The hidden costs of poor technology purchasing

Poor technology purchasing happens when a company buys products that do not properly meet their requirements. It happens with things like enterprise software and cloud services, and sometimes even with things like datacenters, hardware and phone systems. It happens more often than you realize but you don’t hear much about it. People love to talk about their purchasing successes, but they are far more reluctant to talk about their purchasing failures.

The infrequent nature of these types of purchases is the root cause of the problem. While employees may have deep system experience, they are often not up to date with competing products in the market simply because these types of purchases happen so seldom. This can lead to a gap between what the selected product delivers and what the business requires. When this gap gets too large, you have a technology purchasing failure.

The most practical solution is to thoroughly understand the business and technical requirements, and then select the technology product that best meets those requirements. That is a lot of work and sometimes people take short cuts. This article looks at the hidden costs of those short cuts from three different but related perspectives.

Financial Cost

The most obvious cost of poor technology purchasing is financial. Almost by definition, you are overpaying if you buy the wrong product. Upgrades or third-party products to get around limitations waste money. Even more money is wasted if the product is later replaced. Many companies cannot bring themselves to replace a problem purchase, so it can hang around for years. Sometimes only new management can recognize the problem and replace the product.

With software, the old system often works in parallel with a new system for a while, and then changes to an archival state with minimal maintenance. However, if the new system does not fully replace the old system, then the full costs of maintaining the old system remains (e.g. licenses and maintenance fees). There can also be considerable consulting costs to get both working properly together.

Time Cost

Did you ever hear the story about the man so busy shoveling snow he had no time to learn how to use a snow blower? No matter how hard he shoveled, he never really solved his problem. Poor technology purchasing has the same effect on a business. People are so busy solving problems caused by bad purchasing, they do not have the time to do the work required to ensure good purchases. So they continue to take short cuts and make poor purchases. The problem just perpetuates itself.

Support staff spend time on technical problems like hardware issues, or trying to stretch the product configuration to meet business needs. Occasionally third-party products are required for missing features, and that takes time to research, install and maintain. After purchasing a new software system, the goal is to retire the old system, but sometimes that old system lives on. If there are upgrades, e.g. as with software systems, now two systems must be upgraded taking extra time every upgrade cycle.

Opportunity Cost

Opportunity cost is the most difficult to quantify, but it is certainly very real.  Because the company is distracted by internal problems of their own making, they miss new business opportunities. This effect compounds, and it gets more difficult to recruit top talent for a company known to be “behind the curve”. There is another hidden cost: Poor purchasing reflects badly on the person making those purchasing decisions, and can badly impact careers.

A Real Example

A company of about 120 people prepared for a major business expansion, but operated IT on a tight capital budget. They were expanding their network and knew an upgrade to a VoIP phone system was in the near future. They selected 3Com network switches based mainly on price, but also considered compatibility. Then they retired their old Nortel phone system, and replaced it with a Cisco VoIP system.

They tested the 3Com switches with the new Cisco VoIP system and everything seemed to work perfectly. After rolling out the new phone system, random dropped calls started happening. Everything had worked properly when testing, so what was going on? Was the Cisco phone system incompatible with 3Com? Cisco switches were more than double the price of equivalent 3Com switches so there was a strong push not to spend the money to replace them.

When the CFO dropped an important conference call, priorities changed.  The company called in a consultant; after considerable effort he discovered the 3Com switches only supported five VoIP phones on simultaneous calls. If you wanted more than five calls at once, you needed an external power supply. With external power supplies, the 3Com switches cost about the same as the Cisco switches. When the cost of the consultant’s time was added in, the company ended up spending more then if they had bought Cisco switches right from the start.

This real life example illustrates the three costs of poor technology purchasing very well.

• Financial Cost: The 3Com switches were fine originally, but did not work in their new role and needed replacing. Even though a VoIP upgrade was in the near future, budgets prevented buying higher end switches -- a false economy.
• Time Cost: Finding the problem took significant IT time. Even the CFO wasted time, and those dropped calls could have had a significant impact on business.
• Opportunity Cost: All the time spent resolving the issue meant that employees focused on solving problems of their own making, instead of other important business.

This example is just a very small illustration of something that happens too often in industry. At the other end of the scale look at Waste Management spending $100 million on ERP software, and then dragging the vendor into court. The whole sorry saga took 5 years to play out.

The most practical way to avoid poor technology purchasing is to ensure you thoroughly understand the business and technical requirements, and then pick the product that best meets those requirements. That takes hard work, but the rewards are well worth it. The upside is that successful technology purchases really do have a better return on investment. When the technology just works, IT job stresses are reduced. Finally, successful technology purchasing can also enhance careers.

Chris Doig has personally seen the problems caused by poor technology purchasing in multiple companies. He co-founded Wayferry, a startup that created a free decision support tool for technology purchasing. Wayferry’s mission is to help IT people everywhere make better technology purchasing decisions.