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Tuesday’s Tip: How To Properly Align Team Incentives In Software Contract Negotiations

Published on August 4, 2009 by R "Ray" Wang

In the first step of the original seven simple steps to successfully negotiate software contracts, the key is to have the right team in place.  To refresh everyone’s memory from the March 8th, 2004 post the details for Step 1 are:

Step 1: Ensure that the right team is in place

  • Inputs:  Organizational chart and agreement on key roles.
  • Action items: Determine the key roles needed to conduct the negotiation. Business teams include the COO, Division VP’s .  Technology leaders include the CIO, enterprise architecture . Vendor management teams include the procurement experts, legal team, etc.
  • Deliverables: Responsibilities list for each role.

Having the right team in place is important.  However, dozens of readers point out the dire need to not only align incentives but improve transparency.   Some examples include views such as:

  • CIO’s. “While the CIO needs to set the technology direction, we often find two types of CIO’s – the buyer and the implementer.  Buyer CIO’s get wined and dined during the process, hob nob at events, get all the attention and perks, then leave for another company to do the same thing.  Implementer CIO’s get stuck with making the stuff all work, cost overruns, and 100′s of tradeoffs in promised capabilities and all the blame for failure.” – VP of Business Applications, Fortune 100 Company.
  • Procurement/vendor management teams. “The only thing that our Procurement VP and her staff seem to care about is the discount % and total savings.  Despite our need for a product that costs the same, we see her team favor the products that show her the most savings.  Its no wonder why vendors keep jacking up prices to create win-wins for companies like ours where procurement teams have considerable influence.” – CIO, EMEA based Financial Services Firm
  • Line of business execs. “Often the business side of the house fails to consider the indirect and hidden costs of ownership.  Some solutions are sexier but cost 3 to 5 times more to integrate, maintain, and staff up for.  These guys forget that we pick up the tab when it fails to work well with other systems” – Enterprise Architect,  North American Transportation Company

The bottom line – all incentives in the contract negotiations strategy must align with product adoption strategy

Prior to any contract negotiations, the right team should also take the time to align incentives to the overall business drivers.  Form must follow function and how the solution will be used should be paramount.  Four key criteria:

  1. Define success criteria. Start by determining what success criteria will be utilized.  Some metrics include implementation times, return on investment, savings in total account value (TAV), etc.
  2. Create transparency in objectives. Team members should lay out their incentives and how performance in their management by objectives (MBO’s) will be impacted by different scenarios.
  3. Realign incentives for maximum alignment.  Once the objectives have been determined, the team should come back with incentives that reflect performance in short, medium, and long term goals .
  4. Codify and communicate metrics.  Final metrics and incentives should be made public to all team members and performance objectively tracked by an independent committee.

Your POV.

Got additional suggestions and best practices?  Ready for the big maintenance renewal seasons in Q4? If you need assistance with your SAP, Oracle, Infor, Lawson, Microsoft Dynamics, or other enterprise software contract, send me a private mail.  We can assist with a contract negotiations strategy that aligns with your apps adoption strategy.   Please post your comments here or send me a private email to rwang0 at gmail dot com or r at softwareinsider dot org.

Copyright © 2009 R Wang. All rights reserved.

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Tuesday’s Tip: Now’s The Time To Consider SaaS Software Escrows

Published on June 2, 2009 by R "Ray" Wang

With 2009 rapidly becoming the “Year of SaaS” and the tipping point for Cloud Computing, it’s hard not to notice the growing number of SaaS start ups (along with the legacy application vendors rushing to provide an “On-Demand”, but not really multi-tenant deployment option).  My snarky SaaS bigotry aside, we can expect hybrid deployment options to be here to stay.  As with the early days of on-premise packaged apps, we have to ask the question, “What to do about the risk in working with fly-by-night SaaS vendors who might not be around in 2011?”  In fact, this was an interesting part of the panel disucssion at the “Honeymoon and Divorce: Changing SaaS Providers” session at Interop with Jerry Smith (CTO of Symphony Services) , Michael Topalovich, (CTO of Delivered Innovation), and Rick Nucci (CTO of Boomi).

SaaS escrows provide a key safety net for the SaaS users

End users often demand software escrows in the on-premise world when they are concerned about vendor viability, takeover threats, and other related breaches to performance or service level agreements. Software escrows vendors serve as the trusted third party independent organization which holds a copy of the software code.  This often includes user data, source code, documentation and any application executables.  For SaaS escrows, expect a few unique distinctions such as:

  • More frequent intervals of version updates, almost similar to live data backups.
  • Hot backups that the end user can immediately and legally swap to the escrow version without business disruption
  • Requirements for SaaS vendors to provide detailed software configuration management and data management

The bottom line – SaaS code is rented so protect yourself

With no access to the code or application when a SaaS vendor goes bankrupt or fails to meet performance requirements, now’s the time to ask your SaaS provider if they provide a SaaS software escrow.  This should be included in all criteria during SaaS vendor selection.  Those who provide SaaS escrow deliver an additional benefit – peace of mind that data will be doubly backed up both by the vendor and the software escrow company.

Companies providing SaaS Escrow Services

Here’s a list of a few vendors in the market.  They have not been rated or reference checked so caveat emptor.  If you provide SaaS escrow services and weren’t listed, feel free to add a comment to the post.

For more about how to shape your apps strategy to include SaaS, read the Forrester Report found here.

Your POV

Have you worried about whether your SaaS vendor will be around in 2011?  Did you successfully enter into a SaaS Escrow agreement?  Considering a SaaS Escrow?  Send me a private email to rwang0 at gmail dot com.  Posts are preferred!   Thanks and looking forward to your POV!

Copyright © 2009 R Wang. All rights reserved.

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Poll/Survey: It’s Time To Update The Enterprise Software Licensee Bill of Rights!

Published on March 5, 2009 by R "Ray" Wang

Now’s The Time To Assert Your Rights

With the market now in favor of the enterprise software licensee, its now time to update the Enterprise Software Licensee’s Bill of Rights to include newer topics such as virtualization, SaaS and subscription pricing, newer usage based pricing models, open source, and vendor lock-in avoidance.  As mentioned in a call to action in a December 2008 Monday’s Musings, this groundbreaking report, originally published in December 2006, will be updated to reflect current market conditions.  The goal – improve this reusable contract negotiation model that cuts across the 5 key phases of the software ownership life cycle:

  1. Selection
  2. Implementation
  3. Utilization
  4. Maintenance
  5. Retirement

An Enterprise Software Licensee’s Bill Of Rights Gives Users A Platform to Build a Win-Win Client Vendor Relationship

eslbor

December 2006 Enterprise Software Licensee's Bill of Rights

Your POV

So based on some key market changes, here’s my challenge to you.

  1. What rights should be added?
  2. What rights should be updated?
  3. What rights should be retired?

Take the new poll on what rights should be included in the 2009 Enterprise Software Licensee Bill of Rights or send me a private email to rwang0 at gmail dot com.  Posts are preferred!  For every good idea or comment, whether or not we use your idea, we’ll send you a copy of the final report.  Let’s put the collective wisdom of the web to work and help our end user clients create a fair win-win playing field with the vendors.  We’ll be publishing the official update in Q2 2009.  Thanks and look forward to your input!

Copyright © 2009 R Wang. All rights reserved.

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Monday’s Musings: Call to Action – Updating The Enterprise Software Licensee’s Bill of Rights

Published on December 15, 2008 by R "Ray" Wang

Software Ownership Remains Unusual, Onerous, and Restrictive

Software licenses are truly unique.  Licensee’s can not resell, reuse, or share their licenses with others. For example, enterprises easily reuse, resell, or share tangible assets such as hardware, telecom equipment, and storage. From both a replacement and life-cycle perspective, leases for assets such as telecom equipment incorporate a clear endpoint. However, enterprise software often may not be “owned,” “shared”, or “disposed of”.  Often its use creates dependencies that cannot be easily remediated at the end of the license term or useful life.  In fact, customers of software vendors are known as users and the term is apt when one thinks about the dependencies software vendors promulgate on their customers.  The bottom line – ownership is quite restrictive.

Contracts Should Be Aligned To Five Phases Of How Enterprises Really Use Software

Over 3 years ago, several of our top clients had cornered us in the bar at one of our events and challenged us to provide a long term apps strategy framework to help them navigate through a very restrictive contract negotiation.  The engagements provided the catalyst to create a reusable contract negotiation model based on end user experiences in the software ownership lifecycle.  The key foundation included 5 key phases:

  1. Selection
  2. Implementation
  3. Utilization
  4. Maintenance
  5. Retirement

An Enterprise Software Licensee’s Bill Of Rights Gives Users A Platform to Build a Win-Win Client Vendor Relationship

Given the complexity that users faced, experiences from 250 client advisory, inquiries, and face to face discussions were applied towards the productization of IP into syndicated research. On December 18, 2006, we released 36 user rights in a report titled  “An Enterprise Software Licensee’s Bill of Rights” (see Figure 1.) Expanding on these 36 rights, we then battle tested the Enterprise Software Licensee Bill of Rights with 12 vendors (i.e. Agresso, Deltek, Epicor Software, IFS, Infor, Lawson, Microsoft, Oracle, QAD, Sage Software, SAP, and Sterling Commerce) across 97 criteria in the industry’s only policy based evaluation – The Forrester WaveTM: Enterprise Apps Software Licensing And Pricing, Q4 2007, released October 15. 2007. During the evaluation, we were pleasantly surprised to find that most vendors were open to this idea of a mutually agreeable bill of rights.  In fact, many commented that this was the upfront communication needed to create a win-win relationship.

Figure 1.  An Enterprise Software Licensee’s Bill of Rightseslbor

Call To Action Starts Today – Contribute Your Ideas To V 2.0!

Now with the experience of over 800 client engagements, inquiries, and face to face discussions, it’s time to update the Bill of Rights to reflect changes in today’s environment.  Some disruptive forces now include:

  • Virtualization
  • SaaS and subscription pricing
  • Vendor consolidation and reduced competition in some market segments
  • Open source
  • Newer usage based pricing models

So based on some key market changes, here’s my challenge to you.

  1. What rights should be added?
  2. What rights should be updated?
  3. What rights should be retired?

(Added 3/5/2009) Take the new poll on what rights should be in the 2009 Enterprise Software Licensee Bill of Rights!

Post your suggestions or send me a private email to rwang0@gmail.com.  Posts are preferred!  For every good idea or comment, whether or not we use your idea, we’ll send you a copy of the final report.  Let’s put the collective wisdom of the web to work and help our end user clients create a fair win-win playing field with the vendors.  We’ll be publishing the official update late Q1 2009.  Thanks and look forward to your input!

Copyright © 2008 R Wang. All rights reserved. More…

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Tuesday’s Tip: Software Licensing and Pricing – Get Rid of CPI Escalation Clauses In Maintenance

Published on December 2, 2008 by R "Ray" Wang

Consumer Price Index clauses represent additional costs of ownership that should be avoided.  Maintenance typically represents 2 times the cost of the original license fees after 10 years of ownership.  Many customers have these CPI clauses in their contracts.  In the worst cases, customers may have signed CPI + X%.  CPI adjustments provide very little value to the customer and their increases are often not used for reinvestment in the product line the charges are based from.  Some suggestions to increase vigilance in reducing unnecessary vendor imposed fees:

  • Eliminate the CPI clause. Take it out of contracts.  Eliminate the uncertainty all together.  The cost of supporting customers over time goes down with time and there really is no need for a CPI clause in your contract.
  • Include language for negative CPI. If the best is that deflation will occur, specify in the contract that a negative CPI indicator will lead to a decrease in maintenance fees.
  • Lock down a fixed maintenance price for the life of the relationship.  Take the hassle out of all maintenance fee increases.  Some vendors have honored life time maintenance fee agreements.  With the economy the way it is, we are seeing some vendor starting to rehonor such agreements.

The bottom line.

In a recent survey of major software vendors, 27 of 29 vendors have canceled their initiatives to raise maintenance fees for 2008 and 2009.  While outward increases are not common, the CPI escalation clause is a “stealth” way to increase maintenance on existing customers over time.  As inflationary fears are being replaced by deflationary worries, enterprises in the midst of contract negotiations should change how vendors adjust maintenance fees and eliminate CPI outright or seek a concession that limits these increases.

Your POV.

Got a tip for optimizing existing software contracts?  You can post here or send me a private email to rwang0@gmail.com.

(Added 3/5/2009) Take the new poll on what rights should be in the 2009 Enterprise Software Licensee Bill of Rights!

Copyright © 2008 R Wang. All rights reserved

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