Conflict-of-interest traps ensnare enterprise software implementations

While there are several reasons why software implementations take longer than planned, one trap software buyers fall into is that of conflict of interest. A conflict-of-interest situation occurs when the software implementation vendor’s interest is diametrically opposed to yours. When you allow this to happen, you have set yourself up for an implementation that will take longer and cost more than expected.

The software selection trap

Software companies pay vendors large sales commissions. Vendors have a strong incentive to sell you the product that maximizes their commission and implementation billing hours. While obviously they would like your project to go well because it makes them look good and can be useful marketing collateral, they have no other interest in your selecting the software that best meets your particular needs. Interestingly enough, they would rather you purchase software that was not a good fit with your needs because there is more money to be made from the implementation.

Conflict of interest

You want software that fits your business like a glove fits your hand. The vendors want you to purchase software that maximizes their sales commissions and implementation billing hours.

Solution

To help you select enterprise software, use consultants who specialize in software selection only. Avoid hiring vendors who sell, implement or support software for the selection because you will have limited yourself to that vendor’s products before the project has even started.

You want to avoid consultants with vague processes and subjective opinions that are not backed up with a meaningful analysis. Instead, hire consultants who use an objective and data-driven selection process. Ask them to show you how their process works. Examine the process and verify that the output of each step is logically part of the input of the next step. There should be an obvious reason for each step, and each step should have enough details to be actionable. Examples of problem steps are:

• “Gather requirements” is too high-level to be actionable because it does not tell you how requirements should be gathered.
• “Gather requirements in the right level of detail.” This is un-actionable because the “right level of detail” is unspecified. Requirements need to be gathered (written) in enough detail to be implementable.
•  “Interview users for requirements.” While this is a necessary step, they also need to say how they will discover requirements users don’t know they need.

The hourly billing trap

When vendors are paid hourly for implementing software, the more hours they spend on the project, the more money they make. They have no incentive to work quickly. Instead, every “i” is dotted and every “t” is crossed, and they look good because they are perceived as being thorough. The implementation ultimately costs much more than planned, and any business plans that depend on the new software are delayed.

During the sales cycle, implementation vendors parade their best consultants. A common complaint is that once the project gets underway, those experts are nowhere to be seen. Instead, there are junior consultants who cost the vendor less. They also work more slowly than skilled consultants, and that increases hourly revenue. Also, these junior consultants are learning at your expense.

Conflict of interest

You want the implementation project to be on schedule and on budget. The implementation vendor is billing hourly and wants to stretch the project out as long as possible.

Solution

Pay the software implementation vendor by the project, not by the hour. Of course, the quote will be much higher than hourly billing estimates, but ask yourself how many implementations are completed as planned? The final amount paid for implementations is often 50% or even 100% more than initial hourly estimates.

When implementation consultants are paid hourly, their interests are diametrically opposed to yours. When they are paid by the project, their interests are completely aligned with yours. Both of you want the project completed as fast as possible. The vendor will use the best consultants they have available. If the implementation is completed earlier than expected, you get the benefits that flow from using that new software sooner rather than later. Everybody wins.

A note on change orders

When a vendor quotes a fixed price for a project, it expects change orders to increase project revenue. Costs increase because most implementations start with an inadequate list of requirements. Instead of all requirements being discovered during the analysis, “new” requirements are found during the implementation. The vendor needs change orders to accommodate these new requirements, and your costs increase.

To avoid this problem, make sure you perform a thorough requirements analysis. For example, use the reverse-engineering method to discover unknown requirements. If you do your homework with the analysis, no new requirements will be found during implementation, and that means no change orders to increase costs.

Conclusion

To select the software that fits your business like a glove fits your hand and to keep implementation costs within budget, avoid conflicts of interest. Ensure contracts are structured to align vendor interests with yours, and everybody wins.