time out to recall the recent past.
The argument that fuelled the enterprise resource planning boom of the middle and late 1990s was that business processes would be streamlined. This was vendor double talk for finding innovative ways to fire people.
The reality was that ERP failed to deliver the touted benefits, largely because the focus of attention was manufacturing and accounting. As there are only so many ways to automate an order and there are complex constraints that serve to upset manufacturing equilibrium, it is hard to see where the big buck savings were ever going to come from. Indeed. The complexity of some implementations was so great it resulted in law-suits claiming damage to the business.
A significant problem lies on the way vendors use a panoply of tools and methodologies to justify investments. They rarely if ever concern themselves with the impact of applying new processes on either the organization or the data that underpins any business.
This is not good enough because it means customers are effectively encouraged to assume there is little or no risk in the buying process. Neither do vendors take responsibility when things go wrong, preferring instead to point the accusing finger at implementation consultants. This represents a conflict of interest between vendor and buyer because the assumptions made by vendors reflect their world and not that of users.
Some have industry ‘experts’ but their remit has more to do with providing comfort to buyers that want to know the salesman has some clue about the industry in question.
That’s not the same as understanding the individual processes that underpin the way a particular company operates. Does this sound vaguely familiar? It was the position SAP took in the mid-1990s and which has been faithfully followed by others.
And it was only a few years ago that I saw Larry Ellison, chief executive of Oracle stand up in front of 3,500 delegates at an i2 world conference and apologize for selling client/server based ERP applications on the grounds it was the wrong technology. I didn?t notice him offering any refunds.
Today, some law-suit claims are looking to make software vendors accountable for failed implementations, precisely because they did not take the impact of implanting new processes into account.But it may not be all bad news. The current emphasis on delivering value rather than vision is leading to some interesting activity. Software vendors are more willing to embark on providing implementation services rather than handing it off.
This provides more margin and higher top line revenue number to report to their investment masters. Some attempt to charge day rates while flaunting 90-day returns. That is a contradiction in terms and should be resisted.
Few give more than scant consideration to the need for adequate training and induction to new systems and then wonder why users end up in near armed revolt.
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My hope is that in these pragmatic times, potential buyers will have learned from the past and question closely the validity of the current ROI fever. Despite the relative similarity between business process, the fact is that each company is unique. It should be treated that way.
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- Dennis Howlett is a freelance technology writer and one of the software judges in this year’s Accountancy Age Awards for Excellence.