Maybe software should be packaged like this?  Photo: Tetra Pak Package Portfolio, by Tetra Pak, CC license

A “packaged application” is software already built, coded, tested, used by other enterprises in your industry, and hopefully a solution that will meet most of your needs.  In general I recommend using packaged applications (why re-invent something?)

But a packaged application is not ready-to-use, in any sense of the word. The word “packaged” is kind of a misnomer. You won’t find a warehouse management system in a shrink-wrapped box on the shelf at Best Buy. A packaged application is simply one whose features and functions match in general terms what you want the software to do, but which still needs to be configured for your business. Configuration (also called setup) involves a lot of work and expense.

Much of the time involved in configuration is not in setting up all the data and parameters, but in deciding what data and parameters to set up. What data do you want to/have to set up for each customer? Should employees be “suppliers,” so that you can reimburse them for travel expenses? Do you want to manage your inventory levels according to min/max parameters or days on hand, or some other way? In most enterprises, decisions like these aren’t made by one person – groups of people get involved, and all those meetings and explanations have to be scheduled, and someone has to herd everyone into a decision. Not a quick process.

Packaged software is an annuity business. A software company survives in the long run because it is able to collect annual maintenance and support fees from its customers while providing custom development services and a stream of version upgrades. The support fees can be 20% to 25% of the original cost of the software license, so to the software firm, it’s like selling a new system to the same customer every four or five years. In exchange for the fees, the customer gets access to support desks, can have the software firm make modifications to the system usually on a time-and-materials basis, and automatically gets some upgrades and patches (or fixes) as well as user guides and maybe some technical documentation.

Recurring support revenue is highly profitable for vendors selling packaged applications. It is not unusual for big packaged software vendors like SAP, Oracle, and JDA to have this type of revenue represent 60+% of its sales while incurring only 5% or 10% of its operating expenses.

If you are selecting a packaged application, understand that your vendor will try to sell you the traditional on-premise solution, in which you will own and host the software while paying the vendor for additional licenses, upgrades and custom developments, plus the annual maintenance fees of 20% to 25% of the original license cost, which, on a license costing $500,000, for example, would be $100,000 to $125,000 per year.

And therein lies one of the most debated and disruptive topics in the software market today: the move away from the traditional on-premise (also referred to as perpetual license) model to a service or subscription-based model.  It is not exaggerating to say that the perpetual license model has in a way been the drug, the stream of highly profitable revenue, sustaining the software industry the past two decades.  Stay tuned.

Image by lofrev.net

It’s getting harder to determine which software vendors have what capabilities. This is because:

• The number of technology startups has increased;
• Big software companies have been acquiring other firms to increase the breadth of their capabilities;
• Established firms are rapidly making changes to their suite of applications – adding capabilities so quickly that it’s difficult to land on a static evaluation and comparison vs. other vendors.

The branding of specific functionality continues to proliferate. Firms don’t define their software’s features all the same way – they give them a brand name, which only adds terminology that is unnecessary and gets in the way of a clear comparison of features.

Firms are offering products and services that overlap what other firms offer, making it more difficult to weed out who truly offers what you want.

It used to be that, if your company needed software in some form – packaged or custom – it was “installed” on a server. Then a “client” for the software – a relatively small piece of software – was installed on desktops so that the software on the server could communicate with the user on the desktop.

In between the two was a local-area network (LAN), which is jargon for a wired connection. In this configuration, a user could launch the client software on a PC, and the client would, via communication over the LAN to the server, enable the user to fully use all the features of the software.

Players in this market looked like this:

• The firm that wrote the software;
• The firms or independent consultants that support the software;
• The firm(s) that helped you to install, configure, test and launch the software you bought;
• The company from which you bought your servers;
• The company that supplied your LAN and wide-area network (WA)

All of this has changed. Now there are vendors that can do all of the above, without stepping inside your building, through a web portal.

How do you get what you need in this environment?

1. Find the software vendors that know your industry and understand what they offer. Software companies are usually organized according to what they call industry verticals, such as health care, pharmaceuticals, consumer goods, banking. A company with lots of clients in your industry is a good start
2. Find the software vendors that are the best for your targeted functional area such as sales, manufacturing, finance, etc.
3. Focus on the firms that are well represented in #1 and #2 above

Please choose the door through which your next software vendor will take you.  Image: Doors of Dublin, by Tim Sackton, edited to fit 569 X 368px, CC license.

Selecting a software vendor is difficult at best in the 21st century; here are some must-have criteria, in addition to, but perhaps more important than, cost and time:

Does it solve my problem? Does the software company’s system solve your business problem? Does its existing functionality match the business requirements you drafted?
Does it pay back? Do the financial benefits from the solution pay back the total cost of implementing it in three years or less?
Do I understand all of the solution’s costs? Have you accounted for initial license, recurring support fees, custom development costs for changes you want to make to the software, hardware costs, upgrades to your network bandwidth or operating systems on your current servers or PCs, the cost of the next version upgrade, the cost of consultants, of hiring backup staff for project team members, and travel?
Is the solution in line with my strategy? Does the system match your criteria for what types of information solutions you will invest in, now and in the near future?
Do I understand all of my alternatives, besides this particular vendor? Have you done your homework regarding software options available? Have you constructed an evaluation matrix and compared all the alternatives to one another?
Does my team have the time and skills to implement this solution? Can you secure near full-time people to manage this project? Is the system easy to learn? Is it intuitive? Has your team evaluated it and are they comfortable they can master it?
Do my users have the aptitude to learn it and become proficient? Can you envision your end users quickly learning to use all aspects of the software? Are there enough users who could become proficient enough to serve as key users and help other users with training and troubleshooting?
Does my team fully understand how this solution will integrate with the company’s other systems? Has the vendor demonstrated to your satisfaction the ease with which the system will integrate with your other systems? Are other enterprises already running the software with systems like yours? Try to get at least a conference call with those references to gauge the level of integration complexity.
How risky is this particular software alternative compared to others? Can the software be phased in without interrupting the business? If the solution fails or the team encounters startup problems, how easy will it be to keep mission-critical activities running?
Vendor reputation. How many enterprises are using the vendor’s software, and for how long? Get references and check them.
Can I find programming help in the open market? If you need customizations, can you readily find people to do the work? Or are you locked in to using the vendor to make all your changes?

All of this is of course after you have submitted and reviewed detailed RFPs from the most appropriate vendors.  You can build a grid or a table, with vendors/solutions across the top and your most important criteria down the left hand side, and weight the relative importance of each. The result is an overall score that points you to a solution that best fits your needs.

Image by Digital Strategy, CC license

Although EDI has been around for 20 years, lots of companies still process orders and invoices manually; that is, they receive a written, faxed, or e-mailed purchase order or invoice, then  type it into whatever software they have for tracking and fulfilling orders and paying suppliers.

If you  can’t or don’t want to get into EDI with your trading partners, there are at least two other options: buying software to image the paper documents and convert them to digital format for integration to your systems, or outsourcing the imaging and integration to a third party.

Let’s review the first option.  ReadSoft is one leading vendor offering document imaging.  The company states that it’s solutions “automate the processes of scanning, interpreting, and filing of invoice data,” and provide “seamless workflow integration with SAP, Oracle and over 50 ERP systems.”  The software enables three-way matching of invoice, purchase order, and contract.

My experience with ReadSoft is that it is a solid solution; although the expertise began with invoices the company also manages the purchase order side as well.  The companies that I know use ReadSoft have purchased it as an “on-premise” solution; that is, they have purchased the license for the software and installed it on a server within their organization.  It has a good rules-based engine for checking documents for certain attributes prior to integration with your main systems.

The second option is to outsource the receipt, capture, filtering, and integration to a 3rd party.  One vendor that does this is OmPrompt, a UK-based firm that is relatively small but boasts numerous marquee brand-name global companies as clients.  I also have experience with this company and indeed their solutions are solid and deliver as promised.

OmPrompt, in simple terms, works like this: your paper traffic is diverted to the company, you apply whatever business rules and filters to those documents, and OmPrompt then sends to your ERP system the proper digital files to complete the transactions.  OmPrompt handles business from around the globe, from the Middle East to China.  OmPrompt also processes EDI exchanges, and customer claims — a huge headache for many companies.

Which type of solution — on-premise or service — is better for you?  I am biased toward services rather than buying software, but you do need to consider the pros and cons in a balanced way:

The on-premise solution might be better if you want tight integration with the SAP or Oracle workflow, although the OmPrompt service can also filter invoices, claims, and POs based on your contracts and business rules.  The service-based solution removes the obligation to maintain server, operating system, licenses, users, and the core software;

Cost-wise you may pay much more upfront for the on-premise solution (license, installation, configuration, server, etc.) as well as 20-25% of the license cost each year for software maintenance.

The service option is very low-cost, after some setup fees, because you are using computing power that is shared across many clients.

Whichever option you choose, automating the manual work will bring clear returns:  reduced administrative work and solid internal controls to ensure you’re paying what you should on invoices and claims, plus the ability to standardize your inbound purchase orders or create a web portal for order capture.

Photo by Jimmy Brown, CC license

FUD stands for fear, uncertainty, and doubt, and was a phrase used in the early 1980s to describe the unsettling and confusing atmosphere companies faced as they began investing heavily in software applications.

In 1979 Gideon Gartner, formerly a top technology analyst at Oppenheimer & Co., capitalized on that confusion and formed an advisory firm to help companies with technology decisions. Gartner Inc. now has a market value exceeding $4 billion and customers in 85 countries.

Although we have software tools far superior to what was available in the the 1980s, FUD still exists.

It exists wherever software marketers and commercial enterprises interact.  The dialogue is predictable: “Can your system do this, that, and the other thing.”  “Our system can do that, and much more; it can do X, Y, and Z.”

But the two parties (software, business) are talking past each other.  They aren’t even using the same language.

Software marketing is filled with evocative corporate-speak; it is opaque, conceptual, and general.  Meanwhile, the business person looking for a solution is mired in her own problematic world and knows in general what she needs but doesn’t realize that the software company she is speaking to has no idea of the details of her situation and even more cannot imagine it.

They speak to one another and try to find some common things they both agree on and understand.  The business person is left bewildered.  FUD.

Money pits thrive where FUD exists.  In this situation, bad and costly decisions are highly probable.

• Take a step back and evaluate your business and technology strategy.  Do you really need this technology or could you outsource the whole business process?  Will the investment in this technology make my customers happier?
• Before considering any solutions offered by software vendors, take the time to evaluate processes the software will support, document how those processes should flow in the future, and prepare a detailed list of requirements for the future application.  You will use this to evaluate the “fit” of each software solution to your situation.
• Like anything else, educate yourself before you buy.  Understand the type of technology you need, and the options available in the current market.  An advisory firm is recommended here; it will cost you a fraction of what you intend to spend and save you multiples of that.
• Change the conversation with the vendor.  Stop talking about the software.  Instead talk about your business context and the goals you have.  Most vendors really do want to understand your needs but they don’t have the advantage of being in your shoes.
• Take the vendor’s software solution for an imaginary “test drive.”  Spend time with the vendor walking through your future process and the associated technology requirements.  The result will be much more clarity and understanding of the vendor’s potential to meet your needs.

You need to understand the way software firms, consultants and advisory services interact with one another.

In the process of thoroughly confusing yourself trying to scan the software market for something resembling a solution to your problem, you will at some point realize that there aren’t many places to go for an objective appraisal of applications or vendors.

That’s because, in my view, all the players in the software market — the firms themselves, consulting companies, advisory services, user groups, associations and conference organizations, and hardware and network providers — act in a way that is (shocking!) mostly designed to perpetuate and increase spending on software and related products and services.

Yes, firms strive to be competitive and earn your business, and will tell you why their solutions are better than others. But few players in the software market — even subscription advisory services — will solidly endorse or, alternately, steer you clear of, a particular software or consulting organization or its products and services.

[pullquote]There’s just very little clear-cut information to be had. Advisory firms don’t want to dismiss anyone because they rely on all players to provide them information, buy their services, and attend their conferences.[/pullquote] IBM Consulting Services is not going to advise you that SAP or Oracle would be a terrible choice — their consulting revenues depend on a stream of projects implementing those same applications.

There are several well-respected organizations providing in-depth research and advisory services related to the entire IT industry. Their services and publications are indeed excellent, thorough and detailed, but only directionally conclusive and even then in a rather general and not exactly plain-spoken way, and accompanied by caveats.

Consider this summary statement from one such respected research firm, in a publication reviewing software for analyzing product assortment: “Use DemandTec if optimizing your assortment in a collaborative retailer and manufacturer environment, the ability to leverage localized incrementality and demand transfer analytics or leveraging your shopper insights is a key priority for your company.” Got it?

Adding to the noise are industry associations and a slew of online newsletters that seem to multiply over time…there’s CIO Magazine, CIO Research, IT Whitepapers, IT Whitepapers Business Intelligence, Enterprise Business Alert, Business Management Alert, Mobile Alert, Networking Alert, InfoWorld, Supply Chain Technology Bulletin, BI Technology Bulletin, and on and on…a flood of information, discussion, interviews, blogs, announcements, conference invitations and webinars.

All of it contributes to a general feeling of being in the woods, having no idea what the forest looks like. But one thing is sure: every topic is urgently important and deserving of weighty consideration equal to that given the most pressing and critical questions of our time.

Now hitting your inbox: “New survey – High performance analytics: Are you ready?” and “7 Best Practices for Developing in the Hybrid Cloud.” These digital marketing efforts are fueled by advertising for IT products and services — again, the self-perpetuating nature of the market.

It’s marketing, OK?  Just view it as that.  As I’ve said before, change the conversation.  Ask questions that come from deep within your understanding of your own situation and business, and insist that your vendor speak to those needs.

Software vendors have lots of value to offer.  Most are selling valuable solutions.  There is an intersection between your needs and the software; that is what you need to find, and understand completely.

Two years ago I began exploring “cloud” software for integrating our company with its trading partners. This is how one company explains the benefits of its cloud software solution:

“Cloud supply chain platforms invert the traditional EDI (Electronic Data Interchange) hub equation by moving the data processing and linking logic from the partners at the ends of the spokes to the center hub itself. In this model, the entire value chain community leverages a common core technology utility so that all partners link to a single version of supply chain truth across the entire network.”

Here you have conceptual-speak, what sounds like preamble, and lots of jargon made to sound sensible (who can resist “a single version of supply chain truth across the entire network”?). In the section that is supposed to answer “what is this technology made of?” I come across this explanation:

“First, importantly, it is technology designed for the deep and detailed processes of a specific B2B domain. It is not generic. In this respect it diverges sharply from traditional EDI technologies that were designed for file transport and translation across all processes. Traditional systems take a “one size fits all” to information exchange: EDI file delivery for everyone, but a complete picture for no one.”

There’s more:

“In rich process domains such as supply chain execution, where the processes are long-lived and highly collaborative, what is needed is an information transformation layer that is knitted to the specific business processes at hand. Only by understanding the underlying and highly detailed data models and linkages of the critical business objects themselves can an information exchange platform create tight mappings to process. If an EDI VAN (Value Added Network) transports file packets, but is blind to the contents, the next generation platform interprets at the content level — it applies technology to the inside of the packet, in other words.”

None of this made sense to me, so I met with the firm’s representatives.

What they mean, as it turns out, is that their cloud software acts like a big private Facebook page, where your partners post data and transactions, as compared to traditional EDI, which is like passing a message to your partners in a straw where only you and they can see what’s in the straw.

One of the best ways to start a constructive conversation with a vendor is to say, “Ok I’m stupid. Connect the dots for me. You can link me to my trading partners like we’re all on Facebook. So what? Do I get rid of my EDI? What does that save me? Do I reduce inventories and order lead times? Will my customers and suppliers love me for doing this and will they partner with me on this approach?”

If a software vendor is good, that firm will assess your business situation first – your operation and processes – before trying to sell you anything.

So to handle the FUD experience you have to break the spell.  Be the spoiler in the room who is not going along with the feel-good lingo emanating from the vendor.