Investing in Software Report

In this report you will find an explanation of the three basic types of software, how to determine your best software solution, how to begin your software acquisition process, cost justification, ROI (return on investment) and handling both management and employee resistance to new software.

If you are struggling with how to begin your software acquisition process or you need help determining what type of solution best fits your situation feel free to complete the contact form or the one located at the right side of the page.

The Three kinds of Software Acquisition

When embarking upon a new software acquisition it is critical to understand the three types of software options, including the pro’s and con’s of each type, so that you can make the most informed and cost effective decision based on your company needs.

Off the shelf software purchases

Off the shelf software solutions are made to serve a broad range of customers. It uses a standard design and a pre-defined framework.

PROS:

Off-the-shelf software is generally reasonably priced resulting in a lower initial investment. The cost of development of an off-the-shelf product is distributed over a number of buyers by spreading the cost over the number of licenses sold.
Off-the-shelf software can be very sophisticated. Take Excel or Word: Because there is enormous revenue received from a very large number of users a lot of resources can be applied to its development.

CONS:

Off-the-shelf software can have too many options. It usually includes large sections and functionality that you will never use. Word users are reputed to use around 10 % of the available functionality.
Off-the-shelf software is by its nature a compromise. This software is designed for many different types of users. Each will have different requirements which the software may or may not accommodate.
Off-the-shelf software can take a long time to learn properly. This is because the software tends to be large and complicated.
Your company may have to alter work flows or processes in order to fit in with the way that the software is designed. There will probably be operations and processes that you require which cannot be done using the software.
Your competitors are on your level. Since the same system can be bought by your competitors it is very difficult to gain any competitive advantage from using it.

Software as a service

Software as a service is an application that is hosted on a remote server and accessed through the internet. There are two primary categories of this type of software. “Line of business services" refers to business solutions offered to companies and organizations on a subscription basis. Applications included under this category include business processes such as supply-chain management programs, customer relations management applications and others. “Customer-oriented services” are offered to the general public either on a subscription basis or offered for free but are supported by advertising. Web-based email fall into this general category.

PROS:

Automatic updates. You always get the latest version of the software, without having to do any installation work. These features are only valuable if you can leverage them to create value. You should ask yourself if your organization has the flexibility to improve processes and services, train users, and really get the value out of the upgrades.
Fewer compatibility issues. In general there is little to worry about in terms of compatibility issues. As long as you run a standard web browser you’ll probably be able to use the service.
No installs. Software doesn’t need to be installed on multiple machines nor is there a need to purchase installation packages that automate the installation process.
Small upfront costs. You’ll be able to pay over time (regular monthly fees) and minimize large upfront capital investments.

CONS:

Internet connectivity is required to use the service. If you lose your connection to the Internet you cannot access your software!
Data security. Someone else is responsible for your data. This can be a plus if you don’t know how to manage your data. If you collect highly sensitive information you’ll need to carefully scrutinize potential vendors about their practices including security, back-up, and recovery.
Up-time and availability. Someone else is responsible for making sure the software works every day. Set expectations with your service providers and validate them.
Only limited customization options are available for most services. Even if you can customize you run the risk of finding issues when those automatic upgrades occur.
Single-sign on. If the system does not support integration with your existing user management service your users will need to remember yet another set of login information.

Custom Software

Custom software is a type of software that is developed to the specific business requirements of a company or organization.

PROS:

Customized software provides exactly what you need. Actual users are very good at describing work flows and as a result, software can be more effectively designed to increase user efficiency and productivity.
You own the software and the code. Owning both provides you more control over future enhancements so the software can change as your business changes.
It gives you a competitive edge because unless you approve it no one else can use the software you developed.
Custom software allows for strong analytical tools and custom reports you can use to make intelligent business decisions.
Individualized, expert technical support. Once the software is in production your developer will be familiar with your work processes and will be better suited to provide the best technical support. Your developer will understand common issues, traps, and exceptions. They can then offer ideas about continuous improvements to your software.
Since the users will have input into the software design, it will be easier for employees to accept the new system. The training curve will also be shorter because they were involved in the development.
Customized software is flexible and scalable. Changes and additions can made easily and the software can grow with the changing demands of your business.

CONS:

Cost. Custom Software is designed specifically to your needs. You should expect to pay a bit more. Keep in mind the money you will save in the long run from eliminating duplicated work and increasing productivity and efficiency.
Development Time. Custom software is not immediately available like off the shelf software or software as a service. How long it will take to receive your software depends upon the scope of your project, the development model and the tools of the developer.

Determining the Best Software Solution

To determine the best software solution for your specific business situation you need to look at several important factors:

Time: Evaluate Operations

Time is valuable and it is especially true when it comes to running a business. Let’s face facts. The time we have is limited. There are 24 hours in every day. What truly matters is how we spend that time. In the case of running a business every minute you can save translates into cost savings. Labor is typically the highest business cost center of any business. If you can save time therefore, you can generally significantly reduce labor costs and increase savings.

Businesses should take the time to thoroughly evaluate their operations in order to identify the issues and problems best addressed by a software solution.

How efficient are your business operations?
Can your business run without over-site?
Are there gaps in communication?
Do you need to integrate new solutions with existing technology?
Do you have cross platform capability to allow action at any place or time?
Can you manage both your internal and external relationships easily?
Do your employees know what process to follow consistently?
Can employees complete business tasks accurately?
Can manual procedures be automated or streamlined?
What is the error rate for each of your business tasks?
Can process errors, corrections or duplicate work be reduced?

Once you assessed your current situation and the issues that are critical to your business, you can begin looking at various software solutions. This solution should be capable of directing day to day business activities as if you were there in person. With process automation you are on the path to significant time and cost savings.

With an off the shelf or a software as a service solution you might have to adjust your processes and automation to the software all at once.
With a customized software solution, you can deal with the most pressing business issues first. You can later expand your solution to deal with the less pressing issues.

What you need to get started

Because software exists as part of a larger business system you must take “inventory” of all your business needs and requirements for a software solution to deliver increases in effective management, efficiency, productivity and cost savings over the long term. By following this step by step approach you will begin to develop a clear picture of what functionality your software solution should possess to meet your needs and expectations.

Identify the business issues that, when solved, deliver the greatest benefit to your company.

What is your business about?
What do you do and how do you do it?
What are your business needs?
What is your most important concern?
What takes most of your time?
What needs consistent monitoring?
What causes the greatest pain?
What would give you the greatest benefit?

Define your business structure including external relationships.

Identify business entities.

business partners
employees
customers
vendors
contractors

Identify business data.

accounts payable
accounts receivable
order tracking
supply chain and inventory
human resource management
training
customer service/maintenance

Identify business rules.

processes
relationships
conditions
types, categories and time frames

Locate related existing assets.

current databases and software

Licenses, office style software, email clients, current custom solutions and in-house developed tools.

current paper systems

Ledger sheets, memos, invoices for accounts payable and receivables these items and others should be collected as examples of each.

current business knowledge

These individuals are the stakeholders and are mostly represented by your internal business entities.

Cost Justification

How is the cost of a new software solution justifiable?

When a business decides to undertake a software acquisition, they should be concerned with how soon the software solution will be in production, and how long it will take to earn back their investment. This is called Return on Investment (ROI). It is important to look at how a new software system will increase revenue and decrease costs. You also need to look at the cost it takes to acquire the application, the time needed to make it part of your business and how long it will take to recover those investments.

ROI consists of two distinct pieces, benefits and payback time.

A tangible benefit is anything that reduces the operational costs of a company or increases the revenue of a company. Intangible benefits are also important. For example, improving customer service may be very valuable, and it may require an investment to realize. Although intangible benefits are hard to quantify they should be included in your ROI—if not quantitatively, then in a qualitative manner. As in the example of "better customer service", this may give you a better market position than your competitors. This benefit cannot be measured but it surely can be weighed.

How do you calculate ROI?

That is not always an easy question to answer. The reason is that not all factors can be measured up front. Sometimes the factors can't even be measured until the software solution is in production.

Soft benefits are things like an employee's job is made easier. Other soft benefits might include reducing the time to market with a product or service and increasing customer or employee retention. The soft benefits a company may receive from a software solution complicate ROI calculations. These factors are difficult to quantify. However, an attempt should be made to measure them as accurately as possible when calculating ROI as part of justifying the total cost of software acquisition.

ROI is usually calculated by taking the benefits over the first year of deployment and dividing that number by the total cost of acquisition. Another calculation is the payback time. It is calculated by how long it takes to pay back the initial investment in dollars. This can be done by taking the total cost of acquisition and dividing it by the business cost savings plus the increased revenue for a single month.

Examples: Calculating return on investment (ROI)

Let's say it takes $100,000 to create a new application to take orders for your products. But due to better efficiencies in the ordering software, it allows you to take more orders per day. This increase results in an additional $25,000 in sales each month for the next year. The $25,000 translates to $300,000 in new business. If you take the $300,000 divided by $100,000 you get a 300% return on investment. Since the development cost $100,000 and the increase in sales is $25,000, when you divide the $100,000 by $25,000 you get a payback time of only 4 months.

Another example is creating an application that will allow you track your inventory in real time and reorder in a much more efficient manner. If this implementation costs $500,000 but results in a $50,000 savings each month, then your ROI is 120 percent with a 10-month payback. (Sheriff)

The most important thing when purchasing software...

is that the benefits are not merely a function of price and functionality. When you invest in software you should create a systematic approach that can address the multiple facets of a thriving business such as office operations, assembly line production, customer service and vendor relationships to name just a few processes that can be affected by any software solution.

Always look for solutions that are based on best practices and lean production principles to automate processes. This approach results in the greatest number of tangible benefits. The process improvements and increases in productivity will increase the bottom line profits of your company and decrease overheads.

As an example, let’s look at inventory and the supply chain. Inventory is a “just in time” function for most manufacturers today. With a properly designed software solution you will know exactly what has been ordered and precisely where it is in the supply chain. This provides you with the knowledge and tools to improve delivery of product and services to your customers as well as to cut operating costs by better real time management of your inventory.

Justifying the cost of investing in software doesn’t have to be a struggle. Once you understand the cost benefits that well-designed software can deliver on a systemic level you will be better able to overcome objections.

Resistance

Management concerns are generally cost based and process based. The number one objection most employees or software users raise is the difficulty of learning a new system.

One of the best ways to overcome resistance from management and employees is to prepare. How can you best accomplish this?

Management

Management concerns are generally cost based and process based.

Clearly state the existing business issues.

Hpw do they affect overall performance and profitability that the new software acquisition will resolve. Be as specific as possible.

Create a list of all the objections.

Have you heard ones voiced by your management team or by project team members? Then brainstorm some more and identify any other issues you believe management may raise in the form of resistance or objections to your proposed software solution.

Use your team to address each concern.

Provide backup materials to support your position in the form of case studies and actual business results from others who implemented the same or a similar software application.

Prepare your cost justification documents.

Keep all the potential objections in mind and make sure you add the proper context around all financial figures.

Be able to provide the process used to project ROI and payback periods

Provide strong evidence to back up the validity of your projections.

Be able to clearly point to tangible benefits.

Include process efficiencies and productivity increases that will result from the software investment.

Do not be afraid to address “intangible benefits”.

In fact, the more intangible benefits you quantify and qualify the stronger your overall case. Example: Increases in employee and customer satisfaction can be huge wins for a company. Do your best to sell these points as part of your overall cost justification and business case.

By preparing a thorough business case and identifying the specific issues the software will solve along with a strong cost justification document including ROI projections you will be able to answer most concerns and add context to any cost figures that cause discomfort. Honesty and transparency coupled with a focus on the positive benefits the software will deliver go a long way towards gaining buy in and finding common ground on which to proceed.

Employees and Other Users

“We know what we like and we like what we know”. Have you ever heard that from your employees? Gaining buy-in from your employees when it comes to implementing new systems or making changes can be a difficult battle because we become comfortable using the same system day in and day out and therefore we like it. When we are faced with having to learn something new it is uncomfortable and often times we will not like it just because it is different and we don’t yet “know” what it can do or how easy it can be to use it.

There are some simple strategies that can help you overcome employee resistance.

When planning to implement new software...

design a user-friendly interface that is highly intuitive. If it can work in a similar fashion to your existing application or it is even easier to use than your existing application users will make the transition much better. Be sure you have early input from the persons who will be using the software to make sure their concerns are met in this matter.

Promote any changes or new software implementations well in advance.

Build excitement by sharing details about how it will make employee jobs easier or how it will enable more knowledge sharing. Look for the positives and promote them regularly beginning months or more in advance of the application deployment.

Set up a playpen and training environment.

There employees can become familiar with the new product and how it works before they are under pressure to use it in production.

Provide formal and informal training opportunities in advance of the implementation.

The earlier in the process that this can be allowed to happen the more invested the users will be. Additional feedback will work to insure that the user's concerns will be addressed.

Consider employee contests

Recognize and reward departments who make the transition fastest, have the highest adoption rates etc.

Reward individuals who become early adopters of the technology.

Feature them in a company newsletter, magazine etc. Let them help you “sell” the new application(s) to the other employees. Have them write reviews of their experiences and ways the software can be best used.

Make learning the new system fun!

Employ the training department to come up with creative ways to teach employees what they will need to know.

The truth is that the number one objection most employees or software users raise is the difficulty of learning a new system. The path to high adoption rates for new software is ease of use. Always insist on user-friendly, intuitive interfaces and straight forward, easy navigation schemes. Ease of use as a primary feature of the software solution you choose will ensure high adoption rates and therefore the value of your software solution.

Investing in software is often times a complex decision. By starting at the beginning with a clear understanding of what your company does, how it does that and who it does that for, looking at the cost to benefit ratio with consideration to avoid resistance, you can acquire a valuable software solution that not only meets your company needs now but a solution robust enough to handle the emerging needs and expectations of your business in the future.

If you have a new application for a software solution and have been unable to locate a software solution to handle it we encourage you to complete our contact form or the one located to the right of this page. We are experts in developing effective solutions to new and difficult business problems.

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