Daily Archives: November 22, 2016

It’s Not What You Pay a Man …

… but what he costs you that counts.
Will Rogers

Will Rogers was born in a time when many businesses were vertically integrated, controlling everything from the extraction of the raw material from the mine to the final delivery of the end product to the consumer, and they succeeded or failed on the caliber of man they hired.

But if he were alive today, I bet he’d be saying:

It’s not what you pay a vendor, but what the vendor costs you that counts.

All vendors of software and services cost you — and they typically cost much more than the license fee or consulting hour they bill you by. We’ll start with a services provider. Besides the myriad of expenses they will bill you for (that will be just within tolerance), there will also be the costs of supervising the resources, evaluating the deliverables, participating in regular review meetings, monitoring the relationship, and so on — and all of these will take up time which will eat up a huge opportunity cost.

But this is nothing compared to what a software/platform vendor will cost you.

A vendor touting the virtues of on-premise software will not only charge you an installation fee, a license fee, and an (on-site) maintenance fee, but will also charge you regular (emergency) upgrade fees, change fees, and so on. But there will also be the costs of the supporting software they need (databases, middleware, etc.), the hardware they need to run on, the training to use and support the software, and so on. If the vendor is ASP, these costs will all be rolled up and hidden in a monthly service fee that will also include the personnel costs to manage the instance and a portion of the overhead cost of the facility. And if the vendor is SaaS, there will still be a single fee, but since the facility is multi-tenant, it will be less.

But regardless of the platform, there will still be other costs — for instance, most of today’s sourcing and procurement platforms don’t deliver value unless the pre-requisites are met. For some platforms, this means connectivity to other systems. For others, this means good data … and lots of it. Data that typically resides in a myriad of other systems, in various forms of incompleteness and correctness, that needs to be centralized, corrected, completed, and enriched — an effort that can cost thousands of man-hours and hundreds of thousands of dollars for some organizations. And if the system is relatively worthless until most of that data is loaded (for example, spend analysis), then the organization will have to spend many times the system cost to get any source of value.

The same goes for systems that require templates and libraries to be useful — like contract management systems. If the authoring feature doesn’t simplify matters until a few hundred templates and a few thousand clauses are created, indexed, and cross-indexed, countless hours from paralegals and legals will be needed to make it useful.

In other words, when it comes to vendors, it’s not what you pay, it’s what they cost. And if the return doesn’t outweigh the cost by at least a factor of 3, think twice.