Renew vs. replace software? CFOs say it depends on business capabilities- Valutrics
Finance officers are looking at more than an ROI metric and a business case to determine if software systems should be renewed or replaced. Today, they’re also considering business capabilities, including the business’s ability to make better decisions faster and meet customer needs. That’s “a big change,” Leslie Owens, executive director at the MIT Sloan Center for Information Systems Research, said at the recent MIT Sloan CFO Summit in Newton, Mass.
Owens moderated a panel that put the question of whether to renew or replace software to a panel of finance and technology officers. They made it clear that business capabilities, what a Harvard Business Review article defined as a combination of skills, abilities and expertise in an organization, are not only changing how work gets done, but how C-level executives think about company strategy and plan for the future.
“We, as a company, used to be focused on short-term profitability metrics,” said Sean Quinn, executive vice president and CFO at Cimpress, an e-commerce provider of marketing and promotional products best known for its Vistaprint brand.
Cimpress used to build out a capital allocation plan for the year, which was then “set in stone,” said Quinn, who oversees corporate IT. As such, a technology investment needed a business case that fit into a spreadsheet and could be quantified before it was approved.
“What I learned over the years is that, one, the spreadsheet was often wrong; and, two, a lot of things just can’t be reduced to a number,” Quinn said. So the company has overhauled its capital allocation process to provide more wiggle room. “Now when we think about it, we go through a fairly rigorous process throughout the year to guide our larger capital allocation decisions, and then also sort of pivot within that during the year,” he said.
It’s an example of how flexibility has become a priority at Cimpress, which is also reflected in the company’s infrastructure decisions. Today, Cimpress is “almost mandating” microservices — applications built for a single business process making them easier to tweak when necessary — and it has migrated some functionality to the cloud, Quinn said. He pointed to Coupa, spend management software, and Workiva, SEC filing software, as two cloud-based point solutions the finance department is currently using.
“At some point, you have to use some judgment,” he said. “So if our strategy in the Vistaprint business is that we want to rapidly expand product selection because we think that will create value, [because] that’s what our customers need, then what do we need to do to change our technology infrastructure to get there?”
Building a blueprint
Milo Sprague, CTO at Silicon Valley Bank, said the renew versus replace question is often looked at from a portfolio perspective. In the example of financial software, Sprague will gather with the CFO, the chief accounting officer, their teams and subject matter experts. They’ll look across applications and compile a five-year roadmap. “So it’s not just the capabilities of where we are, but the capabilities of what we’re going to need,” said Sprague, who sets technology strategy for the bank and reports to the CIO. “That’s a strategic conversation and a dialogue.”
Once the blueprint is created, individual decisions are prioritized into a sequence. The three teams will submit a business case, which includes an ROI calculation that looks “both at the financial value of the component, but also at the architectural alignment of where we’re going,” Sprague said.
Like at Cimpress, cloud computing is playing a greater role in how enterprise infrastructure is architected. In 2011, the bank was using just three software-as-a-service platforms; five years later, that number is up to 85, representing about 20% of the bank’s application portfolio, according to Sprague. He pointed to cloud benefits such as standard APIs that provide plug-in/plug-out functionality and configuration rather than customization of software, which can become quickly outdated with the next iteration. “Pure play SaaS providers don’t allow you to customize,” he said.
The uptick of cloud adoption makes stitching the infrastructure together one of IT’s biggest projects. “Given our cloud strategy, integration is at the center of what we do in IT,” said Sprague, who oversees an enterprise integration services and engineering team.
Simple questions for software
A couple of the panelists said the most important questions to ask when making a renew or replace decision are also the most basic. Randy Garrison, vice president of the global line of business finance organization at SAP, said the major driving force should be this question: “Do you have what you need to make decisions?” Ryan Brenneman, CFO at EyeGate Pharmaceuticals Inc., said it boils down to this: “Can the system do what the business needs?”
When he joined EyeGate, a startup of 15 people focused on treating diseases and disorders of the eye, Brenneman was faced with a renew or replace question: Was the company’s accounting and payroll software from Sage up to snuff? “I didn’t need a CTO to tell me that the answer to that was, fundamentally, no,” he said. He decided to scrap Sage for Microsoft Dynamics GP, a system he was familiar with and liked. The system was quickly implemented and went live in early November.
“It is about information, surely, but there’s more going at it than that,” Brenneman said. “In a project management company, you’ve got all kinds of information captured at the project level and disseminated into the accounting systems so that you can process reports. Can it do that? Can it figure out ways to reach out to people so that it can transmit information into the system? Those are the kinds of questions we faced.”
Brenneman expects the software to provide 80% to 90% of the functionality needed without tinkering. “You want to bring on an accounting system, to the extent possible, to support your normal business operations without making it too complex or customized,” he said.