Making buying decisions based only on cost is mostly a bad idea

A new CEO came on board from one of the worthy competitors; he was hired to scale up and scale out in a market that was beginning to adopt the services offered by the company. His earlier stint was with a global mature enterprise in the same industry where he had grown the business as sales head and was now ready to take on the role of a CEO. The young industry required large teams to deliver onsite services to customers; technology did provide a differentiator where early adopters had seen the value.

The CEOs newly adopted company had grown organically beating market growth but lagging behind on profitability, partly due to continuous expansion and rest attributable to operational efficiency which required technology interventions. To the CEO it was quickly evident that inducting new solutions would bring in the requisite process compliance and reduce exceptions which mostly led to costs going out of control; reduced dependence on individual performers would lead to the desired consistency and profitability.

In the initial assessment he realized that corporate overheads were low and did not lend themselves to further reduction; he therefore focused his attention on investments required to bring in requisite technology solutions and thus tasked a small team of veterans to evaluate named solutions which largely comprised the universe of available options. The team rejuvenated with the new ideas from the newbie leader jumped into the evaluation process; industry research also pointed back to the same set of vendors.

The solution providers – local and global – offered varied functionality that allowed for extension of services to be offered to customers; at the core, all offered basic process automation and customer management. The choice thus depended on technology stack, value added features, ease of use, customer and employee self-service, mobile deployment, analytics, and ability to deploy across the cloud as well as on premise. Flexible and conventional licensing models rounded up the full stack of evaluation criteria.

Within the stipulated time, the team reverted with their evaluation and recommendation; they had done a fairly good job of mapping the existing business processes and identifying the best option for their company. They had also taken into consideration the company culture and primary decision drivers – low risk and cost; in the past the management had been hesitant to explore high capital investments instead preferring to work on low cost operating model where the plug can be pulled quickly to reduce losses.

In the next Board meeting the CEO scheduled the proposal while the evaluation team stayed in the back of the room for any clarifications. The meeting started a bit late, and dragged on with the discussion on financial numbers taking up a large part of the day; by the time the item on the agenda representing the technology solution came up, the Board members declared exhaustion and to the dismay of the team present deferred it and other remaining items to the next meeting planned after a gap of 3 months.

In the next meeting the Board did manage to discuss the project and asked the CEO to rework the risk return model as they found the outflow high. A Board member was assigned the responsibility to validate the final proposal and approve. Between the CEO and the Board member they kept at it for a while attempting to get the numbers down while increasing the scope of deliverables. In the interim business continued to grow and new customer acquisitions took away the CEO’s attention from the project.

A short economic instability and the business saw a blip in performance diverting everyone’s attention to bringing revenue numbers back on track. The company continued the growth trajectory and the project was now on the backburner with all attention on further cost cutting to deliver Board mandated margins. The CEO attempted to revive the discussion on the value proposition and market competitiveness the company stood to gain with automation and technology solutions, only to be chastised for proposing spends in a lean period.

Nimbler and technology driven competition overtook the company in market standing; the Board brought in consultants to create a business strategy that would help the company regain lost glory. Months later the Chief Consultant presented the business strategy for the next 3-5 years to full attendance from Management and the Board. The plan looked familiar and so did the steps they outlined for business efficiency and profitability; by the time the meeting ended, everyone looked at the CEO as an awkward silence prevailed.

The plan and strategy was what the CEO had outlined with his favorite project that had quietly died in the hemming and hawing over the last few years !

When buying software, buy shallow, buy deep, but buy anyway !

Case 1: He got a call from head of manufacturing to quickly meet to evaluate their solution; surprised, the sales head rushed to the meeting taking the next flight available. The caller represented a large enterprise that had invested in much IT and this was a new opportunity; the solution was used by other industries, but not this one. The solution was niche with limited competition, the sales head knew that competition had not yet got a whiff of this; he landed in front of the team that included staff from IT and operations.

The discussion unfolded with the articulation of the need and the business case around it. They acknowledged that the solution had traction in other industries, but they believed that as a pioneer much value could be captured if the project succeeded. Appreciating the forward thinking, technical resources were allotted to the customer to sketch out the detailed use case. Within identified constraints, the solution fit well though partially fulfilling the business case, the team pushed the vendor to provide a solution architecture.

Back and forth they went refining the solution, steps that exposed the superficial thought that conjured up the project; as the urgency died down and the timeline continued to shift, the sales head lost patience, getting the short end of the stick on sales conversion of a purported hot prospect that had consumed significant time, effort and sales budget. The functional teams much wiser through the discussions had begun to like the specific solution; they however were unable to push the timeline for decision making.

Months passed by, the aspirational go-live date came and went, the evaluation data exposed the shallow approach taken in their ignorance and lack of understanding of the complexity. They realized that they needed to revisit their assumptions, recast the timelines and budget to get it right first time. The smattering of smaller vendors who had engaged earlier had blinkered view of the elephant and solutions offered to address limited parts; unwilling to let go, the ally vendor demonstrated patience as the months stretched into a year.

Case 2: In a high growth industry, the company was beginning to feel the pinch with lower than benchmark profitability. They were growing faster than the industry and at times had to refuse business as they could not hire fast enough or deliver service to customer satisfaction. They knew that technology could help their business and thus started evaluating local and global solutions. The business head after meeting a few vendors was confused by the choices, so a cross-functional team was put together.

The team diligently evaluated options and as a starting point put in a part that appeared to be a low hanging fruit. The solution worked as designed but people ignored it citing operational hurdles. It was quickly parked in the technology orphanage and a consultant was approached to help in determining the best way to solve the problem. She recommended reassembling the cross-functional team to document processes, optimize and define the to-be process against which the solutions can be benchmarked.

Supported by the COO, the team worked to create the document which was reviewed along with IT to formulate the RFP. The Group CIO put his hat in the ring offering to run the process with his trusted lieutenant who at best was better than average.  The team would meet every fortnight to review progress made, tweak expectations and proclaim complexity larger than anticipated. The detailing of processes continued for the time period in which the consultant had proposed to complete the implementation !

As they approached the anniversary of project initiation, the team had evaluated multiple local and global solutions; the IT Head hired early in the evaluation had defocused from this critical project, now spend his hours in creating incremental technology solutions akin to Band-Aid. The business head wanting the best shot at the project continued to support the team which continued to refine the spreadsheet ad infinitum. The consultant occasionally followed up and realized that a decision was a moving target now.

In both cases different factors contributed to inaction or no decision in the timeline that mattered to the company and the business. The first did not know what and how, the second procrastinated on the decision refining their requirements, solution design, and future, in an ever changing world. Both had different drivers and contexts, both ended up disadvantaged, the first losing the pioneering opportunity, the latter experiencing slowing growth and profitability. After a while it really did not matter if they finally got it right.

It was a collective leadership failure !

Elephants can dance, but can they win a dance competition ?

The company let’s call it A was the posterchild of the industry; they had grown faster than the market, had better margins, and a product portfolio that gave them higher traction with customers. The war chest thus created was used to acquire business interests and market expansion globally; the stock market rewarded them with benchmark beating valuations with a rare possibility of anyone catching up. The promoters kept tight control over the business and expenses with close trusted advisors – part of the inner circle.

Investments in manufacturing excellence fueled the growth, quality was a way of life which enamored them to their customers. Practicing frugality in other areas, they perceived COTS to be uneconomical in comparison to home grown solutions. Thus they built a reasonably large team to recreate the wheel for every process, automation with custom built solutions for all areas of the business. While the industry adopted globally accepted best practices and solutions, company A justified its decision to stay different.

Industry faced regulation in growing degrees making it mandatory for everyone to adopt technology based solutions for compliance. Auditors expected electronic trails and information as tamperproof evidence of process adherence. Major part of the industry prepared for and over a period of time gained compliance; the cost of deviation was adverse impact to business, and customer dissatisfaction. Industry norms demand compliance, so do adherence to country specific laws which is treated as a part of doing business.

While major part of the industry simply bought solutions from existing providers and got done with it, company A tasked the IT team to build the necessary systems. Step by step the solution was built to specifications signed off by the business teams based on downloaded information from regulatory websites and second hand experience. Since they were building the basic minimum functionality, where technology was lacking compensating manual controls were put in place, deemed adequate for audit purposes.

Faced with an audit during the phase of construction, company A demonstrated the scope of work and the fact that they were building everything required to make the process compliant. The auditors cognizant of the effort, accepted the input as work in progress and signed off on the timeline, to be reviewed during the next audit. Step by step functionality was put in place albeit slower than anticipated with parts of the business used to freedom and flexibility finding it too complex to adapt to the new way of working.

Increased regulatory activity and deadlines with harsher penalties for non-compliance put the industry on alert specifically in some of the large markets. Cost of non-compliance was denied access to consumers until remediation fixed the gaps and there was enough evidence to demonstrate end-to-end process non-repudiation. The increased complexity of the new laws put the laggards in a precarious situation, especially ones who had custom built solutions which required longer time to validate.

Vendors and consultants offered help to anyone willing to accept the problem and assist in putting together a compliant solution. Many global solution providers who had not explored niche markets by virtue of their size and cost of doing business, sensed a tactical opportunity to gain market share and grow the business. Leadership teams swooped down on the big targets including company A. Having survived the economic ups and downs with their own solutions, company A reluctantly agreed to the meeting.

The CIO who was brought on board post the last large acquisition to drive technology led efficiency and transformation; coming from one of the leaders in technology adoption, he was seen as a good catch. The CIO with long industry background was aware of the problem and informed that they were on the way to solve the problem in the next 12 months – the deadline to be compliant. He did not believe that there was a need to press the panic button; deadlines do shift when it comes to regulatory requirements.

After a couple of attempts at elevating the issue, vendors decided not to waste any more time in their quest to gain the business of company A. The CIO guarded the rest of the company executives to the upcoming challenge who were known to throw around their weight to get things done eventually, attempting to second guess the inner circle. The sycophant environment and the belief that we are too big to fail made them vulnerable to the upcoming date, their size made it almost impossible to breast the tape in time.

Company A scrambled to the finish line partially ready, the business impact was significantly larger to the investment, attitude and inertia cost them a few notches in market standing. The CIO was fired for not elevating the issue and preparing the business; he had not taken the initiative nor involved other CXOs. Dip in profits and dividend crashed market capitalization, they had to fight hard to stave off an unfriendly takeover bid. Elephants can dance was a turnaround story, repeating history is not easy.

When running against time, you rarely win !

Every industry has its share of regulations to which they need to comply; regulations could vary by geography or product within the industry. In a global economy this becomes important towards growth as well as the ability to continue doing business in a market. Enterprises have over a period of time set in a process to respond to changes in regulations which impact their profitability or revenue in any significant way; most compliances are driven by technology solutions driven by IT teams and thus making the CIO a key stakeholder.

Compliance requirements are broadly of two types: the first one related to taxes and levies which apply in the operating market or country of origin of the enterprise. Companies have to comply to both and at times they can be complex and time consuming; applicable benefits and incentives also need to be factored in to get the financial benefit. Most large software vendors have modules to help their customers comply within the timelines; for custom solutions, IT organizations eventually get the process and timeline right.

The second type of compliance is driven by consuming markets driven by protectionist measures or keeping in mind the interests of citizen consumers. Such requirements have a much wider impact to the industry and result in lobbying for and against depending on the impact. Such regulations or laws tend to have high budgetary requirements and need longer timelines to get the organization ready. At times they may impact core processes or make a market unviable to service, requiring a strategic decision to continue to operate.

While the discussion started a decade back, in the last 5 years there has been impending regulation which required every company in that sector to comply to continue doing business. The timeline shifted a couple of times and then a phased compliance roadmap spread over 5 years was published allowing more than reasonable time to plan, execute and comply. The high complexity technology dependent process that impacted core business thus necessitated companies to go back to the Board to gain approval for budgets.

This was a big one and had real impact to business; so Consultants, vendors, business partners and IT solution providers started discussion with their customers who needed to comply with the new regulation. Different companies reacted in as many ways; the early adopters listened to everyone, initiated a cross-functional team to review the impact and craft a program towards compliance while there is still time. They ensured that there is adequate time to get it right and make it standard process before the deadline.

The second lot of companies took the wait and watch approach observing the early adopters, talking to the ecosystem who helped the first lot and then put together a program to implement solutions that have already been proven to work. They did not get early pricing benefit but took relatively less time to implement the solutions towards compliance in time; they could compare options from within the working set. Surprisingly between the first and the second set of companies they represented only about 60 percent of the industry.

So what about the rest ? Did they know something the others did not ? Did they not understand the adverse impact of their inaction or failure to comply ? Was the problem not as acute as the industry touted it to be ? No exemption was available nor there existed possibility of an extension to the deadline. The group had enterprises big and small, multi-national as well as family owned companies and they were geographically spread thereby not forming any trend that could justify their stance of not taking action.

Talking to a few of these companies, they fell into a few distinct buckets: the first who would do only the bare minimum to comply, and that is what they had done. Their decision making criteria was that why change until absolutely necessary. The second understood the problem and took decisions based on cash outflow, deferring until the last minute and choosing the lowest cost option. The rest of the rest were resting not necessarily fully aware of the challenge and the solution; some were surprised that many in the industry had already taken big steps.

Will they make it unscathed ? Coming soon …

Who is ultimately responsible when a project (with IT dependency) fails to deliver ?

Business had worked with IT to select the vendor who came with fairly good references and connected well with the team during the courting period. The CIO found the choice acceptable as the project was fairly straightforward and not much could go wrong in a project that was expected to last 4 months end to end. The CEO of the young smallish development partner took interest in the project with a large enterprise that promised more business in the future should this be delivered on time, budget and functionality.

The project started well with meetings attended by IT, functional teams, and project manager from the partner extending into long sessions; the subject was discussed, debated and look at from all angles to make a better wheel than the wheel required. The scope document went through multiple iterations as the subject matter expert (SME) kept changing parts in every meeting. Keeping in mind the need to push ahead, the CIO brought back the team to focus on the business need and speed to get the product to market.

The SME regaled in story-telling and kept the audience in attention with anecdotes unrelated to the discussion, hijacking the agenda and the project timeline. By the time the project was expected to complete, the team was just about getting ready for scope sign-off. Unfortunately other projects occupied the attention of the CIO which further pushed the timelines. Business had in the meanwhile moved on discounting the impact of the project; to compound the problem, the Vendor Project Manager quit.

The team and timelines were recast with the signed off project scope and the development team got started; the first wireframes were a hit, and the UX fell flat, while the development team struggled to get the new and to them unknown technology stack to work together. Frequency of review sessions reduced as the project red flagged itself on the CIO dashboard. Startled though not surprised the CIO called for an all-hands meeting to review challenges and determine if it made sense to continue the project.

The CIO and the vendor CEO decided to keep a close watch on progress; the solution was tested by the QA team and snag list identified for launch. The first field testing threw the team into a tizzy with UI that was unacceptable to the controlled group and bugs that surfaced. Speaking to the project sponsor, the CIO pushed the vendor and the SME to define the dates by which they expected the project to close. Both agreed to close the project within the next 10 weeks which appeared reasonable to all involved.

As the time drew closer, the vendor escalated pending issues with the SME and vice versa making it an extremely trying time for everyone involved; it appeared that the project would never end while costs had also gone out of hand. It required drastic steps for the project to come back to relevance to everyone involved. So the SME was eased out of the project while all payments frozen until firm delivery dates were met with quality that was the selling point for the vendor during the initial pitch to the team.

Another month later at its anniversary the project finally saw light and was launched quietly; it delivered success to the business despite some competitors having launched similar services. Much to the surprise of many, six months after the project was forgotten, the CIO decided to conduct a post implementation review to assess learning from the project to which he also invited the vendor to capture internal and external points of view, learning and accrual of benefits identified prior to project commencement.

It would be easy to stick the blame on the SME who caused the initial delay, or for that matter on the change of vendor Project Manager; development quality and testing could be touted as one of the causes or the fact that the technology stack was a new one ! What about bad UI or UX which would have been a disaster if launched ? CIO or Business Head not giving it enough attention or as many would say lack of leadership ? Did it matter as the project delivered value and everyone was happy in the end ?

It mattered to the CIO who meticulously documented the milestones, challenges, frustrations, and put them across for the group to review, sleep over and come back with their assessment. A detached view gave everyone the perspective of individual shortcomings and collective reasons for the project delay and the predicament that everyone experienced. The Organization was richer to the learning which raised the bar for future projects and institutionalized the Post Implementation Review process.

I wrote this piece after the feedback I received to my last week's article on CEO choosing an IT Vendor