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Why Many Companies Purchase the Wrong Performance Management Software And How to Avoid Repeating their Mistakes

Originally published June 16, 2011

The business performance management (BPM) software purchasing process is broken. I should know. My company, BPM Partners, works daily with companies that are in the process of buying BPM software. This broken process may be true of other software categories as well, but the data I have is specific to business performance management. Let's look at the facts.

Large Vendors vs. Small Vendors

One of the larger vendors revealed some startling statistics to me: when a thorough evaluation process is involved, they win the business about 25% of the time. That in itself is not very surprising. As a matter of fact, it's fairly impressive, considering there are close to 100 vendors in this software category they potentially could be competing against. Most vendors, however, are shooting for a 50% or greater win rate. That's where the second and more surprising fact comes into play. This vendor went on to say that when the purchaser does not employ a thorough evaluation and due diligence process, they win the business 85% of the time. Simple analysis would indicate that in a majority of these latter cases, a more thorough evaluation would have shown that the vendor was not likely to be the best fit solution for those clients. That's a big problem. As a large vendor, they are involved in many deals, so I consider these numbers to be a good representation of what is going in the market right now regardless of the vendors being considered.

With that data in hand, this vendor (and probably the other major vendors as well) will do everything they can to discourage their prospects from conducting a thorough evaluation.  They'll offer cheaper pricing if you “buy now” based on a high-level demo.  They'll offer up their own resources to “help” you run the evaluation (and keep it focused on their strengths and canned demo). I can't believe that some purchasers fall for that, but we've seen that they do. If the prospect decides to bring in an independent and unbiased third-party to oversee a real due diligence process, the vendor will throw everything they have at them. The vendor will offer drastic discounts if you “buy now”, accuse the third party of being in the back pocket of some other vendor, or even threaten to drop out of the evaluation. Obviously, this is a big deal for them. If they can get the buyer to skip the step of actually evaluating the software, their win rate goes way up.

On the other hand, you would think the smaller vendors would take the opposite tack. While they can't compete with the bigger vendors on name recognition, number of references, and marketing reach, they should do fairly well in a head-to-head product comparison. Their prices tend to be cheaper, their products less complex, and their capabilities exactly what some purchasers require. When a buyer gets past the hype and sales polish of the larger vendors, they often find that some of the smaller vendors offer a solution that is a better fit with their needs. To reach this conclusion, buyers need to get into the details. At a high level, most products seem the same, and all other things being equal, why not just buy from the larger vendors? It is the safe choice.

However, when you drill down into the details, the products are often quite different. This is where some of the smaller vendors shine. Their products do a good job with the basics and are often faster and easier to both implement and use. So why aren't these vendors encouraging more of these deep-dive evaluations? One simple reason – cost of sale. To keep their prices competitive, these vendors need to manage their investment in the sales process. Also, they have fewer resources and are trying to avoid being spread too thin. A true evaluation process takes longer and ties up more resources than an RFP and a canned demo. Creating a custom demo/proof of concept focused on prospect needs and data can be a costly pre-sales proposition. So the smaller vendors (for the most part) also discourage prospects from going through an in-depth evaluation process.

I should note one exception from recent history: SRC Software. They are one of the companies that SAP picked up during its performance management acquisition phase several years ago. Before that they were one of the most successful smaller independent vendors. They believed strongly in their product and encouraged the type of evaluations most other vendors today are looking to avoid. The end result was that they won many deals, more than they would have expected based on their size and reach. It wasn't just good for them though; it also benefited their clients. For the clients, SRC was the right solution, as evidenced by high customer satisfaction ratings. If not for the thorough evaluation, they may not have made the same purchase decision.

Perform Due Diligence

So what's a buyer to do? Ignore the vendor pressure to do what's best for the vendor and do what's best for your organization.  In other words, put the vendor and their products through their paces. Make them earn your business. A thorough due diligence process includes the following:

  • Evaluate multiple vendors, even if you have a favorite from the start.

  • Prepare detailed requirements; just saying it needs to work with Excel and be web-based is not enough.

  • Use a means other than vendor websites or sponsored buyer's guide listings to identify likely fit vendors based on your requirements.

  • Eliminate any vendors who try to discourage you from actually evaluating their software. This should be a red flag; they either have something to hide or are just trying to reduce their own costs.

  • Check references and analyst reports to confirm the vendor is worth your evaluation time.

  • Using your requirements, develop a detailed custom demo script that focuses on the most challenging aspects of your business needs.

  • Create a scoring worksheet based on your requirements and demo script with appropriate weighting factors based on their relative importance.

  • Assemble a cross-departmental team to sit through and score the custom demos. This team will provide great input and also lead to better user adoption and buy-in down the road.

  • Identify the winning vendor and identify a backup (in case contract negotiations break down).

A performance management solution can cost from tens of thousands to millions of dollars. It will stay in place for years and be used for strategic decision making. The buyer who has to live with and potentially defend this choice should be the one driving the evaluation and purchase process, not the vendor.

  • Craig SchiffCraig Schiff

    Craig, President and CEO of BPM Partners, is a pioneer in business performance management (BPM). Craig helped create and define the field as it evolved from business intelligence and analytic applications into BPM. He has worked with BPM and related technologies for more than 20 years, first as a founding member at IMRS/Hyperion Software (now Hyperion Solutions) and later cofounded OutlookSoft where he was President and CEO.

    Craig is a frequent author on BPM topics and monthly columnist for the BeyeNETWORK. He has led several jointly produced webcasts with Business Finance Magazine including "Beyond the Hype: The Truth about BPM Vendors," the three-part vendor review entitled "BPM Xpo" and "BPM 101: Navigating the Treacherous Waters of Business Performance Management." He is a recipient of the prestigious Ernst & Young Entrepreneur of the Year award. BPM Partners is a vendor-independent professional services firm focused exclusively on BPM, providing expertise that helps companies successfully evaluate and deploy BPM systems. Craig can be reached at cschiff@bpmpartners.com.

    Editor's Note: More articles and resources are available in Craig's BeyeNETWORK Expert Channel. Be sure to visit today!

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