Why Management Software Is A Bad Investment
Why is a software consulting firm that provides some of the world's leading management software writing about how investing in enterprise technology should be considered a poor financial investment? The fact of the matter is that it's true. Management software itself —in this day and age—is a poor investment. So, what's a business to do? We can't go back to file cabinets and spreadsheets, so how can businesses get the most out of management software so that it doesn't become sunk cost to the business?
Why buying management software is like buying a car ... on steroids
Think about it. Buying management software is a lot like buying a car. When you buy a car, the moment you drive it off the lot it depreciates in value. After several years, the car is worth a small fraction of it's initial investment. What's more, that car has maintenance costs associated with it during that timespan as well. If you do a poor job of taking care of it, guess what? That car is going to become a regular expense; costing you more and more money each month.
Assuming you've maintained it well, that car is due to be upgraded after 4-7 years (this is the average in the U.S.). You're now left with a vehicle that is worth roughly 20% of it's original value. However, you couldn't have maintained your normal life and schedule without that car; so there is a return that is received for the purchase. The key for most of us is how we leverage the costs associated with benefits we receive from that automobile. Software is very similar, but poses even greater risks to the buyer.
When you purchase software — not only does it depreciate immediately — it is essentially becomes worthless once it's installed/implemented by your organization. If your software is hardcopy and on-premise, it's essentially not worth anything to anyone once installed (who will want to buy your outdated old software in 5 years?). If your software is cloud-based, you're literally buying nothing. You merely have access to the software, and certainly can't resell it. You also maintain the risks and responsibilities of ownership regardless of your selection. Just like with an automobile, if you fail to maintain or properly care for your vehicle it will betray you at some point; forcing you to invest more valuable resources into proper function and access. On top of everything else, it's extremely likely — given the progression of technology, supply chains, production, logistics, etc. — that your software will need to be replaced or upgraded within the next 5-7 years. So you have to ask yourself the question, what am I getting for my money? Because, software is inherrently a terrible investment.
Why determining ROI is so important
Determining the ROI of your management software is paramount to avoiding massive sunk costs in technology infrastructure. I think we can all agree that simply owning software is not overly beneficial. What you can actually accomplish with the software is where the true value lies.
If the sole goal of your new management software is to perform the same functions and tasks that it does today, then why even consider a new system? If you purchase a new system simply to replace an old one, you are literally planning to waste money. Spending money on a management software project that replaces one thing with another offers no ROI to the business. Businesses must take a hard look at the key reasons why they are replacing an old system or upgrading to a latest version. There are always core reasons why these decisions are made, and underneath of those decisions are key functions, alignments, and processes that could improve business and generate real system ROI.
As a top management software consulting firm, we see thousands of different reasons that businesses are evaluating new systems, processes, and software. Some of the time those reasons are good, sometimes they are poorly thought out. The difference is the initial premise from which they derive their desire to engage in a new management software project.
Businesses that approach new management software projects considering how they can support, improve, or manage new or existing processes, are typically on the right track. This type of thinking allows the business to think through how the software can help the organization achieve new goals, eliminate waste, and accomplish business outcomes in a more efficient manner. This is the foundation for achieving and measuring ROI. Organizations can build a strategy around these plans, measure their success, and hold project team members accountable for achieving these initiatives.
On the flip side, businesses who consider the benefits of software; rather than how they can support helpful or dynamic processes in their organization, typically experience difficulty achieving their desired ROI. For example, if a business is considering Salesforce or Dynamics CRM, they should first think through how these software systems could help their business support new processes and objectives. What often happens instead is that organizations see the marketed benefits of these types of management software and believe that by implementing these systems that they will some how inherently achieve these benefits. This type of thinking almost always leads to poor implementation practices, undefined ROI measurements, and abysmal organizational adoption.
Determining how your organization will achieve ROI with the software is the start to ensuring that the investment you make is a good one. It seems obvious, but this is not often the normal line of consideration that these projects get. Planning how the software can be used to improve the organization is the correct premise that will allow this to occur.
"It's our first ERP/CRM/etc. We can only benefit from it's implementation, right?"
What if the management software will be a first time implementation? You can simply only benefit from going from nothing to something, right? Unfortunately, this is not true, either. That new management software is likely replacing some kind of outdated older process. Simply using software to take the place of spreadsheets; while the organization changes little in the way of processes is a formula for losing money of the project.
With new software, businesses should acquire new capabilities and efficiencies that didn't exist before. Establishing what these are will help each organization determine where the project ROI can be found. It will be different for every businesses, but understanding what this ROI will look like will allow businesses to create plans, metrics, and benchmarks around the project to ensure these desired outcomes are met.
How to save money
The bottom line is that no company wants to spend hundreds of thousands of dollars on management software for their enterprise. The software itself isn't overly sexy, and employees often revolt when faced with system changes. Implementing, upgrading, or customizing a system can be an expensive and thankless process; however if approached correctly, business can come out on the other side of these projects with significant savings and increased profit.
Businesses implement new systems everyday that allow them to become more competitive, less wasteful, and more productive. The same management software that was once expensive and difficult can transform your business and propel it in to a new stratospheres of success. Quite simply, the approach you should take with management software should focus more on the process and less on the software.
Datix specializes in business process modeling We believe that how management software is used is far more important than the software itself. We've helped hundreds of businesses select, implement, upgrade, integrate, and customize their enterprise software. If you'd like to discuss this subject in greater depth, contact our team today.