Tuesday, May 26, 2009

The impact of the crisis on confidence in IT: buyers more rational in the image of Saint-Gobain

The economy and our society as a whole are suffering from a lack of trust inherited from the financial and real-estate crisis. The IT industry is no exception, but every cloud has a silver lining, as CIOs are now becoming more rational in their business decisions.

One of the problems identified at the beginning of the global crisis was the opacity of financial products. As a result of combining, deriving, and reevaluating assets and their potential, portfolios became more opaque. The value of a product was difficult to relate to its content, and depended too much on the vox populi, of what the market dictated, rather than the real content and value of assets. It was the same for the balance sheets of publicly listed companies. Some customers, including the most illustrious, trusted the advice of leading firms (analysts, banks, etc.) and bought assets they did not understand or take the time to fully evaluate, particularly in terms of risk. Conversely, some global companies like Saint-Gobain, for example, a world leader in several businesses, were clearly undervalued in terms of their industrial reality.

The software industry also appears quite opaque with its patterns, its acronyms, its omniscient analysts. There are free products on the market along with others that are worth millions. How do we set the (fair) price of an IT project and the software, and what is the added value - why is it sometimes so difficult to decipher the marketing of a software vendor and the logic of their pricing? What is the real price to pay for the complete project, taking into account maintenance and future developments needed?

How do we place confidence in those who claim to evaluate the software industry and mostly just read the marketing materials of the vendors? Again, there are big brands : consulting firms, analysts and of course, software vendors themselves. But just as the largest asset management bank could not protect its customers from a Madoff investment, no industry analyst can protect a CIO who has invested in a solution for its brand more than the actual quality of the software…

Some companies prefer to pay five to ten times more for software from a leading brand vendor. Rather I should say that there are certain departments making these decisions, because I doubt that in these times of financial and budget crises companies continue to find this spending behavior acceptable. I was pleased to recently learn that some consulting firms have started working for senior managers to analyze the rationality of investment decisions made by their IT departments.

I wish to personally thank and pay tribute to Saint-Gobain, who conducted a rigorous analysis of its business needs and the value delivered in their selection of an enterprise search engine provider. From a list of 10 vendors, 4 were short-listed and fully tested as described in the article (in French) by Jean-Claude Streicher "Sinequa imposes itself in large companies." Without being put to the test, Sinequa probably would have lost this deal due to lack of awareness. Saint-Gobain would have paid more for a solution probably less suited to meet its needs, and would not even have found a vendor capable of solving the problem of security management within the search engine. Here on the contrary, the project was completed with a delay and budget that were less than originally estimated.

A problem highlighted recently due to the financial crisis was the importance on the global economy of unregulated areas that represent tax havens. Why regulate Paris, New York and Singapore if other places do not play the game with the same rules and if the balances can be "tipped" with impunity. What's the parallel with IT? The mix of genres in IT between the different players (analysts, resellers, consultants, experts ....) generates opacity and confusion that sometimes pushes the limit, like when inviting prospective clients to luxurious seminars, offering them consulting, in order to launch calls for tender that will only include certain vendors; "We give you this but will make your company pay more for it later". I think the IT industry and its customers will not tolerate these practices much longer, and the benefit of this crisis is perhaps to increase rationality of customer buying behavior. The heroic days of cowboy salesmen, and dandies with flashy cuff links, is over. This is good news for those who play cards on the table, just focusing on creating value within their product for their customers.

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