Smart buying

Published: September 21st, 2004

When your typical small or medium-sized business hunkers down for a thorough calculation of its software spending, the final tally often appears totally out of whack. This leads to questions such as: Where did all that money go? And: Why didn’t we notice it going? A determined effort should follow,

with three aims: determining causes of overpayment, filtering out waste and running a sustainable, tighter, more streamlined software ship.

Warren Shiau, manager, software research at IDC Canada, offers five tips for shaving unwanted costs out of the software acquisition process.

 

1. Look a little farther down the road

SMBs tend to buy software based on immediate pain, doing a lot of quick-fix, point-solution software implementations that don’t necessarily take into account the larger IT picture. “”This is one of the biggest contributors to long-term software and IT cost inefficiency going,”” says Shiau.

To avoid falling into the trap of “”not seeing the forest for the trees,”” establish basic ground rules. For example, he says, establish a platform strategy, even if it’s as basic as, “”This is what our server platform is now, this is what our database is now, this is where we’re going, and these are all the applications we need to buy to support the strategy.””

2. Be aware of “”soft”” costs

The licence, maintenance and support costs you pay to IT vendors are your most visible software costs, but they’re not the only ones. Think about any “”soft”” costs you have that increase your software spending by hurting your efficiency.

Let’s say you have four or five different applications going across one business process, each with a different user interface. Your IT guys have to support each one, and employees have to navigate through them all too. These people could be doing something more productive — and profitable.

3. Understand your business processes

Shiau says many SMBs don’t have a good view into their organizational business processes. “”What you need to know is: ‘What portions of my business processes depend on what IT resources, and what’s the capacity-use rate of those IT resources?’ If you don’t know, you can’t determine where your IT resources may be creating bottlenecks in your processes,”” he explains. This leads to many new activities that increase software spending, chief among them the purchase of additional software infrastructure to address the bottlenecks (or support your expansion).

4. Know when to outsource

Any business process from which you do not derive competitive advantage should be under consideration for outsourcing. Business processes falling under this category will typically be commodity processes like payroll.

Seriously consider letting an outsourcer handle IT resources, overhead, software or other costs of commodity processes rather than saddling your IT staff with them.

5. Be smart when haggling

Vendors have made many price adjustments over the past couple of years to make software more affordable for SMBs, especially in terms of the upfront cost of the software, but you still have to be smart when you negotiate.

The up-front licence isn’t the only element of the software price. Get a commitment on what your ongoing costs are going to be throughout the life of the contract, and what your costs will be to move to new versions of the software, Shiau says. “”Don’t fall into the trap of saving now, only to pay later because you haven’t clearly defined future costs and fees.””

Contact: smbeditor@itbusiness.ca

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