The late 1990s was an ugly period for IT. It was an era of hedonistic acquisition. Companies bought technology, companies bought each other, hell, some companies even bought pipe dreams. Technology was marketed as a panacea that, once plugged in, would blow profits through the ceiling. Billions of dollars worth of new-fangled solutions were bought and sold as a result.
As we all so painfully learned, IT was not a panacea. Today’s companies are now wiser and more careful when they buy new technology. They are after specific solutions to well defined problems. Call it technology’s procurement wake-up call.
But if you ask Thornton A. May, we are far from out of the woods.
The preponderance of IT buying (80 per cent, May says) is still done using traditional methods, where vendors create market demand and tell companies what they can buy, when they can buy it and how much they will pay.
The root of the problem resides in the dynamics of the buyer/vendor relationship, originally forged in the mid-’90s, where sinfully-savvy marketing created buyers with almost blind faith in technology.
“People thought they had a CRM problem or people thought they had an ERP problem, because they were told they had [a] problem,” said May, a futurist with the Executive Programs at the Anderson School at UCLA in Los Angeles. “We were manipulated into buying what they already had.”
It was “a basic hostage-victim model, where the power relied on…an unholy alliance between system integrators, third-party advisory groups…and the vendors,” he said.
Fearing a loss of competitive edge, getting trounced in an exploding market and ignorant of the true value and cost of new IT implementations, many companies bought (and, to a lesser extent, still buy) out of fear. It was all about selling.
“Everyone was playing the same game,” said Mark Aboud, regional vice-president with Oracle Corp. Canada Inc. in Mississauga, Ont. “Technology companies were interested in market share and they were less interested in profitability.”
Slowly, but inexorably, those days seem to be fading into the sunset.
The new buzz
The new procurement buzzwords are “streamlining” and “relationships” – no more buying IT and forcing it on users, no more taking the vendor’s word as gospel. It may be perceived as a little touchy-feely by some, but it is less stressful than the meat market of yore.
This paradigm shift, one that is slowly becoming the norm, is based on attention to detail and getting answers to a simple question: What specific business problem is this technology actually being bought for?
“This is my problem. What can you do to move my problem forward?” is how May says companies should be approaching vendors.
“It becomes a problem-solving exercise versus a word processing exercise of duelling brochures and…marketing literature.”
For some, the problem can appear to be quite straightforward. Ramy Taraboulsi, vice-president of information services at the Insurance Bureau of Canada (IBC) in Toronto, was looking to streamline some of his company’s business processes.
“It was my decision to look at the database as one of the factors for streamlining the operations and making it more efficient,” he said. “It didn’t make sense for us to have two database platforms.”
Taraboulsi did not write a formal request for proposal. He instead decided to go with one of the two databases his team was already using. The nod went to Oracle (over IBM), since some of IBC’s applications did not run on IBM’s DB2. Though the project was not conceptually difficult, the implementation was. In addition to the database migration, Taraboulsi and his team redeveloped a complete set of applications, which were previously running off of a mainframe, to run on a combined .Net, Unix and Oracle solution.
“Personally it was the most complex project that I have ever worked on,” he said.
Rick Adams agrees that standardizing and streamlining are two of today’s key procurement strategies.
“There is a tremendous cost associated with deviating from key standards in your IT department,” he said. “Your total cost of ownership starts to go up as soon as you start to introduce more than one standard.”
But the opinion of all those affected by a new technology needs to be taken into consideration too. If the relationship between user and technology is not fully understood, any new implementation is starting with two strikes against it.
“It is very, very important to involve all of our key customers…to make sure that we are buying the right solution to meet their requirements,” said Adams, manager of information and communications technology for the City of Coquitlam, B.C. In the case of Coquitlam, the word customer has a broad definition. It includes everything from internal users of the newly installed technology to the public who may access the city’s Web site.
Listening to all affected parties is the foundation of change management. Unfortunately it’s often overlooked. Too many projects have fallen by the wayside, well after a successful installation once it was noticed that no one knew how to use, or even cared to learn, the latest install.
The world’s largest companies are finally taking note of this fundamental problem when they procure new technologies.
“Most of them have now got the message that organizational change management is the key to success,” said Michael Doane, vice-president of professional services strategies with the Meta Group Inc. in Atlanta.
They all suffered when they installed ERP systems and found the solutions were far from what was expected. “They did not believe in organizational change management.” “It was one of the major lessons learned,” Doane said.
“We can plan all we want and program wonderfully and design beautifully but the adoption curve of the human heart can not be quickened,” he added.
It is for this reason IBM occasionally backs out of projects that do not have senior executive sponsorship, since they are perceived to have a high failure rate. Though having an executive on board does not guarantee a project’s success, it often takes the change management issues out of the equation, since the project is being driven from the top.
In fact, Ed Milburn, senior consultant with the Business Consulting Services (BCS) organization at IBM Canada Ltd. in Toronto, has said “call me when the senior guys are on board” to a few prospective clients.
“We often have to coach people…to engage the stakeholder community,” said Philip Molnar, procurement services lead with BCS.
“If it comes from the IT department and it is clearly a business enhancing issue, then you can almost predict down the track that it will not succeed,” he added.
getting to know them
On the external relationship side, Coquitlam has developed, over the years, a good working relationship with Oracle Corp. Though admittedly it has not been snag free.
“It is kind of like family, and sometimes families have little arguments,” Adams said. “Oracle support has come under question at times and that is not one of their strongest points.” But the city’s relationship with Oracle’s Vancouver office is on very solid ground. “They have been very, very good to work with.”
Two basics are required of all technology companies today, Oracle’s Aboud said. “One is good technology and the other is the long term trusting relationship. You have to deliver both of those if you expect to keep a customer long term,” he explained.
Keeping a customer long term is not just to the vendor’s advantage. Many IT managers have been driven close to professional suicide at the thought of one more decision by senior management to change to solution XYZ. Then there is the cost issue. Going from vendor A to vendor B is never cheap.
“You don’t want to force unnecessary costly change,” said Neil Sentence, director of procurement policy and information technology with the Government of Ontario in Toronto.
Though the government has clauses that would trigger a default and allow them to terminate a contract, it is a last resort. “You don’t want to terminate, frankly, unless you have to,” he said.
It is for this reason the government tends not to rely on one vendor wherever possible.
Taraboulsi agrees with this pre-emptive strategy.
“The key that we were looking at was building a technology that does not make us reliant on one single provider…(so) changing technology becomes much easier,” he said.
the next wave
May and Doane predict a gradual change in the buyer/vendor relationship, one that tosses much of today’s relationship structure out the window. It calls for some radical rethinking in the way companies do business, but it promises to put control back into the buyer’s hands.
“There are some enlightened vendors who are using the old concept of gain sharing,” Doane said. It is a relationship where a client and vendor will target a measurable outcome for the client, like cost reduction, and base the cost of an implementation on its success. The vendor “will reduce their rate X per cent across the board in return for a percentage of the benefit over a given amount of time,” he explained. So a vendor could reduce the cost of a new software install by 50 per cent if it gets paid an agreed percentage of the savings triggered by the new technology.
It is a complex relationship but doable, both agree. Companies will start forcing vendors to sell them a guaranteed business outcome.
Though not quite there yet, IBM is on the road.
“The word guarantee is never used, but what we do tell them (clients) is that we can make this project self-funding, so in fact you are going to get it paid by your own savings,” Milburn said.
Doane would like to see up-front cost reduction as a new form of guarantee.
“It is the perfect arrangement between vendor and client [because] if a client does not get benefit, they’ve paid a much reduced rate,” Doane said. “So there is less damage done.”
Is this really the wave of the future?
“If I have anything to say about it,” Doane said.
The days where the buyer takes all the risk, “those days are over,” May added.