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Meeting the Need for Speed (and Cost Control) in Software Procurement

Oct 24, 2019

At the turn of the century, the core responsibility for software procurement used to be simple – get the best possible price. Over the past decade as the market has progressed into Software-as-a-Service (SaaS), it became obvious that nobody was actually purchasing software, but the results the software could provide for their company.

Today, in the era of widely accepted cloud computing, price has become less important than results. And results depend upon service levels, product quality, time-to-value and embedded best practices. Software Procurement teams are closer to the actual projects and initiatives for which they are purchasing. Software Procurement departments have become far more strategic and this is especially true when it comes to technology expense management (TEM) purchases.

Redefining “Speed”

Today’s project owners are measured by, and only concerned with, time-to-value in the form of a fully implemented, functional new system delivering results.

Software Procurement still works hard to drive the best possible deal for their company, but they are being relied upon more and more to bring domain expertise and best practices to the line of business buyers they serve who don't necessarily purchase enterprise software frequently. They realize there are three phases to a successful project, the first being selection of the best, most-well-suited products and service providers. The second being a rapid and successful implementation. Third, that the software provider provides ongoing support and service levels, as well as managed services offerings that enable ongoing best-in-class capabilities. Only when the project is delivering results is the procurement team’s job considered done. It is important to note that in today’s software world, the majority of enterprise software will be sold as Software-as-a-Service, including technology expense management software.

Value is redefined as the return on investment (ROI) over the useful lifecycle of the project, which can also be defined as the profit realized from the project minus the total cost of ownership (TCO) combining the initial price paid and the cost of operations. Sometimes these benefits are realized as actual dollars, and sometimes defined by improved productivity, compliance (lower risk) or other subjective factors that can be hard to quantify. It is important for procurement to help line-of-business owners, such as IT leaders, define their goals, objectives and initial criteria up front, or to at least make sure they have done so themselves.

The Expansion of Procurement Processes and Participation

Once the goals and objectives of any project have been defined, and once budget has been established, the next step is selecting the right solution. Selection of the software service or TEM providers who can best realize the successful delivery of the project has never been easy and is as important as any of the three phases. To be successful and to realize maximum value, the initial selection of the best possible providers and products is critical.

Ask any group of CFOs or CIOs and they’ll tell you they’ve had had three consistent experiences with software projects over the past 20 years:

  • It takes longer than to implement than expected, sometimes twice as long.
  • You’re going to have to write another check. You will go over budget.
  • It is unlikely you will realize the full capabilities, benefits or ROI.

Given the criticality of these projects the failure to deliver results was often career-threatening, and sometimes career-ending.

Projects Never Really End

While all IT products have a definable useful lifecycle, projects continue beyond them and only really end when significant changes in business processes occur.

To the Software Procurement department this extends the quality and expertise requirements of their mission to include ongoing managed services to help in the proper ongoing operation of the system. Subsequently, they will need to track the ratio of value to cost from these services to determine whether changes need to be made. And while you don’t want to buy “futures”, you do want to help your business leaders work with companies who have a track record and who are best positioned to invest and stay ahead of trends in their category like MDSL.

The Most Challenging Cost Control

Selection of the right products from the best sources, and the ideal service providers to provide on-time delivery within budget fulfills the “speed” requirement for the Software Procurement team.

The most challenging issue confronting their efforts to keep costs under control is the continuing rise of “shadow” or “rogue” IT.

This occurs when line-of-business managers or other project owners make an independent decision based on their perception that the Software Procurement team cannot fulfill their requirements. They then go ahead to procure the solution for their project themselves. This creates a variety of difficulties:

  • The standards and practices developed within the company for selection will not likely be observed.
  • They may not take advantage of volume purchasing programs already contracted by the company resulting in unnecessary overspending.
  • The creation of IT silos poorly or not connected to the rest of the enterprise.
  • They may be missing options – software already owned by the company and available to them with significantly lower investment required.

Ultimately, the worst result is loss of control over expenses. When the Software Procurement team is the only one doing any spending, control remains easy.

Follow the Money

Software Procurement can serve as a hub for best practices when selecting a TEM software provider, especially when there are so many SaaS options available. Business users can often be wowed by a great demo, but if the implementation takes twice as long, or if the provider can’t offer the needed service levels or managed services to help the company operate at best-in-class levels, the product features just don’t matter. Hard lessons from one department need not be repeated by others if Software Procurement acts as a true center of excellence and not just contract negotiators.

Written by Tom Feeley