Enterprise Software Buying Guide

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Enterprise Software Buying Guide
by the doctor

• Buying Enterprise Software is NOT Easy
• Feature Lists Get You Confused
• A Myriad of Pricing Options Make You Dizzy
• Confusing Contract Clauses Make You Sweat the
  Fine Print
• Each step of the process is a virtual minefield.
• But, with a good metal detector, you can avoid
  the mines.
• And that starts with a good process, which well
  cover.

http//blog.sourcinginnovation.com/categories/Soft
ware20Buying20Guide.aspx
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Why Do You Need A Process?
The total cost of enterprise software is more
than just the sticker price. Theres
mandatory maintenance fees that have
you paying for the software again within 4 to 5
years Theres platform fees for the
required database, application server, etc.
Theres hardware fees as youll
undoubtedly need more servers Theres
installation/setup fees as youll have
to pay someone to set it up Theres
integration fees which can run into the
millions if you select a solution that doesnt
interface with your current ERP, accounting
systems, etc. And so on.
If you make the wrong choice, theres early
termination fees and penalty fees data
migration fees to move to a new system lost
opportunity costs while your people are without a
system And so on.
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What is the Process?

• Simply put, its
• Cross Functional Team Formation
• Need Documentation
• Potential Solution Identification
• Cost Model Construction
• Objective Definition
• Professional(ly Led) Negotiations
• Contract Combing
• Performance Management
• but, of course, each step has to be done just
  right.

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Step 1 Cross-Functional Team Formation
Whos on the team?
The team members will be selected from the
affected business units.

• E.g., a supply management system team will always
  contain
• buyers
• procurement managers
• A.P. and/or A.R.
• IT
• and will often contain representation from
• Risk Management
• Strategic Planning
• Legal
• HR
• Regulatory Compliance
• Production
• RD / Engineering

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Step 2 Need Identification
Whats important?

• Needs documentation is about defining what you
  need. It is not
• documenting your current systems (theyre
  inadequate)
• documenting your current processes (thats what
  you do, not the system)
• using a feature checklist from a trade rag
  (its the functionality!)

• Needs documentation is about asking the right
  questions.
• What are my current issues?
• What do I need the system to do?
• Who will be using the new system the most
  for what?
• What data needs to be collected?
• What information needs to be derived?
• Where and how will the system be used?
• What existing systems need to be integrated?
• What are our operating environment constraints?

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Step 3 Potential Solution Identification
Whos invited to the table?
Once youve documented your needs, you can search
for relevant solutions.

• Identify an initial vendor pool using
• analyst and blogger reviews
• local associations and colleagues
• current customer references
• not just vendor materials and demos.

• Then ask the right questions, in an RFI, before
  moving on to an RFP/Q.
• Be sure to include functional questions relevant
  to your needs
• such as the questions outlined in the
  X-emplification series for
• supply management solutions
  (http//blog.sourcinginnovation.com/categories/X-e
  mplification.aspx)
• as well as financial questions to determine
  vendor stability, including
• how is your profit statement looking these days?
• whats your ownership structure? (who makes the
  calls in tough times?)
• what would happen if you acquired no new
  customers for a year?

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Step 4 Cost Model Construction
Whats this solution really going to cost me?
Just like the sticker price isnt the true cost
of a car purchase, the license fee isnt the
true cost of an enterprise software platform.
Before you short-list any solution, its
important to understand, within an order of
magnitude (factor of 2) what a solution will cost
you, per annum, over its expected lifetime.
The only way to do this is to build a total cost
of lifetime ownership model that will let you
plug in (industry) standard quotes, fees,
and operating costs (and refine the costs during
negotiations).
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Step 4 Cost Model Construction
Whats this solution really going to cost me
contd?

• On-Premise Solutions Incur
• License Costs
• Maintenance Costs
• Server Costs
• Supporting Software Costs
• Implementation Costs
• Integration Costs
• Training Costs
• Internal Support Costs
• Software Upgrade Costs
• Hardware Upgrade Costs
• Re-Training Costs

• ASP Solutions Incur
• License Maintenance Costs
• Hosting Costs
• Major Upgrade Costs
• Implementation Costs
• Integration Costs
• Training Costs
• SaaS Solutions Incur
• Inclusive License Hosting Costs
• Implementation Costs
• Integration Costs
• Training Costs

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Step 5 Objective Definition
Whats my desired outcome?

• Now that you know what you need and have a
  reasonable understanding
• of the state of the market and usual solution
  costs, you need to define a
• reasonable objective that specifies
• what key functional requirements the solution
  will completely fulfill
• what auxiliary functional requirements the
  solution will partially support
• the maximum total cost of ownership you will
  bear (and, thus, the maximum price you will
  pay)

If you enter into a negotiation with an
identified solution blueprint, a support
requirement, and a maximum price in mind and are
willing to walk away if the vendor will not meet
your requirements (provided they are reasonable
against the market), youll end up in much better
shape than if you just try to negotiate down from
sticker price. (Even when buying a car, you
should negotiate up from dealer invoice.)
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Step 6 Negotiate Professionally
What do I need to know?
Enterprise software has a lot of margin and
empty calories. (http//dealarchitect.typepad.co
m/deal_architect/2008/07/sap-to-kill-tomorrownow.h
tml) The best price offered by a sales rep is
usually not the best price. Some vendors will
try to distract you with the partner
ploy. Others will try to distract you with
competitor failings to hide their own. They
know every stupid salesperson trick in the
book. (http//dealarchitect.typepad.com/deal_archi
tect/2008/12/top-10-stupid-salespeople-tricks---a-
rerun.html) And they wont be afraid to use the
Big Lie and say yes we have that
functionality when they clearly dont.
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Step 6 Negotiate Professionally
What do I need to do?
If the deal is over 1,000,000 make sure its led
by a professional buyer. If the deal is over
2,000,000 considering bringing in a deal
architect, services guide, or an equally
experienced professional negotiator in the
enterprise software space as they can
regularly negotiate 20, 30, and even 40 below
best and final offer, theyll be worth every
penny.
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Step 7 Comb the Contract
What do I need to look for?

• You can negotiate the best deal and still get
  screwed if you dont read
• the fine print very carefully -- twice. The
  following gotchas are common
• even if you bought the perpetual license, you
  lose the right to use the software if you
  stop paying maintenance
• the mandatory upgrade on the vendors schedule
• the Free Lunch module or service you dont
  need, built into the price
• the Toothless SLA which is ultimately
  unenforceable
• the Escrow of millions of lines of
  incomprehensible undocumented code

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Step 8 Manage Performance
You mean Im not done?
You can do everything right up to the time you
sign the contract and still have everything go
to hell in a handbasket (and your costs go
through the roof) if you don't carefully manage
vendor delivery and support throughout the
contract lifetime.

• Start by
• creating a project management team
• monitoring uptake
• tracking utilization metrics
• identifying (potential) issues early and
• insuring the vendor resolves them in a timely
  fashion