Sealing the Deal

July 13, 2011

Why Companies Can’t Seem To Buy the Software That They Need

Many companies need better software. Their software didn’t really help fewer employees do their jobs better during the recent recession. Their customers and suppliers are telling them how their software prevents growing their business partnerships. Eleven years after Y2K, it’s time to upgrade to the technology available today to achieve strategic and tactical goals.

Companies look but can’t seem to choose. Some are not prepared to commit to the cost and effort of making the change. Others just can’t decide because they do not have an approach to allow them to “seal the deal”. Possibly they don’t really have the skills to select the best solution.

Looking is the easy part. There are options to choose from despite industry consolidation. If they are lucky there are industry specific solutions. Virtually all widely installed ERP solutions are very flexible and backed by financially stable companies. But good solutions are sometimes accompanied by sales techniques and pricing models that are confusing.

If your company wants to choose the right software for the right reasons here is what you need to do. Begin by answering the first two questions that a software sales person will ask you – why and how much. These two questions are closely related.

Develop a Value Proposition: Get started by really knowing the reasons why your company will benefit from new software. Reasons include:

  • Replacing older technology that doesn’t integrate well to current technology to improve efficiency and connectivity outside the business.
  • Replacing technology where the developer is no longer in business or was bought by a company that will only support but not enhance functionality.
  • Your business processes or focus has changed or diversified and the current solution does not support your new or expanded direction.
  • Enhancing your current solution does not provide the operating effectiveness you need to operate and grow the business.

Determine a Budget: Your value proposition needs a matching budget. Here are some terms and guidelines that will help you calculate what you will pay.

Start with the number of concurrent users. A concurrent user or seat is the number of software licenses you will plan to buy. A concurrent user is like the parking spaces at your local convenience store. There are a defined number of spaces but hundreds of cars in and out all day. Concurrent users are the spaces. Determine who is in your system all the time and who is in part time. Consider those who will be using better software in the future such as factory personnel or sales/marketing professionals working in an off-line CRM system.

Concurrent user pricing varies widely based on comprehensive need. For a small company figure to start at $2,500 per concurrent user before negotiation. Anticipate for modules to be included as “core product” while some modules are “optional” and priced incrementally. For companies needing more than job shop or small make-to-order capabilities then use $6,000 per concurrent user and extra for non-core modules. The more unique your company the more incremental modules. Some claim that the best time to sign a contract is the last day of the vendor’s fiscal quarter.

Comprehensively Determine What Your Company Needs: All current and potential users of the new solution must be interviewed to document what they need software to do for them today and in the foreseeable future. The fewer staff you talk to the less the real knowledge of the need will be determined.

Many businesses, as good as they think their software is, are run from Excel spreadsheets that are stored on desktop and laptop computers where the information is not easily shared or secured. Find out how the staff uses the current software and how much off-line applications supplement their activities. If the staff has no idea what else software can do for them, hire a knowledgeable consultant to provide that missing input or speak to customers and suppliers to understand what software is doing for them.

Once your needs are documented craft them into a narrative or checklist that presents who your company is, what your strategies and value propositions are, and how the needed functionality will improve your business actions.

Identify Potential Vendor Solutions: ERP solutions are either industry specific or generic with customer concentrations in selected industry groups. Industry specific vendors hold the edge for understanding your business and developing software to match common business processes. These vendors have fewer customers, therefore less cash flow. While they can be financially stable they may not have the capital to enhance their solution to effectively utilize new Microsoft-centric solutions. This threatens their future capability to support your needs.

Generic ERP solutions typically have many more customers, better cash flow, and very close connection to Microsoft’s continuing product releases. They may have experience in your industry but their solutions are designed more flexibly for your staff to make changes to fit your needs better (workflows and business process modifications).

View Demonstrations: Ultimately you will not be able to select the right software until enough staff in your business sees enough potential functionality using your data to concur that any solution is better than another. The key to getting value from a demonstration is making sure that you see what you want to see and not just what the vendor wants to show you.

Plan for two rounds of demonstrations. In the first round have the vendor present, using their sample data, how they would meet the requirements you documented. Look at multiple vendors with the intent of narrowing down to two vendors. In the second round provide the vendors with sample data under non-disclosure agreement (NDA) so that the staff really sees how the software works with your information on the screen.

Complete the Due Diligence: Begin by listening to what the evaluation team has to say. Try to reach a consensus based on how the preferred software should best support your activities and future direction, paying special attention to how you will interface to your customers and suppliers. You should know exactly why one solution is better than the other.

Check references. There are reasons why good references are good. You need to know why a solution is working well for other companies. Not all companies successfully implement their chosen solution most often due to how they approached the selection and not the vendor’s fault. Visit a company that uses the solution if you can.

Finally, negotiate the contract. Pricing is often presented with a discount from the published price. Don’t stop there. Two finalists provide the premise for negotiations! The vendors know how far they are willing to go and you need to have quarter ending timing and another vendor on record to get the best possible value. Also, have your attorney look at the contract and provide input to you on terms.