Investment: The buying game

E-business projects often go wrong before a penny has been spent. The experts give some tips on the art of IT purchasing

E-business projects often go wrong before a penny has been spent. The experts give some tips on the art of IT purchasing

The IT lawyer
Making the right IT purchasing decision can be a minefield. Getting it right is a tough process, but it will repay the business a thousand times. Larger organisations can afford to go through a process of tendering and using this process is essential if the value of the contract is more than £1m.

Outside the public sector, tendering for contracts is quite rare. In most cases, purchases are made on the basis of recommendations from existing customers (probably the safest method), or on the strength of some other factor, perhaps the conviction of one of the directors.

You could write a book about buying IT, but perhaps the most important thing to understand is that the basic principles are not very different from those you would use if you were buying an important item for your home. You would look at what was available, the different products, and you would find out what other people had and, what they liked and did not like. For servicing and repair, find out how much it is going to cost and what fixed annual maintenance or support costs.

A lot of the important work in making an IT buying decision is covered by good publications (such as Croner's Guide to IT Purchasing and Supply) but when it comes to signing the contract there are some fundamental guidelines to bear in mind:

  • Make sure you have one or more contracts that cover not just one part of a project but the whole thing. For any multi-phase purchase you can still get the supplier to commit to the price for each phase without committing yourself to all the phases.

  • If you're going to need maintenance and support don't sign a purchase contract until you have a firm commitment in writing to the service you will get, and all the charges that will be made.

  • If you don't understand legal contractual wording, work with someone who can ensure that the contracts don't leave you exposed.

  • Finally, remember that a supplier's contract is unlikely to favour you - are they going to tell you something like: "Our contract won't let you pass this software on when you sell your business?" or "You can only come to us if you want any changes made to the system, for which you will be charged."?

John Mawhood is a partner in the Technology and Communications Group at City Technology law firm, Tarlo Lyons.

The IT seller
At Esteem Systems we specialise in providing bespoke IT solutions, which are tailored to meet specific customer requirements. Our contracts are characteristically large scale, but negotiations follow more or less the same format regardless.

Salespeople are notoriously bad during final negotiations as they are too eager to get the order. Once this process is complete, they invariably don't want to get involved in long-winded discussions and bartering sessions over often minor details - which makes this a good point for me to enter. I will attend an initial meeting at the customer's offices which usually takes about one to two hours. Depending on how much is covered, we may have a second or even a third meeting following that.

The objective of negotiations at this stage is to clarify details; answer any queries that have arisen; provide further advice on the installation process and ensure the customer's expectations are met. Ideally, we want to make the customer feel confident in the service we are providing, and happy that their 'leap of faith' will be rewarded by proving beneficial.

To be honest, we prefer to deal face to face with our customers and rarely use solicitors in our negotiations, as contractual details are covered in the tender documents when we pitch. We believe in establishing relationships and make sure that we provide as much information as we can so our customers make informed decisions. At the end of the day, we want to supply solutions to enhance our customers' business performance, and the best way to do that is through communication.

Generally, our negotiations are moulded around the same concerns that any customer wants answered when they are investing a large amount of money. The most frequently asked questions cover things like price; what cuts can we make to save money?; do we really need that bit?; talk us through the installation period; what after-installation service do we get?; is the support desk available 24x7? and what kind of warranty do we get? Often we have to concede on smaller points as it is important for the company representative we are dealing with to feel that he has negotiated well and has done a good deal. When egos are involved, things get a bit more complicated.

We don't operate any systems like bell ringing when someone brings in a good deal. We have thought about it but the sales team works closely together and they generally know who is doing what anyway. We do have a salesperson of the month award and the lucky winner gets to take our chief executive's Porsche home for the weekend - needless to say it comes back with a few extra miles on the clock!

David Ogden is director of computer services company Esteem Systems

The IT Buyer
I think that most of the problems faced by technology suppliers and their clients stem from the very beginning of the purchasing process. Traditional technology vendors and solution providers typically have a methodology - usually called 'requirements capture' or some such jargon - which basically doesn't work.

Requirements capture basically means getting the client to list out all the possible things that they want the new technology solution to do. The IT vendor then tells the client the cost of meeting that wish-list and the client then haggles a bit and pays up.

The main problems with this approach are:

  • The client often doesn't know what might be do-able. The client ends up with a solution based on what they think is achievable, thereby missing possible advantages. Technology shouldn't drive strategy but technology advances are certainly part of the strategic framework for every business. I believe it's the responsibility of an IT vendor to make sure the client is aware of the possibilities rather than just blindly following the 'requirements' created by the client.

  • The client organisation will come up with a wish-list, which will of course represent everyone's ideal world. The people defining the wish list often have no idea of the technical (and therefore cost) implications of the items they are requesting. Huge frustrations then arise along the lines of "well Mr Client, you asked for X and Y and Z so we designed a solution to deliver them", which brings about the reply from the client "I might have wanted X and Y and Z in an ideal world but not if having Z added an extra half million pounds and 10 weeks to the project". Obviously, the solution provider is incentivised to win the biggest project possible so will want clients to ask for X and Y and Z

  • The basic difficulty is that the client needs to know what's for sale before he can decide what to buy, and the vendor needs to know what the client wants to buy so that he can deliver a solution.

  • In my view the new Web agencies that have come into being over the past six or seven years broke the mould on this. They approached the sales process in a different way, more akin to advertising agencies.

  • A Web agency will typically try to get in front of the marketing or commercial management of a client and will then present different ideas or prototypes for what technology might achieve for that client. The client is then already starting to pick and choose from a 'menu' of alternative scenarios.

If there is sufficient interest then a more detailed specification process can continue, but with a lot of thought leadership/conceptual suggestions coming from the Web agency, based on their knowledge of the technologies and also on their experience of having developed solutions for other clients. This gradualist building up of a specification also tends to make transparent to the client the implications of options.

Traditional IT vendors have a lot to learn from Web agencies in this respect. Technology is now so embedded and so significant in every function of business that the old days of IT vendors just talking to IT Directors are over. IT vendors have to learn to communicate with - and excite and inspire - marketing, HR, finance, sales and manufacturing managers too. And some tired old PowerPoint presentation of the corporate logo and mission statement followed by a dull, formal "requirements capture" process just isn't going to cut it any more.

Carol Dukes is CEO and co-founder of health products site

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