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| Software’s dirty little secret |
March 5, 2002 |
By Ron Shuttleworth
SOFTWARE COMPANIES ARE HURTING. PURCHASES HAVE DRIED UP AS COMPANIES
SCALE BACK OR EVEN CANCEL NEW IMPLEMENTATIONS.
And the cause of this decline is a dirty little secret that lies at the centre of the software industry.
The current economic downturn has been led by a capital spending free-fall driven by collapse in the technology sector.The consumer has been slow to pick up on this—and buoyant consumer confidence indices, published right up until the Sept. 11 tragedy, dumbfounded many Wall Street analysts.
Software development was among the earliest contributors to this down
cycle, and one of the hardest hit tech
sectors. It started with the frothy
Internet-commerce players and quickly
spread to enterprise-software vendors.
Few have been spared and as casualties
mounted in enterprise software, infrastructure vendors and hardware companies began to feel the domino effect. Now the market searches for a bottom as technology companies continue to miss forecasts and complain that they have no future visibility.
It would be a good idea, then, to figure out why, despite huge potential
benefits, companies stopped buying software, and why they continue to resist purchases. Then pragmatic software vendors can find ways to improve their corporate fortunes.
In speaking to many beleaguered CEOs of software companies, along with
IT managers and software analysts, I
believe a lot of software acquired during 1999 and 2000 hasn’t yet delivered on the lofty promises made. In fact, a lot of software hasn’t even been deployed to the point where success can actually be measured. Some will never be deployed.
This is a dirty secret that the pundits on CNBC or ROBTV don’t discuss. In public, no company admits it acquired bad software because it reflects poorly on them, and it’s often hard to pinpoint why the software doesn’t perform. In after-work
pubs, though, this secret begins to come out after two or three pints.
The overheated market conditions of
1999 and 2000 drove year-over-year software revenue growth of 40 and 50 per cent. Companies had to hit these targets because speculative shareholders would have punished them otherwise. This resulted in companies selling poorlydocumented, half-baked, rickety bloatware held together with spit and duct tape. Released products often did little to solve real business problems and sometimes didn’t even deliver on the ones they claimed to solve. A more painful realization was that deployment was magnitudes more difficult even than expected, eating away at customers’ resources and time, and turning systems integrators into multi-billion dollar cash cows. Implementations dragged from weeks to months and sometimes years beyond initial expectations. All of these complicated deployments added layers of complexity to business processes, data management and training that added unforeseen costs of ownership. These factors combined to make the software investments of the past two years huge cost sinkholes with limited business success. It also spawned a new software category—shelfware.
These experiences have caused many IT managers to take a hard look at future
software purchases. Sales cycles have
increased and in many cases decisions
have been delayed. Earlier in the year,
technology analysts were predicting a
strong second-half comeback because
they knew budgets had been set and IT
managers were delaying decisions. By
mid-year, frustrated IT managers postponed or cancelled decisions and capital was re-allocated, or simply evaporated.
As software implementations are finally completed and companies begin to measure business results, we will see the slow re-emergence of demand in the last quarter of this year and the first two quarters of next year.There are a lot of holes to fill. Already, some forward-thinking software vendors are using their hard-knock wisdom to apply new strategies to ensure they don’t repeat the same mistakes that
many made in the last couple of years.
Here are some basics.
The product works in the eyes of the customer In an effort to pack in as many features as fast as possible into a product, engineering resources were loaded against research and development, and Quality Assurance (QA) engineering was relegated to an afterthought. Market speed also reduced compliance to rigorous quality processes. Some forward-thinking companies are beginning to invest in QA
and seriously investing in processes like the Capability Maturity Model (CMM).
They are cutting down on features, but
now the software will operate as advertised.
The product solves a real and common pain The hyper-entrepreneurial environment of the late 1990s led to a lot of “whateversticks-to-the-wall” product management.
Rigorous research to identify real and
urgent business problems was limited.
Other common methods of product
management included “Whatever is on
our competitor’s Web site” or “Whatever
the analysts say is hot” or “Whatever our 23-year-old techno genius says” or
“Whatever our three customers want.”
Identifying and solving real needs
requires rigorous, objective research.
Smart CEOs are beginning to head back to their war-rooms with effective research budgets and appropriate timelines. Startups take note: allocate funding to research.Your investors will appreciate it.
The product is easy to buy
My clients hear me preach this, and it’s worth stating. Competitive pricing is only part of the equation. How easy is the product to deploy? How long will it take to deploy? How many resources are required? And what do I not know?
Software purchasers are beginning to use the term “business architecture”—how well does this product fit into my current and future business organization and strategies? Is it disruptive, or complimentary?
Recently, a lot of software vendors
with capable products have been surprised when prospects suddenly cancel deals.
If you think in terms of “business
architecture” and the massively-complex
configurations, customization and training requirements, it’s easier to figure out why they balked.
The product is easy to own
Total Cost of Ownership (TCO) is an older metric that fell out of vogue a few years ago but has recently made a comeback among purchasers. Right now it’s more of a marketing tool than a methodology for predicting the risk of ownership.
Fundamentally, technology environments
are so complex and interdependent that it is hard to measure TCO for a single system or product purchase. However, there are a few key “abilities” that are crucial to address in order to protect software from quickly becoming shelfware. The abilities are: scalability, extensibility, usability, flexibility and reliability. The extent to which these abilities are important depends on the function of the software. For example, business-process software, such as customer relationship management or enterprise resource planning applications, requires a lot of users in order to deliver value. Usability becomes key to success.
From a user perspective, how easy is it to learn to use a product, how easy is it to retain learning regardless of usage frequency and will it support both novice and expert users? How easy is it for new users to become proficient? How are new users supported? Can a user perform a function using the software better, faster an d easier than any other way?
A lot of software vendors have not
concentrated on the right “ability” and
have failed to deliver the right mix based on the value proposition of the product.
Success is both easy to measure and apparent
Purchasers want to show success to
management early. Set up clear and effective measurement to demonstrate value, and tie risk to it. ROI (return-on-investment) calculators are good but must be validated by third-party experts.
Leverage current investments
This is a standards game. In the 1990s too many software vendors were trying to provide proprietary platforms. In the end, frustrated customers found they had to replace entire legacy systems or undertake huge integration projects that often only partially worked. Most software vendors that have survived have done so because they chose standards that leverage legacy systems. Others may continue to suffer as they struggle to convert while their standards-based competitors race ahead.
Good software vendors are already deeply engaged in delivering on these six basics. The concepts are pretty simple, but as always, execution is brutally difficult.
And it is expensive. Gone are the
days when a smart 20-something could
present a PowerPoint proposal to a
prospect and then work for three days
straight to code and deliver it the
following week. Also gone are 50 and 70
per cent net margins.
The software industry has been the
architect of its own disaster. As capital spending begins to increase and IT managers begin making new decisions, enterprise-software vendors can apply new lessons to reduce the risk of another technology meltdown in three years.
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