News Feature

The Great Global Seat Scam

June 01, 2001 — CIO — Ever talk to a con man? he’ll tell you that it’s the smarter folk who make the best marks. No one is really dumb enough to draw their life’s savings out of the bank and hand the wad of cash to someone just so that they can hold it. No one, that is, except those who think they are canny enough to watch their money carefully.

Most global CIOs rather fancy their prowess round the negotiating table, and I think this is why they get swindled so regularly, and so thoroughly, by software companies.

Here’s a version of the scam I ran into last month. A company is about to buy a new "global" ERP software package from one of these ERP companies that’s promising all the usual global access hoopla. (No names here, and the circumstances have been altered for the sake of job protection.) Included in the deal is a "global" HR package that is desperately needed in the United States.

"How many seats shall we put you down for in HR?" asks the software salesman. "You’ve got 11,000 employees worldwide, right? And they’ll all be accessing the system. Better put you down for 11,000"?the CIO starts to say something?"and at a very substantial discount." The CIO hesitates, just the way a mark does when a con man reassuringly offers to let him hold the money again. Then the CIO acquiesces.

But you see, that particular HR package doesn’t do anything outside the United States. You can’t pay anybody in New Zealand with the package because it doesn’t know about New Zealand payroll. You can’t report on total compensation in Japan with it because it doesn’t handle Japanese pensions correctly. Very little data about Germans can go in there because of German privacy requirements.

Inside the United States it will be used. Folks will use the self-service capabilities, and they’ll be happy with them. Corporate headquarters will use it as the worldwide HR database. Every employee’s name will go in there, and vital information will be copied into it from the HR systems that are actually used to manage employees in Tashkent, Uzbekistan, and Athens, Greece. But even assuming that some regional managers in Frankfurt, Germany, use it for appraisals, that only adds up to about 6,000 users.

I’m going into this in some detail be-cause I’m trying to make it sound like a plausible mistake, but in my experience, grotesque overbuying without even the shred of an excuse is the rule, not the exception. And it’s not just my experience. A senior executive at one of the Big Five?a former analyst at Gartner whom I’d better not name?estimates that the typical buyer ends up using about 70 percent of the seats he pays for. That doesn’t sound too bad, until you realize that this typical buyer is paying 40 percent more than he should. "And that’s at the end of the day," the Big Five executive went on. "When you consider that they probably shouldn’t be paying for users until the users start actually using the software, the cost is considerably greater."