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- December 08, 2014
- Alex Kleiner
- IT & Technology
The Cloud has greatly accelerated many activities associated with deploying
enterprise software: innovation, integration, and the implementation process. Along with this heightened speed also comes an accelerated time to value. There’s one activity, however, that hasn’t kept up with this pace of change: the software procurement process itself. What many fail to realise is that this lack of progress is needlessly hampering the time to value equation for cloud solutions.
The Cloud offers the opportunity for organisations to procure software differently than they have in the past. Comparing a one-year subscription agreement that comes out of an operating expense to a purchase made against a three-to-five-year capital budgeting cycle is a very different exercise indeed.
With the latter proposition, it is perfectly normal and even justifiable to spend eight to 12 months reviewing vendor RFPs before making a decision, followed by a year or more for an implementation project. This process has traditionally guaranteed a time to value horizon measured in years.
Fast implementation is commonplace
With the Cloud the time to value can be so much faster. Three to four-month implementations are not just possible, but commonplace. As it stands today, however, many organisations still aren’t achieving the fastest time to value possible, because they still rely on the same lengthy and entrenched evaluation process leading up to the purchase.
If organizations were to take the analysis of their expected return on invested capital, and then also factor in the cost of a long evaluation process, I think the insight would be eye opening. The process for evaluating software simply hasn't caught up with the times, and it’s costing a lot of time and money.
The 3,000-question RFP, unfortunately, is still alive and well. This level of rigour may have been appropriate when every implementation was bespoke and companies were signing on for a long-term perpetual license with 20% annual maintenance. In the Cloud environment, where you are considering a standardised platform offered as a subscription service, with a turnkey and well-repeated implementation process, and also the potential for a one to three year contract, a 3,000 question RFP is a bloated and unnecessary exercise.
Piggybacking on someone else's due diligence
Part of the beauty of the Cloud is that one can rely on someone else’s due diligence process in a way that was not possible before. If you are building a new house on a greenfield site, it makes sense to review the blueprints, architects, and builders with careful scrutiny. If your neighbors on each side just had houses built that you really like, however, it is sensible to reduce much of that rigour when using the same blueprints, architects, and builders for your project. This is an over-simplified example, but hopefully illustrative.
Along those lines, earlier this year my company did a deal, whereby a very large multi-national was able to study the due diligence done previously by an organisation of similar size and complexity and conduct a successful evaluation process and commercial transaction in just 10 weeks, compared to the first organisation’s process, which took more than a year.
The first company conducted an integrated proof-of-concept (POC), a costly and intensive exercise for both the purchasing organisation and the solution provider. This entailed a large investment in a months-long internal effort that supported more than 200 stakeholders in 12 different countries around the world ‘kicking the tires’ for two systems (ours and a competitor’s), with six key business processes modeled and fully integrated to two production SAP systems.
The first organisation likely spent hundreds of thousands of Dollars, Pounds, and Euros in internal travel and resource allocation costs alone. The scope of this organisation’s project is global in nature – involving deployment projects planned for more than 80 countries around the world and replacing multiple existing legacy systems. Supporting the breadth of this scope is more substantial than anything my firm had done previously and the first company was prudent to be cautious regarding us as potential provider. The stakes were high and the payback was substantial, so their investment in the evaluation process was justifiable.
The second organisation, however, was willing to ‘piggy-back’ off of the efforts of the first organisation and accept many of the results of their due diligence. This accelerated the second firm’s evaluation process considerably.
Taking a longer view of time to value
In both cases the first phase of the deployment project was completed in 6-9 months, with individuals using our platform in a production setting in various countries. The complete ‘time to value’ calculation for these two projects differ greatly, however, when one includes the time and costs of the proof of concept. Forward-looking CFOs should take a holistic view on cloud-based technology projects and include the evaluation process when assessing time to value. Forward-looking CPOs and CIOs should similarly scrutinize their team’s evaluation processes with a view of whether they are optimised for today’s modern cloud models of purchasing and delivering software.
This dynamic works because a cloud implementation is not a custom consulting project. While there are some degrees of latitude with configuration, the structure and foundation that underpins the software is consistent from customer to customer. What is fascinating to me is that the two companies in this example are in very different industry sectors. In all my years of experience I have never seen a company in one sector leverage the diligence from another so fully. To me this is a prime example of the power that comes from leveraging the Cloud and its inherent standardisation.
In a true cloud model, resources are shared across organisations – if your system is down, you probably don’t need to phone your vendor’s support organisation. Odds are they already know about it and are already busy addressing it. In the spirit of Dumas’ Three Musketeers, it’s “down for one, down for all” (or at least many). As such there is understandably a huge emphasis on performance and transparency, with trusted sites publishing a vendor’s available up-time statistics. For example it’s possible today to see more than 3-years of historical monthly up-time on the Web for my company. Comfort is also granted by reputational factors such as third party reviews and publicly available information, further helping to leverage and accept someone else’s due diligence.
Accelerated evaluation is now possible
This accelerated evaluation approach has never been commonplace before because there wasn’t that much uniformity across software, and secondly because people didn't have as many connections and channels for getting information. With the Cloud it’s possible to dovetail a very streamlined RFP process with industry reviews and personal references from other organisations to make a decision with certainly no more, and perhaps significantly less risk than with a traditional protracted RFP process.
It makes no rational sense at all to spend a year evaluating a vendor that will do a one-year contract. Perversely enough, I’ve even seen some companies take more than two years (and counting) to conduct a vendor evaluation. This is completely unnecessary in the modern era. I’ll go as far as classing it as an irresponsible fiscal waste of shareholder value. Why not be action-oriented and move ahead with a limited short-term agreement of 1-3 years, even it if is internally considered a production ‘pilot?’ It's got to skew the underlying financial time to value to have an evaluation take twice as long as the resulting implementation project, doesn’t it?
Moreover, there’s also the cost of not acting. If you are investing the firm's capital because you believe that there is a positive ROI for your project, the clock is ticking and money is flowing out the door with every subsequent tick. If you deploy the same project now or eight months from now, there’s a big difference in time to value and ROI. Everyone is focused on what happens after you sign the contract, but if you can evaluate faster, you can implement faster and you can assuredly realize benefits faster.
I’m not suggesting a total leap of faith; that’s at one extreme. The 3,000 line RFP is at the other. There are countless shades of grey in the middle. You still need to do proper due diligence and tick off the requisite boxes, but it doesn't have to take as long, especially if you’re out doing research and talking to people and hearing great things from people you trust.
Technology moves very quickly. Humans not as much, especially when norms and organisational cultures are very entrenched. Not a lot changed in the enterprise software market for a long period of time and then the Cloud came along and changed everything overnight. Vendor evaluation processes simply haven't caught up.
An organisation should still undertake a considered evaluation, but with the Cloud model there really is a strong element of, “well, it’s worked for all these people, and it's exactly the same software, so it should work similarly for us.” The opportunity to compress evaluation cycle times and accelerate the time to value is a big part of what makes the Cloud attractive and should not be missed.
Look at it this way. If you are going to buy a car, your first car out of university, maybe you do a ton of research and you agonize over it forever and then you finally make your purchase.
If you were going to lease the car instead, however, would you do all that? Maybe, but now the financial risk is mitigated so maybe you can make that decision faster and start going places. Maybe that’s too contrite an example, but then again that’s exactly my point - this could all be a lot simpler and if it were we could all collectively get where we’re destined to go a lot sooner.
Alex Kleiner is General Manager, EMEA, for Coupa Software.