Companies face steep costs and hard realities in the software wars: experts say companies could be out hundreds of millions of dollars if their ERP vendors are swallowed up in current or future rounds of software company consolidation

Workforce, Sept, 2003 by Samuel Greengard

The same ugly scenario strikes fear in the heart of Jon Walker, global leader of human resource information technology at Dow Chemical. "In today's competitive environment, lagging behind the technology curve can prove disastrous. If a vendor pulls the plug on a product, you're stuck. You either lag behind and face the prospect that you're going to be at competitive disadvantage or shell out a lot of money for a new system." Dow uses PeopleSoft for its human resources management. It also relies on SAP R/2 for financials and an Oracle database.

DESIGNS ON THE FUTURE

There's no simple way to sidestep the land mines of today's business-software market. Yet consultants and analysts aren't shy about offering opinions. Organizations that have already installed an ERP or HRMS application should probably stay the course, Holincheck says. The same basic logic holds true for companies wading through an implementation during a vendor acquisition or merger. At that point, the expense of switching to another software package would almost certainly be prohibitive and delay the benefits that any application can provide. Meanwhile, organizations selecting a vendor should conduct thorough due diligence, Hansen says. Although there's no way to eliminate all risk--as the Oracle-PeopleSoft situation illustrates--knowing something about a software provider up-front allows an enterprise to make a better decision.

One way to get the inside word on a firm selling business software is to check with consultants in the trenches, Hansen says. In many instances, they are aware of internal problems that might lurk just below the radar. It's also wise to examine a company's financials, he says. "A vendor that's on the rocks is far more likely to go out of business or wind up acquired." Finally, it's essential to spend a great deal of time structuring a contract before work begins. "Legal and business issues are deeply intertwined. Buyers need to look at both aspects at the same time," he adds.

Maintenance agreements are another weapon in the buyer's arsenal. By specifying a period of time that the supplier will provide maintenance in exchange for a fee, a company can buy some insurance. The agreement should also provide for upgrades necessary to keep the technology current with generally accepted industry practices, and it should establish an easy and predictable expansion and contraction path, Hansen notes.

Finally, some organizations are turning to business-process outsourcing to reduce risk. Because these service providers handle every aspect of a particular task, such as payroll or benefits administration (and use their own technology to do so), it's possible to steer clear of potential problems. On the other hand, application service providers might appear attractive at first glance, and a business could have valid reasons for using one of these firms--but a customer is still bound to a particular technology. "Whether the application resides within a company or outside, the customer must choose an application," Holincheck says.