Successful Software Selection: Do Your Due Diligence

A survey by consulting firm Software Advice, based in Austin, Texas, has found that the small and medium-sized (SMB) businesses most satisfied with their software-selection projects used basic due diligence during the selection process, rather than the kinds of complex analyses often employed by IT departments. The two most effective tactics cited by respondents turned out to be checking vendors' references and having software agreements reviewed by an attorney. Several commonly used tactics turned out to have little impact on project success.

For its report, "The Best Software Selection Tactics for SMBs," Software Advice polled 321 company decision-makers about the results of their recent software purchases. Researchers presented respondents with 14 different software-selection tactics and asked for simple yes-or-no responses to determine which ones they used. Then they rated respondents' satisfaction with their software purchases on a scale of one to 10.

Researchers assigned an "impact score" for each tactic, based on the extent to which respondents who employed the tactic reported a different outcome from those who didn't. These impact scores, combined with the satisfaction scores, were used to place each tactic in a quadrant, with the most effective tactics on the upper right and the least effective ones on the lower left. Tactics falling outside of those two quadrants were classified as neutral.

Speaking with ThomasNet News, Ashley Verrill, analyst at Software Advice, said that the firm commonly does research as part of its interaction with software buyers, who come to the company for free help finding the best software applications for their unique needs. Software Advice makes its money on the vendor side by bringing together buyers and sellers.

As a result of interactions with buyers, Software Advice produces industry-focused BuyerView reports that provide market insights into the needs of software buyers. For example, according to the company's BuyerView report on manufacturing software, nearly all manufacturers contacting Software Advice said they need both manufacturing execution system (MES) and materials requirements planning (MRP) software. The majority of respondents said they are migrating to software from manual methods such as spreadsheets and paper.

In the Software Selection report, though, Software Advice wanted to delve more deeply into the processes decision-makers use when they purchase applications. "The BuyerView reports are really great for outlining what people are looking for and the pain points they are trying to address," Verrill said. "What they don't do is look at what are the most effective means in general for selecting software."

It turns out that reference checks and legal reviews were scored, by far, as the most effective tactics for software selection. Also appearing in the "most effective" quadrant were the similar due diligence practices of assessing vendors' financial viability, preparing requests-for-proposals (RFPs), and estimating total cost of ownership (TCO).

Compared to the ways large enterprises conduct their software selection, "in the SMB space, the process needs to be simpler and less expensive," said John Parkinson, affiliate partner at Chicago-based Waterstone Management Group, an advisory firm focused on serving the technology sector, speaking with ThomasNet News. Fortunately, the choices are easier in the SMB space, he said, as "there is little functional differentiation between products in a software category. Unless you're way off the mark, anything you pick is likely to work."

That's not to say due diligence has no role to play, he stressed. "Vendor reputation might well matter, and getting a lawyer to look at the contract makes sense, to ensure the basics for support and that SLAs (service-level agreements) are covered adequately."

Verrill admitted that using the satisfaction measure as a proxy for project success has its limitations. With that said, she stressed that the connection between satisfaction and checking vendor references confirms the growing importance of online and social media in product selection. "It's a symptom of society in general," she said. "When people are making buying decisions, it is less and less coming down to marketing and advertising. People are looking for recommendations from friends and family and peers, and are looking less to the traditional forms of marketing."

Surprisingly, though, some common practices in software procurement appeared in the upper-left "neutral" quadrant, correlated with only moderate levels of satisfaction and employed by fewer of the highly satisfied buyers. This cluster included specifying the technical requirements for the product, assessing the processes to be affected by the application, defining a budget, and hiring a third-party integrator. Even having an IT professional lead the selection project fell into this neutral-scoring cluster.

Asked about this finding, Verrill told ThomasNet News that Software Advice is seeing a trend in the SMB space of decision-makers driving software decisions "from the strategy point of view." She said, "Rather than start with choosing a technology, more company leaders are asking, "~What are the pain points we want to address or the strategy we want to follow?' and then "~backing into' the technology from that."

While emphasizing that having IT lead the software selection project "wasn't identified as among the least-effective tactics ... just neutral," Verrill said the reason this tactic didn't score highly might have been because "the pain points they wanted to solve with the software were not clearly articulated from the outset." Taking such factors into account could have given "the rest of the project team a point of reference to gauge the effectiveness of the software."

The Software Advice survey included two financial measures that might seem closely related, i.e., TCO and ROI. However, TCO scored in the "most effective" quadrant and ROI in the "neutral" quadrant.

This reflects the greater ease of measuring TCO, Verrill believes. ROI tends to differ significantly from one company to another and, for the most part, must be calculated in retrospect. The TCO estimate can be done in advance and is likely more replicable from one company to another.

"Hardly anyone really does ROI calculations," Parkinson told ThomasNet News, commenting frankly on this finding. "Or if they do, they just check to see if the ROI is actually achieved. TCO, however, is a budget issue, and you'll need to know that or [you'll be in trouble."

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