Volume X, Number 2    June, 2003


A quarterly newsletter for clients and friends of Chenault Systems


Conflicts of Interest

Sometimes information technology consulting can create new problems not previously expected.  In other words, many large consulting firms have formed “strategic alliances” with well-known software companies, such as Oracle, Computer Associates, SAP, PeopleSoft and J.D. Edwards forming a software industry version of the military-industrial complex.  Since they are representatives of these products, they compromise consulting independence and objectivity.  A lucrative sale of the software product, and the consulting hours to implement it, may become the focus instead of the real business goals of the client.

In addition, for the same reason a family will design and own a custom built home instead of leasing a manufactured cruise ship, a business may custom build software and have ownership instead of leasing a system off-the-shelf.  The cost can be much less and they have control.  The following is a very good article from the web site newsletter section and explores the consequences of this business problem in more detail.

Companies recoil from software overspending

Investing in technology without adequate analysis of business requirements, "buying ahead" for planned future rollouts that never happened, over engineering networks and data centers, and failed multimillion-dollar corporate wide ERP installations have burned many organizations in recent years. Many companies are still "digesting" major technology investments -- rolling out systems that have been deployed in pilot programs and redesigning work processes to reap value from new software that they have installed.  As a result, many companies are now taking a much more skeptical view of technology investments, requiring thorough analysis and justification before approving new projects.

"Fifty percent of ERP installations are only marginally successful," says META Group analyst Dale Kutnick. "People are frustrated because they do not see much ROI for many of their major investments."

These frustrations are a hangover from the "me too" buying binge that began in the late 1990s with Y2K fears.  Organizations are now realizing that they spent millions on software on the basis that "everyone needed it" or that someone thought it was a good idea without performing "Business 101" due diligence -- analyzing business needs, identifying expected ROI, and enabling accurate measurement of benefits.

Software upgrades exacerbate the frustration.  They cost more money for license purchases and retraining of support staff and, in some cases, end-users.  Too often, these upgrades provide few benefits in terms of productivity or enhanced functionality -- and the software that is being upgraded may already be stalled in terms of delivering tangible value to the corporation.

Some major software vendors, selling now to disillusioned customers in saturated markets, are strong-arming users into upgrading anyhow by discontinuing support on older versions or, in some cases, attempting to force users to sign contracts requiring that they "stay current" with the latest version of the software (or pay significant future upgrade charges).  Microsoft is a prominent offender in this area, but Oracle, CA, BMC Software, SAP, PeopleSoft, et al. also use these tactics.

Many users are suffering severe software indigestion.  For instance, many companies "bought ahead" in CRM -- purchasing large numbers of licenses in anticipation of eventual rollouts.  Siebel has grown into a $2B company on the basis of such sales.  However, most of our clients are still in the early stages of their CRM installations, so that license fees anticipating early corporate wide rollouts were wasted. Instead of "buying ahead" for eventual rollouts that may never happen, we recommend that organizations limit software license purchases to seats that they need in the short term.

We are seeing some indications that vendors of monolithic applications are reacting to the new market dynamics.  For instance, i2 is promising that it will repackage its supply chain applications into easier-to-digest modules based on a Web services model.  SAP also promises eventually to create a modularized version of its monolithic ERP solution.  We believe Siebel and other vendors will eventually be forced to rewrite their applications into a modular format or see their markets dry up, leaving them to attempt to survive on shrinking revenues from maintenance fees.

Despite the reaction to past spending excesses, some companies are still making similar mistakes.  For instance, some organizations that use Lotus Notes are making “strategic moves” to Microsoft Outlook or vice versa based on perceived differences in the long-term direction of technical development between the two packages.  “They are spending millions, and when they are finished, basically they will still have e-mail and calendaring,” says Kutnick.

However, companies should avoid overreacting with knee-jerk negativity to prospective technology investments.  In fact, the current atmosphere of retrenchment provides opportunities for firms with strong planning disciplines to move ahead of their competition by making technology investments that will cut their future costs and increase the value they provide to customers.

“There is an irony to Wall Street and industry analysts now joining the crowd to decry past software spending as misguided,” says Kutnick. “Two years ago, they were among the loudest cheerleaders. The Wall Street analysts were pushing software sales to jack stock prices up.”

To avoid being unduly influenced by ebullient market hype or gloomy obsession with cost cutting, users should approach current and planned future software purchases as holdings in an asset portfolio and apply asset management analysis tools to their software decisions.  They should recognize that software, like hardware and other assets, has a life span.  In some situations, the enterprise will benefit from being near the leading edge, while in other instances it can save money and minimize risk by staying with proven, trailing-edge platforms.

Instead of blindly slashing software budgets, organizations should identify how existing assets and proposed purchases map into the three basic portfolio management investment categories: run the business, grow the business, and transform the business.  While avoiding software purchases based on amorphous promises of strategic benefit far in the future, companies should be prepared to make investments whose future value contribution has been quantified and balanced against the accompanying risks.

META Group analysts Jack Gold, David Cearley, Val Sribar, Mark Coggin, and Dale Kutnick contributed to this article.

Monks and Software Development

By Tom Chenault

With due care, we use proven software tools to develop our systems quicker than more traditional firms and their methods.  We do this with the “prototype method.”  In other words, we will build prototypes, which are strongly reviewed by the client in regularly scheduled meetings.  With this interaction between client and consultant the project will move in a positive direction because both sides understand all the changing issues in detail with a lot of teaching going on.  If something is not quite right or takes longer or less time than expected, then everybody knows why that very day and the issue is resolved before it becomes a problem.

There are no misunderstandings.  The reason why most software projects fail is because of a lack of communication trying to develop the one big solution all at once, or the latest proven software tools are not used.

Often times we are surprised how some organizations are still not taking advantage of the higher end database and Internet tools that we use with our prototype philosophy.  Out of the fear of the unknown or self-preservation many organizations are not ready to make this commitment.  Rapid Application Development (RAD) database systems automate computer programming and do not force management to hire large numbers of programmers or go off shore for cheaper programmers.

Internet software will automate the sales function along with cost cutting in back office order entry.  Why are several companies still in the dark ages regarding these tools?  This is really nothing new.  We can go back to the dark ages to explain why there is always resistance to change regarding technology.

In the year 1450, an innovative entrepreneur named Johann Gutenberg developed a rich decorative typeset modeled on the Gothic handwriting of the period.  This project took fourteen years of prototyping and incremental changes before it was finally finished.  More importantly, he perfected the concept of letterpress printing, fulfilling the needs for more and cheaper reading matter.  One major work became known as the Gutenberg Bible, but not before serious confrontations with many employed papal monks who were producing Bibles one-by-one by hand.

Out of self-preservation, the monks ruled Gutenberg’s printing machine as blasphemous, expensive, and unsafe.  They may have even cited security and data integrity as other judgmental criteria.  The priesthood (upper management) accepted the monks’ explanation for a long time.  Later, they finally realized that this first form of word processing could rapidly spread the “Word” to a wider audience.  Of course, a wider audience meant much larger collections and early retirement.  Six user-friendly Gutenberg presses working simultaneously could process an unheard of 20 to 40 pages per day.  Therefore, mass marketing through technology was a major factor in making Christianity the most popular religion in the world.  Meanwhile, legions of monks, without unions or political lobbyists to protect them, were re-deployed as missionaries or underpaid gardeners.  They missed out on a medieval Internet.

Some software programming tasks require a great deal of inventiveness.  However, a great deal of programming is repetitive, giving programmers the same monk-like existence of hand copying Bibles over and over again.  The right software tools can save management from hiring too many less experienced programmers.  This could also stave off using off shore answers, which is usually not a good idea because of the lack of control.

Quotes Worth Noting

“Education is learning what you didn't even know you didn't know.” -- Daniel J. Boorstin