Is It Time to Leave Your Software Vendor?

In today’s economy, it has become increasingly more crucial for businesses to reduce expenses while adding value to products and services. Enterprise software simplifies those processes essential to running a business by performing functions such as customer information management, accounting, production scheduling, and more. It provides companies with the resources needed to identify problems, find new opportunities and extend the best practices to the entire company. Enterprise software makes the behind-the-scenes part of a business easy and cost effective. So what’s the catch?

As many mid-market companies today have learned, enterprise software can make or break a business.  Although enterprise software serves as the core information technology and communication system for many companies, it is frequently criticized as being overly complex and expensive, especially in the present economic climate.

The enterprise software industry has set a standard that forces businesses to suffer the costs of poor quality software through exorbitant annual maintenance fees and deployment expenses.  And while it would be sensible to lower or at least hold these costs in the face of difficult economic times, the cost of maintenance and support continues to increase dramatically.  For one of the large, monopolistic big three software companies, maintenance has already exceeded 22% of the initial license fee and accounts for as much as $3.1 billion of one quarter's revenue-totaling 51% of one quarter's operating profit.[1]

The effect on business can be traumatic.  Leaving one software vendor for another usually requires a painful transition time of one to two years, inflated service fees, and the pervasive annual maintenance fee.  What is worse, there are few alternatives for businesses to choose from.  

Enterprise software should simplify and cut back on costs for businesses, allowing companies to focus on what they do best: producing the best product or service they can.  Businesses deserve a comprehensive, cost effective service to manage their information.

The enterprise software industry will not last much longer if it continues to put profit before the customer values.  Unlike the automobile and airline industries, which are both struggling to reinvent themselves in these difficult economic times, the software industry has the opportunity to grow and improve now.  Software vendors need to recognize that businesses can do better and place their priorities first, capturing all of the customer's needs, not their money. 

The bottom line for companies today lies in the relationship between a business and the software vendor.   Businesses are relying on low costs and high functionality of enterprise software to ensure those crucial behind-the-scenes processes run smoothly and efficiently.  The Software Customer's Bill of Rights, put forth by HarrisData, identifies nine key relationship issues for mid-market companies to review before signing a software license.

Software Customer's Bill of Rights

1.     Right to Affordable Quality Software

It may sound like a no-brainer, but finding software that both works and is delivered with cost assurance has become increasingly more difficult in the present climate.  Fortunately, the software industry has improved significantly over the past decade, making software higher quality, more affordable and easier to use.  Yet despite these improvements, software vendors typically provide only a short period of time-from 90 days to a year-as a "warranty period" where fixes to the software are available for free.  After that initial period, software customers must pay for maintenance on a subscription or per-incident basis.  Businesses should question why, when the software itself has improved in quality, vendors will not offer a longer warranty period and lower maintenance costs.

These improvements in quality should allow vendors to extend the "free" period significantly to more closely approach the expected life of the software.  For enterprise applications, software customers have a right to expect their vendors to stand behind their products for five years or more.  A five-year "free" period provides software customers with the vendor backing the software products need, but makes certain the cost of the software product will remain fixed during that time.  Under this approach, software vendors cannot pass on the expense of producing poor quality software to their customers through arbitrary rate increases for software maintenance.  Software vendors must produce better quality software to reduce their support costs in order to help businesses remain profitable.

2.     Right to a Well-defined Implementation

Software is only beneficial to a company if it works properly, and the first step to operational software is effective implementation.  Most software customers have read or heard about the implementation mistakes made in the enterprise software market, and understand the resulting bottom-line impact of failure.  Failing to successfully implement software should not be an option in this industry.  Software customers have the right to expect that an implementation project be functional and well defined.

Businesses also have the right to control their own implementation project.  It is the software customer, not the vendor, who needs to make informed decisions about priorities, deadlines and budgets.  The software vendor's role should be advisory: helping the software customer gain access to sufficient information to make effective decisions about the project.  Businesses that control their own projects effectively have demonstrated an ability to reduce overall project expense by 50% or more.

3.     Right to Unlimited Quality Support

Software flaws and bugs always need to be addressed and most importantly, prevented.  Quality software hopefully minimizes the customer experience around this issue.  However, customers should feel free, in fact encouraged to ask questions around maximum utilization of their software product.  To do that they need to talk to business experts on the hotline, not experts in the detection and fixing of design flaws.  Providing business experts is essential to business success.  Having unlimited access to Subject Matter Experts is a necessary piece of the partnership with your software provider.  The ability to maximize performance and essentially "find the best way" should be a common occurrence in the relationship.

4.     Right to be Free of Vendor Control

Needs change, and it is important that a software customer be able to improve or adjust their software in accordance with those needs.  They may need to extend the system to meet the unique needs of their business.  They may believe they can find better, more cost effective support from an alternate vendor.  They may simply need a means to help guide the software vendor in the enhancement of the product.  Access to source code, to published programming interfaces, and to the product management team (even through an active User Group) all help the software customer control their own destiny.

5.     Right to Business Growth

Mergers and acquisitions are a fact of life in the mid-sized market.  However, when an acquisition occurs, business owners often struggle with software licenses.  For these companies, problems arise because software must be re-implemented to reflect new business processes, and most software licenses are non-transferable.

Rapid, low cost re-implementation of enterprise software is critical to gaining the value expected out of an acquisition.  Software vendors that consume one, two, even four times the original value of the software in implementation projects are not well positioned for rapid re-implementation.  Look for vendors that can implement the software at a fraction of the list price.  These vendors will be able to help you rapidly re-implement new divisions or operating companies.

On the other hand, if your company is acquired, the acquirer likely expects the computer systems that manage the critical business processes of the company-including the software-to be included in the acquisition.  Most software licenses are non-transferable.  The software vendor may grant permission to transfer the license for a fee, but the fee may not be determined until the software customer makes a formal request.  This process puts the software vendor's permission to transfer the license, and the undetermined fee, in the way of selling the business.  Software customers deserve a license that allows them to negotiate a sale of the business with known costs for the transfer of the software.

6.     Right to Prevent Software Obsolescence

Business processes undergo constant change.  Changes in business strategy, such as a shift to lean manufacturing, can mandate changes to business processes.  Regulatory changes, such as those mandated by HIPAA and Sarbanes-Oxley, can mandate changes to business processes.  Changes in the market, driven by customer demands for real-time, 24/7 access to information, can mandate changes to business processes.  Software vendors have an obligation to keep their software products from becoming obsolete due to these changes.  Software customers have the right to expect to be able to utilize updated products to address these issues, including easy and cost-effective upgrade processes.  Customers should be utilizing the latest software version and technology.  The availability and utilization should be simple and free and part of the partnership with the vendor.

7.     Right to Deploy Software without Restrictions

Software deployment is the process of making the software available to the people who need it.  Software vendors have offered a variety of pricing models that restrict who can use the software and for what purpose.  Licenses are written incorporating rights for named users, concurrent users, power users, servers, and other "units" in an attempt to balance the cost of the software with some measure of the value it provides.  Software vendors spend millions to insure compliance with these terms, from incorporating software that counts users and prevents extra users from using the system, to on site inspection and license audits to determine additional charges.

Software customers in the mid-market do not have the time or inclination to count users, power users, concurrent users, or to spend additional money on software license compliance.  These software customers want software they can use to help them make money, not software that is going to cost them money every time they try to do something new.  They do not want to pay a license fee for every customer or supplier that uses the software to access information through the web.  They do not want to pay a license fee for every employee that uses self-service through a corporate intranet.  They do not want the president of their company to get the message "too many users - try again later" when attempting to view the company financials Monday morning.  They just want the people that need the software to be able to get access to it-with no strings attached.

8.     Right to Improve Technology Infrastructure

Rapid technological change affects every software investment.  The pace of change in the computer industry has been furious since the conception of ENIAC, the first American computer in 1946.  By the 1990s, software had transformed the way people worked, played and communicated on a daily basis.  Each major advancement in software development represented a dramatic and important technological change potentially affecting a software customer's investment.

Software customers neither see these technological changes as changing the business value of their software nor as a justification to pay more money to their software vendor.  Transferring software onto a new PC operating system or a new server should not increase costs if the value the software provides has not changed.  Software customers are willing to pay their vendor for more functionality from the software, but they should not pay their vendor for responding to technological change if the vendor has not also provided any value.

9.     Right to Quality Documentation

Written information about the software is an integral part of the software itself.  Clear, easy-to-read documentation is critical to a successful implementation and provides an additional layer of support for consumers.  However, some vendors will claim that their software is so easy to use that documentation is not really necessary.  Others will develop profit centers out of in-house publishers of the documentation.  Software customers deserve to have easy-to-read documentation available to them, including all of their users, whenever and wherever they are.  Software customers understand that there are costs associated with publishing books, but want no restrictions on duplication rights for valid purposes.

The software vendors that will survive in the mid-market are the ones who address these customer requirements as an integral part of the administration and deployment of their applications.  They will be the ones that delight their customers, and make the customer's long-term success the priority of the relationship.  They will ensure that customer partnerships are an essential part of their existence, and that the customer's business success is their number one priority.

[1]  Evans, B. (2009, July 6). How 22% Annual Fees For You Equal 51% Operating Margins for Oracle. Retrieved from InformationWeeks' Global CIO unit: http://informationweek.com/1235/evans.htm