Meet or exceed target ROI when buying enterprise software by selecting the best-fit product for your particular needs.
If you picked stocks based on what friends tell you or from miscellaneous articles read on the internet, you would be gambling because you hadn’t done your homework. Over the long run, this kind of investment strategy would almost certainly lose money. On the other hand, if you researched multiple companies and picked stocks that closely matched your strategy and risk tolerance, you would be investing in a portfolio capable of realizing your needs.
No organization buys enterprise software for the sake of owning it. The software is bought to realize the benefits that flow from using that product. The software that has the most valuable benefits generates the greatest return on the money invested in it (i.e. it has the greatest ROI).
By definition, the best-fit software is the product that maximizes the benefits and delivers the highest possible return compared to other potential products. No software product is perfect, and all involve some degree of compromise. Thus best-fit does not mean perfect; it means the best of the available potential products.
There are four categories of benefits:
- Increases in things like revenue, profit, growth, efficiency, speed, compliance.
- Reductions in things like costs, time, complaints, attrition, complexity.
- Improvements to things like productivity, processes, quality, reliability.
- Creation of things like strategy, alignments, new products, new processes.
(This list of benefits is from the work of David A Fields of the Ascendant Consortium. Disclosure: I have paid for and taken one of David’s training courses.)
Likewise, if an organization is about to spend millions to purchase, implement and maintain software, and plans to use it for years, is it worth gambling? Doesn't it make sense to make the effort up front to maximize the return on that investment? If you do the work up front, you reduce the risk of unwanted surprises during implementation. You can be rewarded with exceptional returns because the software is precisely matched to organizational needs. The chart below shows the difference in ROI between failures, typical and best-fit software implementations.
- The outright failure. Here the software never makes it into full production. All it does is to drain resources from the organization until it is eventually abandoned.
- The typical project. Takes longer than planned to implement and costs more than expected. All caused by surprises along the way. It might not be an outright failure, but certainly is not the promised success. Not bad enough to dump, but definitely not the expected ROI.
- Best-fit software. Implementation is faster than expected, and often costs less than planned. When in production, the software meets or exceeds the expected ROI.
Comparing software ROIs
Notice the huge difference in ROI between typical (2) and best-fit (3) software. That is the benefit of selecting best-fit software. The closer the software is to the core of the business, the more this matters to the bottom line. For example, ERP is the heart of any business that uses it, and that is why ERP disasters can be so dangerous. In the worst case, they can lead to bankruptcy as happened with FoxMeyer Drugs. For the same reason, a poor CRM selection can be very damaging.
When starting a software selection project, organizations usually have a good high-level idea of what they want. What they don’t have is a detailed idea of their needs simply because they have not yet investigated the problem. There are three steps that must be taken to select best-fit software:
- Develop a comprehensive list of requirements that adequately covers the problem space. Rate those requirements for importance to the organization.
- Perform the gap analysis on potential software products, and measure how well they match the requirements. The better the match, the greater the probability of meeting or exceeding the ROI. If no products are a close enough match to the requirements, this can mean:
- Changing the evaluation scope
- Looking at other products, typically more expensive
- Combinations of different products
- Writing software
- Select the best fitting product, and then audit the vendor’s RFP or RFI for accuracy. Vendors are sometimes “over-optimistic” in their responses, and the audit catches those before making the purchase.
Something learned early in my career: “When the brains don’t do the work, it’s the hands and feet that do.” To get the desired ROI, do the work up front to select the best-fit software for your particular needs. Measure the match with your requirements, and verify it is adequate. Implementation will be a lot smoother because there are no hidden surprises. Compared to buying software that is good enough, the best-fit software will turbo-charge the ROI because it is precisely matched to organizational needs.
This article was originally published on CIO.com on April 8, 2015.