The shelfware boondoggle

A recent Gartner Inc. study reports that of the CRM software licences purchased in 2002, an embarrassing 42 per cent remains unused, at an estimated waste of US$1 billion to $1.27 billion. Given that the entire CRM software revenue forecast for all of 2002 was $3 billion, that’s a lot of money to be throwing away, especially in a tight IT economy.

Why is this happening? Not to put too fine a point on it, CRM vendors try hard to seduce customers into buying software by bulk. They routinely offer larger discounts if a company will increase its initial purchase and bundle multiple CRM modules together. And the vendors make a convincing pitch that buying functionality you don’t need now is cheaper than adding on later.

Of course, you may never need those added features. But even if you do, as the Gartner study concludes, it’s more expensive to buy CRM licences in bulk because you have to pay maintenance fees on all of those unused licenses. That hasn’t stopped hundreds of firms, from prominent institutions like Fleet Bank to tech companies like McKesson Health Solutions, from falling into this trap.

Another problem is that CRM software is often purchased by non-IT executives who don’t really understand what it does. At McKesson Corp., a firm that sells software to hospitals and insurers, for example, it was the vice-president of sales who bought three CRM modules in May 2002 from Pivotal after volume discounts were dangled in front of him. One year later, only one of those modules – the sales force automation piece – has been installed, and even that app is still not fully employed by McKesson’s sales force, according to an IT manager there.

Sitting on McKesson’s shelf are the two other components: a business intelligence app and software that integrates the SFA app with Outlook so sales meetings can automatically be entered into the Outlook calendar. “We don’t have enough resources to install them,” the manager says, echoing a complaint that is heard from many companies that bought excessive software a year or two ago.

The cure? First, as the McKesson manager notes, the people who use the app and the people who understand it should be the ones who decide what software is needed when, not the senior executives who don’t even use the stuff. In addition, the negotiators, preferably culled from the same group of people, should carefully run the numbers and analyze the benefits and ROI of buying software in small packages versus large packages.

As Beth Eisenfeld, CRM expert and lead author on the Gartner report, points out, it is important to build spreadsheets that examine the different scenarios and costs and to come up with varying ROIs. A good rule of thumb is to limit initial purchases to the number of licenses expected to be deployed in the first 12 months of the project. As a further safeguard, negotiators can build clauses into the software contracts that will allow the company to stop paying maintenance fees for unused licences or modules. Some CRM vendors, most notably Siebel, are even beginning to accept pay-as-you-go or subscription model contracts with reasonable discounts that are locked in.

In these cash-strapped times, vendors are on the run and there’s no longer any excuse for software idling on your shelves.