Beware the hidden costs of switching software providers
Never an easy decision to make, switching software provider should only be done if you are sure it will benefit your business, for example through an increase in revenue or a reduction in costs, or possibly a combination of the two. Don’t be mistaken, when attempting to quantify the likely benefits, the implications of a move are not always obvious. This article looks at the questions to ask of any potential provider.
What’s included and what’s not
When moving to a new software provider you should seek clarification on the costs, too often hidden away in the small print, or not made clear during negotiations, and then bringing with them an unpleasant surprise when least expected.
Ask on what variables is the cost of the software licence based. It may be on the number of users, sometimes split into modules, in which case make sure you are paying for only those modules that you need and will use. It may be on the number of transactions, the number of concurrent users or the total number of employees. In each case you will need to understand the implications should your organisation later contract or expand. Even a small pool of employees that work on shifts due to 24h support or multiple time zone international branches may benefit from licenses based on the number of concurrent users, as only a limited number of users will actually be online at any time. On the other hand, the total number of employees gives peace of mind that all employees will have access to the software at all times, and is the most common basis of license fees.
Another point to note is how licenses are adjusted when an employee comes onboard or leaves the company within the term of a year. For example, in cases of annual licenses it seems only fair to calculate the license fees of a newcomer on a pro-rata basis until the end of the current renewal period.
And another subtle detail to watch out for: are licenses named or not? Unnamed licenses taken from a pool of licenses are more flexible and convenient for all parties. On the other hand, named licenses may produce unnecessary charges in cases for example when one employee leaves and a new one joins the company on the same day. For example, named licenses would call for two license adjustments whereas unnamed licenses would work fine.
Are installation/implementation and any necessary data migration costs covered by the licence fee or are these charged separately? These can be significant and possibly could be reduced if you supply your own data (such as an address book) on a template that has been provided by the new software provider to ensure fast and smooth import of legacy data into the new software. Whilst on the subject of installation and migration, check whether the new provider has experience in migrating from your existing provider – if so, they will probably have developed the appropriate tools and procedures to make the transition quick and efficient.
Particular attention needs to be given to the migration of existing data, without so doing can make a move expensive, time consuming and difficult. Make sure that your existing data are not encrypted or obfuscated, i.e. made unnecessarily hard to understand, maybe deliberately to hinder a move. Of course, the same level of care should be applied and questions asked of a potential new provider, confirming that your data will be open and readily available for export when needed in the future. Transparency at the outset is essential, the last thing you need is to discover there is an unreasonable fee payable if and when it becomes necessary to export your data at some stage in the future.
When it comes to training, is there a basic level included or does that have an additional cost? Establish what the training covers, what level and to whom – and whether it is intended only for an IT manager or directly to users? It has been proved very beneficial to split training into 2 phases: a) an onboarding stage which is carried out within a couple of days before or after switching to the new software, and b) an advanced stage where users are free to dive into more difficult and more valuable functions of the software, usually conducted one or two months after onboarding.
A significant additional cost can be incurred if there needs to be any necessary bespoke software development. If this is the case both the cost and nature of such work needs to be fully defined and agreed in advance. But beware, software is always more sophisticated than users perceive. Specification of a custom software extension may take time and cost money. Be absolutely sure that you do not rush to order something which may prove to be not really useful. It is always advisable that you first complete onboarding to the new software, you feel comfortable with it and you have got over the way you used to work with the old software. Sometimes, you need to learn a few new tricks in order to let the new software really help you work better and save time.
Also needing clarification is whether or not the hardware requirements are different to what you currently have and, if so, what will be the cost of upgrading so that the software can function as intended. As well as additional hardware there may be other 3rd party software licenses needed, for example, a new database.
Once installed, will there be any additional costs for maintenance and support? This includes both hardware and software. Establish exactly what comes with the cost of the licence – are different levels available with different charging bands – and should any additional support be required beyond this how will it be charged? For some industries, such as the maritime industry, responsive support services available on a 24h basis is vital. Make sure what are the support hours that are included in your service agreement and how much it costs to upgrade it. Some companies go for the peace of mind that a true 24h support service provides, whereas others find it a better value for money to keep only the basic support services and be ready to pay extra when a problem arises off office hours.
Should there be any necessary on-site support, either ad hoc or routine, establish how this will be charged and whether there will be any travel and accommodation to pay. Nowadays, especially with Cloud services, this is often not necessary. However, when it is and you are in another country, it can be expensive.
Ask whether the new software and your data can be on premise, hosted at a data centre or on the cloud and, if these are options, how do they compare? Our article comparing the alternatives, on premises vs cloud, will give you an insight into the advantages and disadvantages of both. If you have a choice, enquire whether it is possible to make your own arrangements with a preferred supplier, and if so, will this affect the level of service or performance of the new software.
Very important are the plans the new provider will have for backup and disaster recovery and you need to know if the cost of this is included in the standard licence fee. You should ensure there is a plan in place, regardless of whether your servers are on-premise or on the cloud. Cyberattacks and malware incidents are not as rare as most people think and companies need to take at least some basic steps towards cyber defence and business continuity in the event of attacks or accidents.
Ongoing, try to understand what happens about software upgrades and whether or not these are included in the standard charge, or are there any additional costs for time spent by support staff. Some software providers offer major upgrades free of charge where others may ask for a fee. In general, software companies that provide software subscriptions are more flexible in that end, as all new versions are included in the subscription fee. On the other hand, more traditional software companies may still operate under the legacy scheme of selling the software one-off and having a separate smaller maintenance agreement in place, which may or may not leave out major upgrades and product re-designs.
The real cost is often the “soft cost”
The loss in productivity and damage to morale that can come from the poor implementation of new systems – the “soft cost” – can often be much higher than the more obvious, direct costs.
Time consuming and expensive, that hidden “soft cost” can arise if attention is not given to implementation through a provider that knows your business in depth and understands the needs of your people. Soft costs are generally intangible and represent expenditure not easy to estimate. Training will probably be required in order to avoid these costs and to make best use of and extract most value from the new software. A major consideration is the cost in terms of time and effort in moving away from something that is already familiar or inexpensive to use.
Putting it simply