How to Understand Software Selection Falsehoods

Executive Summary

  • Software selection is filled with falsehoods.
  • These falsehoods are prepetuated by entities with something to sell.

Introduction

In order to improve software selection outcomes, one must understand the incentives of all the parties involved in providing information to buyers. This includes, vendors, consulting companies, IT analyst firms, and publications. That is, the first step to analyzing the information provided by various entities is to analyze the entities themselves. Once time is spent analyzing each of these entities, clear patterns emerge that can allow the buyer to separate the true from the untrue. Not enough companies do this, and it is one reason that software selections at companies result too often in the wrong software being selected. I have found extensive evidence for this fact in my own consulting experience—when I am hired to help recover problematic supply chain planning implementations. However, that is, of course, anecdotal and related to a particular software area, but research supports the fact that this conclusion generalizes to other software areas. For example, in the book The Real Story Behind ERP: Separating Fact from Fiction, is a review of the research into the long term benefits of ERP software.

The False Information that Lead to Massive Numbers of ERP Purchases

The book explains that the studies on ERP software show that ERP is a software category with a low return on investment. However, there is a missing component to all of the research in this area. ERP can maintain a low return on investment only if one limits the financial returns to the ERP system itself. However, it is quite likely that ERP systems have a negative ROI when one accounts for how ERP negatively impacts the overall software investment by a company (for instance if the negative effect on other applications the company uses, as well as how ERP isolates companies from customers and suppliers, are included in the calculation). Nonetheless, ERP has been the most popularly purchased software in the enterprise software market for decades. Buying companies have fallen for the most oversimplified fictions presented by ERP vendors and consulting companies, which are hungry for the ERP implementation budget.

The fact that such statements related to the purchase of ERP, which had never had any evidence to support them, bamboozled so many companies is some of the best evidence that I can provide that buying companies are simply not doing sufficient research before making purchases. The areas where buyers are falling down in their research are the following:

  1. My consulting experience provides evidence (although not conclusive evidence as there are not enough companies in the sample) that companies choose the wrong software far too frequently within a particular software category (i.e., if within one category of software, vendor A offers the best product and fit for the company, too often the company will select vendor B).
  2. My research into the benefits of ERP indicates that companies are not performing broader research into the benefits of entire categories of software that they purchase. Instead they are accepting the proposals of entities that are trying to sell them things, and that also do not perform research on the actual benefits of various software categories. Buying companies must perform this type of research themselves. They simply cannot realistically “outsource” this research to IT analysts because too many IT analysts (Gartner, Forrester, etc.) are paid by vendors.

How IT Analysts Lie About Improving Implementations

These IT analysts can write articles about how to “improve” the use or implementation of a category of software, but cannot write an article questioning the entire validity of a software category or even mildly questioning the return on investment of a category of software without alienating the losing revenues from those vendors. Most of these IT analyst firms have continual revenue growth targets, and material or opinions that interfere with those revenue targets will not be tolerated. While those in marketing will disagree, software cannot be optimized for both sales and implement-ability. Software that is highly implementable means that product management has accounted for the important enhancements but has not put every enhancement request into the product. A major objective of the individuals who support a software selection effort is to ignore much of the marketing hyperbole and salesmanship and instead find the applications that offer the best combination of functionality to match with the buyer’s requirements, while at the same time considering the implement-ability of that functionality. Consulting companies are major influencers for enterprise software purchasing decisions.

Both institutional analysis as well as my consulting experience support the fact that large consulting companies, as well as most of the smaller consulting companies, are making selection advice based upon their own revenue goals and that their client’s interests do not factor into the advice they provide. A consulting company can make a smaller amount of money providing objective advice in software selection, but far more money if they pretend to sell objective advice and use it as a doorway into the much more lucrative implementation deal. As we all know, the “responsibility” of companies is to maximize shareholder value, so that is what these companies are doing. This is an excellent way to achieve that objective. IT analyst firms, with Gartner being the most prominent, are influential in which software gets purchased.

Gartner’s Fake Research

Gartner sells “research.” However, the research is not only difficult to interpret, it is deliberately opaque because Gartner is trying to have it both ways. They want to rate software (and hardware and service) vendors, but also make their money from these vendors, so have chosen an approach to publishing that requires interpretation—and this interpretation is provided by them at great expense through hiring their analysts for one-on-one sessions. Gartner’s research can be corrected by adjusting downward the rankings for the larger vendors as they are inflated, and this is just one of the adjustments that are necessary. Gartner’s research can be leveraged, but the way it is normally used makes me question whether a Gartner subscription does more harm than good. I am particularly concerned with the use of Gartner and their Magic Quadrant as a device for enforcing conformity, simply mindlessly selecting software that ranks well in the Magic Quadrant without even understanding Gartner’s methodology.

Gartner’s Political Coverage

Executives that use Gartner to simply cover themselves politically, and do very little research on their own, or leverage their own internal technical resources, are weak executives and are not doing their job. For those embarking on a new software selection, the good news is that there are many opportunities to improve your software selection by simply following the recommendations in this book. There is very little training on software selection, and little in the way of published material that is not simply focused on the tactical areas of software selection. The starting point is not the tactics, but is in how information is interpreted. This must be understood first, even before the other very important parts of software selection are discussed. There is a lot of great software available in the enterprise software market. I find myself bowled over by some of the great innovation in a number of vendors that I follow. They keep me on my toes and provide a constant stream of interesting topics on which to write articles and books.

Conclusion

A good software selection project can bring that software into the company. On the other hand, there is also quite a lot of completely uninspired software that is extremely unappealing to work with (some of the same software I specialize in, in fact!) and is clearly sold because not enough people can see the distinctions in software quality or because other non-application related factors dominate the software selection decision. Good software, which has been properly selected, brings continuous returns and implements more easily because it is both appealing to use and it naturally works and fits with the business requirements. There is an enormous amount of intellectual property tied up in our enterprise software. From 1970, where the software industry essentially did not exist, up until when I write this sentence, software has grown in capabilities to an enormous extent. In my area, some of the most advanced mathematics in my field are encapsulated in software. It is the only way through which companies could ever access and apply such intelligence. However, the trick, of course, is making the right selection.

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References

Software Selection Book

SELECTION

Enterprise Software Selection: How to Pinpoint the Perfect Software Solution Using Multiple Sources of Information

What the Book Covers

Essential reading for success in your next software selection and implementation.

Software selection is the most important task in a software implementation project, as it is your best (if not only) opportunity to make sure that the right software—the software that matches the business requirements—is being implemented. Choosing the software that is the best fit clears the way for a successful implementation, yet software selection is often fraught with issues and many companies do not end up with the best software for their needs. However, the process can be greatly simplified by addressing the information sources that influence software selection. This book can be used for any enterprise software selection, including ERP software selection.

This book is a how-to guide for improving the software selection process and is formulated around the idea that—much like purchasing decisions for consumer products—the end user and those with the domain expertise must be included. In addition to providing hints for refining the software selection process, this book delves into the often-overlooked topic of how consulting and IT analyst firms influence the purchasing decision, and gives the reader an insider’s understanding of the enterprise software market.

This book is connected to several other SCM Focus Press books including Enterprise Software TCO and The Real Story Behind ERP.

By reading this book you will:

  • Learn how to apply a scientific approach to the software selection process.
  • Interpret vendor-supplied information to your best advantage. This is generally left out of books on software selection. However, consulting companies and IT analysts like Gartner have very specific biases. Gartner is paid directly by software vendors — a fact they make every attempt not to disclose while consulting companies only recommend software for vendors that give them the consulting business. Consulting companies all have an enormous financial bias that prevents them from offering honest advice — and this is part of their business model.
  • Understand what motivates a software vendor.
  • Learn how the institutional structure and biases of consulting firms affect the advice they give you, and understand how to properly interpret information from consulting companies.
  • Make vendor demos work to your benefit.
  • Know the right questions to ask on topics such as integration with existing software, cloud versus on-premise vendors, and client references.
  • Differentiate what is important to know about software for improved “implement-ability” versus what the vendor thinks is important for improved “sell-ability.”
  • Better manage your software selection projects to ensure smoother implementations.

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Chapters

  • Chapter 1: Introduction to Software Selection
  • Chapter 2: Understanding the Enterprise Software Market
  • Chapter 3: Software Sell-ability versus Implement-ability
  • Chapter 4: How to Use Consulting Advice on Software Selection
  • Chapter 5: How to Use the Reports of Analyst Firms Like Gartner
  • Chapter 6: How to Use Information Provided by Vendors
  • Chapter 7: How to Manage the Software Selection Process