Not understanding how important requirements are and where they are used is a major cause of problems with implementing enterprise software.
Industry is littered with enterprise software purchases that failed to meet expectations and objectives. While you might read about outright failures that end up in court, most partial failures are never exposed because those involved don’t like talking about them, and that is why so few organizations appreciate the risks they are taking with these projects.
Organizations ask users for their requirements, only to find that when enterprise software goes live, it doesn’t meet user expectations. It turns out that we have been doing this backward for years.
Imagine you were moving to a new city and wanted to buy a house. You contacted a local architect and asked him to design your dream home. He interviewed each member of your family to discover needs and wants and eventually produced a set of plans. Then you took your plans and started looking for a house that met those specifications. Absurd isn’t it? And yet that is exactly the way organizations approach major software purchases like ERP.
It’s easy to see why this happens:
Ever come across “Hotel California” software licenses? Software vendors have spent years perfecting techniques for extracting post-sale revenue from customers, and this is one of their favorites, especially with larger SaaS or cloud vendors.
Will Bachman is a co-founder of Umbrex ("UMBRella of EXcellence"), the first global community connecting top-tier independent management consultants with one another. Will hosts regular podcasts, and in episode 47 he interviews Chris on the topic of software selection. (54:54)
If the new year brings thoughts of a major software purchase, help is at hand! Just published: Rethinking Enterprise Software Selection: Stop buying square pegs for round holes is written to help you make your purchase an outstanding success.
Buying enterprise software is a minefield of immature selection processes, conflicting interests, and predatory vendors. Over 90% of purchases fail to meet expectations, and close to 30% are outright disasters. This failure rate is astounding when you consider that the total cost of ownership over the software's operational life is a significant fraction of annual revenue.
A major software acquisition is an opportunity to "kick it up a notch" but, despite the best of intentions, few deliver. Far too many organizations squander the opportunity and remain mired in mediocracy.
It doesn't have to be that way!
Many companies think they know how to purchase software when in reality they have no idea of how little they know about the process! This article looks at the four places where money is squandered.
Companies tolerate the growing pains of inadequate software for years, but once they have made a decision to replace that software, they can rush headlong into disaster. Enterprise software is a substantial investment for any organization, especially when you consider the total cost of ownership over the lifetime of the software. Part of the problem is caused by inadequate attention to the return on the investment in that software.
Software itself has no intrinsic value. Rather the value comes in the form of the value of the benefits that flow from using that software. To illustrate the point, suppose an insurance company spends $1 million per year on labor to process a particular type of claim. If the company introduces new software that reduces labor costs by 20% annually, then the value of that benefit is worth $200k per year to the company.
Cubic Corporation invested in an ERP system to streamline operations and improve profitability. More than two years later software and implementation costs are over $61 million and climbing. Is this another ERP boondoggle?
Based in Southern California, Cubic Corporation is a public company that operates in the defense and transport industries. In February 2015 the CEO announced steps to streamline operations and improve profitability, which was expected to yield about $16 million annualized pre-tax savings in the financial year 2016. This would be about $160 million savings over 10 years.
The ERP project was started in late 2014 and was expected to be completed by the end of 2015. But as of mid-2017, the implementation was still going strong. Based on published financials, as of March, 2017 Cubic had spent $61 million on the project so far. With completion currently estimated to be in 2018 (assume Q2) and extrapolating implementation costs, Cubic will have spent a total of about $86 million on their new ERP software project by the time it goes live.
Enterprise software implementations usually take substantially longer and cost more than planned. When going live they often cause major business disruption. Here's a look at the root cause of the problem, with suggestions for resolving it.
Whether it is in the cloud or the data center, so often enterprise software takes much longer to implement than expected. There are three main reasons for this.
1. Unknown requirements
New requirements are discovered during implementation that should have been found during the analysis. When these new requirements are found, the organization must decide what to do with them. If they are weighted as important or higher, the consultants must determine how to implement them: by configuration, writing code, business process re-engineering, or adding new modules or third party products. All of this takes time, and when too many new requirements are found implementation schedules slip.
Ambiguous requirements can lead to purchasing software that doesn't meet expectations. Here are some simple techniques for avoiding ambiguities in your requirements.
Adequate and well-written requirements are the foundation for selecting enterprise software that meets expectations. A common problem with requirements is that some of them may be ambiguous. While ambiguities are easy to see in requirements written by others, they are difficult to spot in your own writing. Ambiguities cause problems selecting software in cases such as these:
It’s the unknown unknowns that get you every time! Learn how to identify unknown software needs, and then evaluate the urgency and importance of satisfying them.
While internal growth can drive companies to make major software purchases, another driver is external growth. Internal growth refers to a company growing organically through new customers, by mergers, acquisitions and so on. External growth refers to a company operating in a growing environment or a growing market, and is occasionally described with the phrase “A rising tide lifts all boats.”
Marketing technology is one such example of a growing environment, and it is spectacularly illustrated by Scott Brinker and his annual Marketing Technology Landscape Supergraphic. In 2011 he listed about 150 marketing technology companies on a single page in graphical format. Scott has updated this graphic annually, and in 2017 it contained 5381 products from 4891 companies. For several years there was an astounding 100% annual growth, although in 2017 it had tapered off somewhat.