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Procurement has too much power and influence in IT selection processes

When the phrase “Nobody ever got fired for buying IBM” was coined, it was at a time where IT software and services from IBM equaled reliability. That IBM was the only safe bet, and whenever employees were entrusted with finding the best software or IT consultancy for their company, and they chose IBM, they would be certain that this choice would shield them from repercussions.

Today, when I look at how PLM software is chosen, I cannot help but think that the phrase is still being used. It seems to me that companies are choosing PLM software based on the vendor’s perceived reputation as a “safe bet” and not from a technological point of view.

 

Who cares about the best piece of technology to fit with individual business challenges? Who cares about asking the vendor the hard questions about their software product?

 

A substantial part of the reason why many IT implementation projects fail today is because the procurement department plays a large role in the selection process. And in my opinion, procurement has too much influence on the final decision (in the selection process).

For many years, I have seen how procurement has dominated negotiations and has influenced decisions that ultimately did not bring any value to the company. In the extreme cases, I have seen procurement forcing their demands and pricing through in the negotiation phase. The result? The bidder with the cheapest price won.

Unfortunately, it was a short-term win for procurement, because it developed into an IT project that became a nightmare to implement and ended up being very bad for the business.

Stop following the money

I am concerned about this trend. Companies tend to focus on the economically most attractive offer, and in my view, it gives an unnecessarily large focus on economy and price.

What happens next is when the company states their requirement specifications and their solution definitions, the vendors know they have to bid in with the cheapest solution in order to win the deal. And because the vendors are aware of this situation, the project is narrowed down to a point where they are not sustainable anymore.

Vendors obviously follow this strategy because they are interested in winning the deal and are therefore slicing as much of the project price upfront with the expectation to earn the money at a later point in time. It might come as a surprise to you, but many vendors follow this strategy.

And they do that because procurement only cares about the immediate purchase price and not the total cost of ownership for the solution. And that is because nobody really cares about the total cost of ownership.

Nobody cares about the total cost of ownership!

The end result? The same result that we have seen countless times. Implementation delays. Budget overruns. Large parts of the original solution that becomes obsolete during the implementation phase. And ultimately, another PLM project failure.

Who’s to blame?

As a vendor, your options in this game are limited. Either you play the game, or you lose. If you want to make money, you are forced to lower your project prize and scope as much as possible (and sometimes, lower them too much) with the strategy of making the money when a deal has been won and the implementation phase is running.

But believe me, this is of benefit to no one.

Look at what you really need

So, dear customer: my plea to you is the following:

  • Look at what you really need in a solution. And then try to make both your requirement specification and your solution definition as agile as possible.
  • We all know that we are not able to foresee future processes or workflows. And because of this uncertainty, you need to have a system that can change and adapt to new demands. 
  • Next, put a larger focus on the proposed solution and the proposed implementation team from a vendor. Make them guarantee that they will use the actual team they have proposed initially. Many vendors present their best star players when they compete and when the deal is done, the team members suddenly changes.

 

Remember: I am currently working on a whitepaper with my recommendations on how the PLM selection process could be like. It will be published by November 1st and if you are interested in receiving a copy, sign up in the comments below by saying “yes, please”.

About the author

Leon Lauritsen

Leon has worked with multiple IT systems from ERP to BI and PLM. His experience ranges all the way from programming to business consulting, project management and business development. Leon started his career in IT development and has further earned a diploma in IT and Economics at Copenhagen Business School and an Executive MBA at Henley Management College.  

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