The Sink Hole for Enterprise Software: Unplanned Costs
August 19, 2009
Network World published “ROI Doesn’t Always Pan Out with Unified Communications“, an article I thought had some excellent comments for whiz kids procuring enterprise software systems in general and search in particular. The point of the write up is that eager beavers ignore some basic facts about indirect and direct costs. Looking at one data point makes it easy to show a big financial win. When sharper pencils are applied to the assumptions and the cost analysis, trendy technology like Unified Communications” can produce unexpected costs. The eager beaver’s ROI disappears in a flood of budget busting cost overruns.
Tim Greene wrote: “Return on investment is a big but unfulfilled promise of unified communications.” The same statement can be applied to enterprise search systems, content management systems, and next-generation content processing systems that “read and understand” unstructured content. I am not saying that these systems do not work. I am saying that the cost time bombs some systems embed in an organization create major problems for the folks who have to deal with these software acquisitions.
I want to call to your attention one passage:
Establishing ROI is difficult for some businesses because IT directors that propose use of UC don’t calculate a baseline cost of certain business functions before UC that they can compare to the costs after an implementation, he [a consultant with whom Mr. Greene spoke] says.
I want to highlight the phrase “baseline cost”. That is part of the story, but it is not the whole story. I urge you to read the Network World write up and consider these points:
- New technology often creates unexpected situations and consequences. The short term benefit may be derailed by developments not knowable. The rigorous procurement will make a concerted effort to identify potential cost issues, capture those, and include cost scenarios in the planning. The idea that every day is warm, clear, and sunny is great for the power of positive thinking crowd. That type of thinking does not mean much when budgets cannot accommodate the cost spikes and unexpected capital requirements.
- The notion that “unified” means better, faster, or cheaper is confused. With squishing separate functions into one bundle, the boundaries between and among functions may not perform in an acceptable way. What happens is that users switch to less efficient methods because the “unified” search or any other system consumes more time and creates more hassles than it solves. These “friction” costs are not mapped back to the new software or system. The overall effect is to create more “drag” on the organization’s performance. In short, the new system slows down performance while it consumes more resources per unit of work.
- Human nature responds to a deal. Most of those involved in system procurements, in my experience, lack the expertise to perform the type of financial analysis I suggest be standard. As a result, the “deal” becomes a cost sink hole. The consequence is that within a short period of time, needed enhancements have to be jettisoned because any budget dollars have to be shifted to cover the operational problems and their attendant cost overruns. Ever wonder why two thirds of enterprise software deployments crash and burn? I do, and I think the root cause is like the stream that backs up in Harrod’s Creek. Eager beavers do what is easiest for themselves. Eager beavers don’t think beyond the here and now.
In short, enterprise software in general and specific “universal” solutions may be a messy kettle of fish.
Stephen Arnold, August 19, 2009
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