Wiser Technology Advice Blog
- A PRECAUTIONARY TALE ABOUT TECHNOLOGY VENDORS
A precautionary tale about technology vendors
Technology projects can be transformative or disastrous for businesses. Unfortunately, there are some technology vendors that do not do the right thing by their customers, being more interested in the money they will make than in the best outcome for their customers. Whilst these unscrupulous technology vendors are thankfully in the minority, they can cause major headaches for small business owners.
The world of information technology can be overwhelming and complex, which technology vendors are well aware of when pushing for new sales. They present what seems to be a perfect answer to the customer’s problems and play on the customer’s fear of missing out and getting left behind with out-of-date technology.
I’ve previously published a case study about the Royal Society for the Blind and the problems experienced with a vendor of customer management software. This month I have interviewed an Adelaide-based small business owner in the food manufacturing industry, who has had an even worse experience with an unscrupulous technology vendor. As I’ve only heard the customer’s point of view for this story the people and businesses involved shall remain nameless.
It all seemed very promising at the start
The small business owner was growing the business and in 2018 clinched a deal with Foodland to supply products into the chain of supermarket stores. This was the trigger for deciding to invest in new technology, to graduate from using MYOB for financials and Excel spreadsheets for inventory and stock control.
He compared a few enterprise resource planning (ERP) software systems which had been suggested and decided to invest in a major international vendor’s ERP software. The reasoning behind this was that the software met his business needs and had many resellers in Australia, giving him flexibility should he need to move between vendors for ongoing support of the software system.
A trusted friend and colleague recommended one of the ERP software resellers, a small business also based in Adelaide. This seemed like the perfect partnership, two Adelaide-based businesses working together to implement the ERP software needed for his business to grow and expand its operations.
A contract was negotiated, which included explicit requirements for the ERP software and reports, for example a template for a summary KPI report on metrics such as product sales, cost of goods sold and cost of wages. An associated website which was to be used for orders from retail and wholesale customers was also included in the scope of requirements.
The estimated cost of implementation quoted for the ERP software was around $120,000, plus a further $15,000 estimated to build the website.
Early warning signs
There were early warning signs that the ERP software reseller might not be the best vendor to work with. They used aggressive sales tactics, pushing the small business owner to sign a deal and pay a deposit before 31st
December 2019 to take advantage of a $10,000 credit offered by the international ERP software vendor and offering to throw in an additional $7,000 credit towards ongoing support fees.
The small business owner said that the relationship with the reseller started to deteriorate as soon as the deposit payment was made. The vendor was only ever interested in when the next payment would be received, never on what was being delivered for the customer.
An implementation project was estimated to require seventeen weeks to get the ERP system and its associated website up and running. The small business owner assigned two of his managers to work with the vendor on the project, dedicating two to three days per week to the project, primarily to help the software vendor prepare data for the new system.
However, seven weeks into the project the vendor said that the project was going to go over time and the cost would increase, blaming the small business owner and his team for all of the problems. Although there were never any changes to the agreed scope of work and the specified requirements, the vendor’s estimate for completion of the project increased every time he submitted a progress report over the months that followed.
Threats from the vendor
Over a year into what should have been a seventeen week project the vendor had still not delivered on the promises of an ERP system and associated website.
Payments were being calculated on a time and materials basis. As the relationship continued to deteriorate the vendor started to threaten the small business owner, saying he’d pull the plug on the project and stop all work immediately unless the next payment was received.
In June 2021 the ERP software reseller was awarded a prize for being a fast-growing South Australian business. This was the final straw for the small business owner, who questioned the reseller being given this prize when their customer service was so poor.
The vendor then pulled out of the contract altogether, refusing mediation even though it was included as a clause in the contract they’d entered into.
A happy ending?
The small business owner was forced to find another reseller for the ERP software and this vendor has happily been a delight to work with. They’ve also found a website developer and marketing agency who are working together to build the website.
Eighteen months after the project started, the small business finally has a working system that’s still being fine-tuned. This is a happy ending for the business which now has the technology systems it needs to grow and expand its operations.
But the sting in the tail is the project has cost an additional $120,000 over and above the initial estimates from the unscrupulous ERP software reseller. Court proceedings to sue for damages may be launched soon – at which point the names of the people and businesses involved will be publicly known!
When you’re considering a major investment in new technology, you must be careful to do your due diligence before entering into a contract with a vendor.
Here’s some pointers on how to avoid disaster:
- Don’t rely on personal recommendations, always conduct reference checks on the vendor providing the technology.
- Reference check questions must examine the vendor’s attitude and experience, not just that the technology itself meets needs.
- The vendor you select must have experience in projects in the same industry, of similar scale and complexity.
- Be clear and explicit with your requirements and the scope of the project, with agreement on what the project will deliver and how it will be delivered in a written contract.
- The contract should have implementation plan with payments due on deliverables, rather than being on a time and materials base.
- Include training for your staff in the scope of the project and allow for a learning curve in using the new software system.
- Include data migration in the scope of the project, because without good data in the system at the start, you will not be able to get the benefits of information it should manage for you.
One final word
If your technology project seems to be going from bad to worse and your relationship with the software vendor has become fraught, don’t be afraid to pull the plug on the project.
Even though you have invested time and money in the project, this is a sunk cost that you will never recover and you’ll be at risk of wasting more money on a vendor that will never deliver.
Do you need independent advice?
I have over 30 years’ of experience in the technology industry and am completely independent from all software vendors and technology businesses. If you want advice on how to go about procuring a technology vendor, I’m here to help.
Please get in contact today, I’m always happy to meet over a coffee and have a chat.
Demystifying strategic technology planning, 14 May 2001, Wiser Technology Advice, available at https://www.wisertechnologyadvice.com.au/wiser-technology-advice-blog/demystifying-strategic-technology-planning