Vendor Selection Best Practices: Interview with Susan Penny Brown

Susan Penny Brown is a thirty-year veteran of the software industry, with expertise in IT strategy and coSusanPennyBrown-VendorSelectionmplex enterprise applications. She spent the first 20 years of her career in high-profile Silicon Valley firms, both highly successful and abysmal failures. Susan established Interim Technical Management, Inc. in 1998 when she relocated to the Denver area. Her purpose is to help organizations align their IT strategy with their business objectives, and select enterprise applications that deliver strategic, competitive advantage.

Susan and I met last week to talk about vendor selection and management and I’m excited to share some of her ideas with you today.

Total Cost of Ownership Analysis

Question: You recently wrote about the value of a TCO analysis when starting a new IT project. Can you briefly describe what a TCO analysis is?

Total Cost of Ownership provides a budgetary estimate of the investment that will be required acquire, implement, and maintain a solution. In essence a TCO includes all hardware and software licensing, implementation, and support costs. I’m a purist in that I also include sunk costs (that would be spent anyway), such as existing FTEs, asset management, insurance, etc.

Question: When do you perform a TCO analysis?

Not every project requires a total cost of ownership analysis. But if there is a disconnect between  the business objectives and what it will cost to achieve them, or if the project is a real stretch on the budget, or if the executive sponsor isn’t fond of repeated requests for more money, then it’s a really good idea. Assessing TCO is a great way to set expectations, reduce surprises, and eliminate spending on projects that are never going to deliver results. TCO is also a prerequisite to producing a Return on Investment (ROI) analysis, which compares how much money a project costs with how much it will save or generate.

Question: How do you handle changes to the TCO throughout the project lifecycle?

All TCO’s have a margin of error, and the acceptable margin is an on-going conversation the Project Manager must have with the executive sponsor. As long as you stay within the margin of error and stay in communication with the executive sponsor, then there is rarely a need to go back and re-analyze the numbers. But as soon as any project starts creeping towards the upper margin limit, it’s time to reassess the project, the plan, team performance and the TCO. View the TCO as a way to represent project risk to business executives: the more unknowns the higher the margin of error.

Selecting the right product and vendor

Question: At what point in a project do you begin considering vendors and products?

Answer: The more critical an application is to a business’ operations, the sooner you want to zoom in on the best-fit vendors, so that there is time to get to know the product and the vendors in greater depth. Almost always, you can define the top 5 needs of the business and eliminate the vast majority of vendors from the playing field using the available information from the vendor’s websites. You can do this while the project team is sorting out detailed requirements. Then you can begin to talk to the vendors that are a potential fit specifically about the more detailed requirements. Vendor interaction is much different than it used to be. With escalating travel costs, Webinars, downloadable demos and conference calls can all offer credible product information and allow travel to be postponed until later in the cycle.

Question: What are some key criteria you look at when evaluating a vendor’s product?

Answer: Except in rare cases, most companies aren’t interested in redesigning all their business processes around a solution but rather look for a solution that aligns with how employees like to work. I look for real synergy between the solution and current business processes. To call it usability would be too one-dimensional. It has to fit in with how IT likes to do business, the executives have to feel comfortable that it supports the business objectives, and ongoing maintenance and support has to be predictable and manageable.

Question: Do you have a useful way to group types of products that you evaluate?

Answer: I put products into 3 main buckets.

  • Commodity off-the-shelf products such as Outlook or Office fill basic business needs and their use is pretty standardized across businesses.
  • Off-the-shelf, fully featured products are plug and play after modest customization. In this case you are paying for a lot of features out of the box, and for the vendor’s product development team to continually release upgrades. These products are worth considering when you need a lot of features. But you want to make sure the vendor’s product roadmap is aligned with your organization’s objectives and growth plans. A common example of this type of product is Salesforce.com
  • Framework products deliver a shell with some basic features and a toolkit to customize the product. These products are great solutions for companies with idiosyncratic business processes that no off-the-shelf product can satisfy. They absolutely require a TCO, though, because customization and maintenance costs are variable and typically much higher. For example, if you knew all you had to do was run down to IT to ask for a customization, won’t you do that a lot more often than put in a request to an outside vendor? A common example of this type of product is Microsoft SharePoint (MOSS).

Question: What is your perspective on product customizations?

Answer: It’s got to be easy and the costs have to be manageable, if it’s what you need! I flat out eliminate any product that doesn’t have an open API for exactly these reasons. Customizing solutions is expensive so there’s got to be a really good business reason. No product is perfect, but there are always a few that can be close enough with a few tweaks, some of which can usually be planned for six months or a year out.

Evaluating the vendor

Question: What do you look for in vendors as a business partner?

Answer: I look for a certain compatibility in business styles between my client and vendors I’m considering. They must be professional and credible, and they absolutely must deliver straight-forward answers to difficult questions. I care how long they’ve been in business, how stable the executive ranks are, how often they release upgrades to their products. If they are a few-person company, I’ll care about their investors, exit strategy, survivorship and how much money they have in the bank. The bottom line is mutual respect: if you aren’t getting good service before the sale, it’s unlikely it’s going to be any better after the sale.

Question: Any vendor war stories to share?

Answer: Not really. My job is to eliminate those vendors before the relationship ever gets to that point. I always look for the best possible client-vendor relationship to meet their current and future business needs. This means that the final deal must be a win-win from both party’s perspectives. My client needs to feel like he got a great deal, and the vendor needs to feel like he’s been fairly compensated.

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Comments

  1. Thanks to you both for bringing this forward. I read a lot in the industry and don’t see a lot of material in the mainstream discussion forums. Your views and knowledge help tie a few things together for me in this area. Much appreciated!

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