Follow basic principles to take the guesswork out of supplier choice

Selecting the right software product has always been a difficult task. This summer Newham Borough Council attracted international...

Selecting the right software product has always been a difficult task. This summer Newham Borough Council attracted international attention when it held a review into the costs and benefits of open source software compared to Microsoft products.

However, few organisations will find themselves in such a high-profile tug of war between suppliers. Most simply need to stick to some basic principles to take the guesswork out of choosing the right supplier and the right product.

According to Gartner research director Jane Disbrow, an organisation should have at least three suppliers in the bidding to encourage them to offer discounts.

The timing of the deal in the financial calendar is also important, she said. The chance of a discount from a supplier rises at the quarter or year end, when suppliers want to close their books on a high note.

At this stage, a bit of research into the supplier can pay off. Users should consider the financial health of the supplier - will it still be around in three years? - and check customer references.

Find out the supplier's timetable for upgrades and see whether or not it fits in with your upgrade cycle.

If the product is a new release, suppliers may offer discounts if you agree to be a reference site or provide a case study, or to mitigate your risk as an early adopter.

But buyer beware. The initial purchase price for an IT system is often only a small proportion of its total cost.

"The initial purchase price is a red herring - a tiny part of the selection equation," said Neil Ward-Dutton, director of technology practice at Ovum. "It has nothing to do with total cost of ownership [TCO], which can easily be 10 to 20 times as much. For instance, content management software costing £100,000 can cost you £1m in services, implementation, configuration, tuning and integration."

The TCO can be hard to calculate even if the supplier has figures on the costs of its product. Unless these figures reflect the quirks of the potential user, their value is limited.

Between 38% and 48% of total project cost is services, such as system integration, said Disbrow.

A supplier should also state in writing how long the implementation ought to take. An option for the user organisation to consider is penalty clauses if the project runs late.

When choosing what functions the product should have, managers should focus on the minimum requirements of their business. Philip Alston, group IT manager at the National Computing Centre, said, "It is all too easy for a good salesperson to convince you that you want something other than your true requirement that only they can provide. But does it meet your strategic focus?"

Another factor to consider when choosing a supplier is how easily the product can integrate with existing IT systems.

Finally, when it comes to signing a contract, the user should ensure that they have enough expert negotiators to match the expertise of the supplier.

 

Before you sign, ask yourself: 

  • Was it a competitive bid? 
  • Where will the costs will fall and when? (purchase price, roll out, integration, training, upgrades etc)  
  • Do you understand where the supplier will make its money out of you, and how much? 
  • How will this purchase give your business competitive advantage, and what the timescales are for achieving it? 
  • What is the roadmap for the product? Is its future secure? 
  • If the supplier is small, is it commercially viable? If mid-tier, is it a takeover target? Both of these could jeopardise the product's future. Have you got escrow for it?
  • How business-critical will the product be to your business? 
  • Have you got the salesperson's assurances in writing?

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