How to decide if changing technology vendors is worth the time, risk
The cost savings offered by a second-tier vendor may or may not be worth the risk and expense of migration. Here's how to decide when to make a switch.
The recession has intensified some companies' need to shop around for new vendors and better deals, and in some cases is turning best practice for changing technology vendors on its head. Just ask Bill Yearous, CIO of The Seattle Times, where the IT budget has been reduced by half over the past three years.
When he saw the year-over-year pricing on his Oracle Corp. database increasing at twice the rate of his two other database products, he dropped the contract, ending a decade-plus relationship with the vendor widely reputed to have the industry's premier technology.
"It used to be that CIOs would joke that you don't get fired buying the Oracles, IBMs, Microsofts of the world, companies with high service levels, whose software and applications are widely accepted. They are easy choices to make," Yearous said. "It's a little bit counterintuitive that the best technology turns out the be the technology that meets your business needs at the price you can afford, as opposed to who has the purest best technology.
"Across the company, as we consider vendors and products, instead of always looking for the best, we are looking for good enough. And that is a reflection of the economy," he said.
The move off Oracle, of course, wasn't trivial -- the majority of the newspaper's databases were under Oracle -- and problems that "could never happen" during the migration happened, but it saved the ailing company more than $100,000. Still, how does a CIO decide when the savings are worth the risk and the time spent researching and migrating of changing technology vendors?
Changing vendors is never easy, even in good times and especially for a product as "foundational" as major software, said Duncan Jones, an analyst at Cambridge, Mass.-based Forrester Research Inc.
"For software products, it really depends on the product category and what is involved in migrating data, retraining users and redoing integration," Jones said.
By contrast, switching service providers, or switching software resellers -- moving from CDW to Insight or vice versa, for example, to source the company's Adobe Systems Inc. software -- is less complex. Likewise, discrete niche products, such as a travel expense management program or e-sourcing, can be switched with relative ease, particularly if the software is delivered as a service.
"It would take a long time to switch something such as Microsoft Office, but many companies are considering a partial switch, to run a cheaper solution in parallel without rewriting existing stuff. Either way, it's a major decision that would need a lot of planning," Jones said.
Tracy Terrill, CIO of LegalZoom Inc., a fast-growing Los Angeles-based online legal documents service, said he's probably changed between 10 to 15 vendors during the past two years. The changes have been driven mainly by his company's growth, he said -- not to save costs per se, but ROI determines the decision. The tough economy has actually helped in his case, with more vendors willing to lower prices or make better deals.
"It's a standard ROI. Does the cost reduction justify the amount of time taken in resources to accommodate a switch?" he said.
The wisdom of making a change is predicated on qualitative and quantitative factors. "Is the change simple and straightforward? What alternatives are there besides the choice you have made? The classic MBA definition of ROI is you want to get a return that is higher than your sitting cost of capital. If, at the end of the deliberations -- and it is no science -- you feel it's more beneficial to switch, you do it," Terrill said.
"Just because you're saving money doesn't mean you're doing the right thing for your company," he added. "If you're saving money and foregoing the opportunity of growth in your revenue stream, then that is just ridiculous."
Still, Terrill said every vendor change comes with its own set of pitfalls that should give one pause before embarking on a switch. Even hardware, often thought to be an easy switch, turned out to be hard for him. He recently walked away from a deal from Hewlett-Packard Co. that looked great on paper because he decided his investment in Dell was too great.
One sometimes overlooked cost associated with the time and personnel investment in changing a technology vendor is identifying the economic value of lost opportunities. This "opportunity cost" is based on projects that would be neglected or shelved as effort is concentrated on making a change. It is difficult to quantify but may be critical.
Research is also a critical step in making a change, especially when going from the tried and true to smaller vendors with less of a track record. "There is a lot of behind-the-scenes work," agreed Yearous.
"One of the things that always runs through my mind, especially when vendors are presenting a really attractive financial package, is will I really be able to realize all these savings, or is it too good to be true?" he said.
With the Oracle decision, Yearous learned that in identifying risks, "There is a tendency to say, 'Oh this won't happen.' Well, it does happen and you need to be prepared if you do run into a problem how the vendor is going to respond."
Probably the most difficult aspect in negotiating these types of major changes is getting those contingencies into the contract language. The salespeople he is negotiating with "are not necessarily dialed into" the legal department that crafts the contract. "You have to figure out how to put verbiage into the contract to address these issues," he said.
Let us know what you think about the story; email Linda Tucci, Senior News Writer.