Friday, April 08, 2005

Clients vs. Software Solutions Providers – why the client usually loses (or is less than satisfied).

Yesterday I had an interesting experience. I received a telephone call from a consultant who advised me that because of our firm’s size his client had not selected us for consideration. He agreed that the application had a great functional fit. The client’s concern with our size was that in dealing with us (or other small software suppliers) they were at more risk than dealing with a larger solutions provider.

Clearly, on the surface this “gut” reaction to small size appears logical and reasonable. Clearly the vast majority of IT professionals subscribe to it in there selection process.

However, I just couldn’t get my head around the conclusion. It’s true that we are not a large vendor, neither in size nor number of installs so what I have to say may appear as rationalization. But I got to thinking about why companies looking for IT solutions are at such a disadvantage and why so often the results of their software technology decisions are so unsatisfactory.

Fundamentally, there are prejudices that exist in the IT solution selection process. Size is just one. Non-traditional development and implementation methodology is another. Vertical experience vs. domain experience is yet another. There are others. These prejudices are based on preconceived, generally accepted ideas about what is necessary to insure a successful selection and implementation of an IT solution.

I think that the solutions provider community (developers, service providers, analysts, consultants, media) has been masterful in establishing the rules by which software licenses and OnDemand service is provided and supported. It appears to me that almost everything has been skewed in favor of the solutions provider. Most importantly the client community has bought into and heartily endorsed the business model.

For the most part the solution provider, whether a software development company or provider of OnDemand services, creates supposedly low-cost, easy-to-use “packages” of software solutions that incorporate what they determine is “best of breed” functionality that can supposedly be configured to the client’s requirements. However, more often than not this does not happen.

ü What does a package solution mean? Do packaged solutions benefit the software provider of the client? Clearly the package is what the software provider has decided is the best solution that fits most of the needs of his client market. If the client needs customized modifications to support its unique business process, chances are the software solutions provider won’t be structured to provide it and the client will have to go to a 3rd party consultant or integrator. When that happens does the low cost, relative ease case goes out the window? Who supports the solution going forward? From our experience any company of reasonable size is constantly going through business and process change. It is important for the client that the software solution be flexible enough to be able to form to the changing needs of the business.

ü What is “best of breed” and who is defining it? The software or solution provider has decided what are the services that are to be incorporated into its solution and defines them as “best of breed”. True the solution provider might incorporate functionality from world class clients, but does that functionality necessarily reflect the way the client does its business. Whether a specific client requires the “best of breed” functionality is secondary to the fact that it is easier for the software provider to support applications if they are in control of the functionality rather than taking responsibility and delivering solutions that support the client’s specific requirements. The accepted wisdom is that if it is good for a “world class” client it must be good for all clients. The flip side of the argument is that if functionality is not considered to be of significant interest to many clients then it can’t be best of breed and therefore should not be deployed.

ü The software provider defines “best of breed” functionality and provides it as part of his packaged solution or as an upgrade. What happens if the client doesn’t want or like the functionality? Is the software provider flexible enough to support a client’s unique business requirements and processes if they fall outside of the package version and upgrade path? If the answer is yes isn’t the solution now a custom solution? Will the standard Service and Maintenance agreement cover the off-package solution? How will the customized functionality be supported going forward as new versions of the “package” are released. What will the cost of the specialized maintenance be?

ü The package solution is supposedly easy and less costly to maintain because the cost of maintenance is spread over the user base and does not fall to the individual user. This works in theory. However, in practice as soon as clients required specialized functionality the cost of service and maintenance increases because the client needs dedicated services.

There are probably other factors that have weighted the odds in the software or solutions providers’ side of the ledger. What is amazing is how the client side have bought into it. The analysts and consultants will all say that “packaged license solutions” are necessary in order for solutions to be economically deployed and maintained. These same analysts and consultants will tell you that the OnDemand model is an excellent alternative to the license model because it will be more responsive to client needs. Why? Because the OnDemand provider will need to service the client or the client will withdraw its business because the cost of entry and exit is purported to be low (transaction based). The arguments in favor of “packages” or OnDemand solutions are valid to a point. However, they are also designed to support the historical premises that the industry is based on.

I believe that the model is broken. There are viable alternatives. The client community just needs to have some courage and initiative to look for suppliers that have developed client centered business practices. Maybe its wishful thinking. But those clients that have had the courage to pursue these relationships with smaller client focused solutions providers are gaining major benefits that their less aggressive competitors.

Certainly there are people that will disagree with me. Please feel free to comment – pro or con. I would like to hear experiences –good and bad- from solutions providers and clients.



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