UK: BUY NOW, PAY LATER ?

UK: BUY NOW, PAY LATER ? - Buying IT can be a minefield, especially when systems become obsolete within a year, don't do what they were meant to do - and the supplier goes bust. It's not hard to see why some users have difficulty pointing to the benefits

by Jane Bird.
Last Updated: 31 Aug 2010

Buying IT can be a minefield, especially when systems become obsolete within a year, don't do what they were meant to do - and the supplier goes bust. It's not hard to see why some users have difficulty pointing to the benefits.

Last year, Brian Collins, head of information services at The Wellcome Trust, equipped the huge medical charity's research arm with the latest PCs. The machines - based on the Intel 486 microprocessor chip - were the last word in PC brainpower at the time.

Now his supplier has told him that not only will it soon cease manufacturing these models but by the autumn it will no longer provide technical support for them. If he needs repairs or replacement parts he'll have to go elsewhere.

Collins faces a difficult choice - he must either upgrade his existing machines or fend for himself when faults occur. Not surprisingly, he is pretty fed up.

Like many other computer users, Collins feels that the industry is forcing him to buy more and more powerful hardware and software that he doesn't need. 'It's fine if users want that much power but lots of us are perfectly comfortable with middle-range 486s,' he says. 'In urging us to upgrade our machines, suppliers are acting in their own interests, not according to what users actually want.'

His view is echoed by Alex Taylor, IT procurement manager at Whitbread. Risking computer obsolescence is a chance many users feel they cannot afford to take, says Taylor. 'It's like being caught in a vicious circle of hardware and software, never being quite sure which is driving the other.' The pressure is to keep up with contemporary software, otherwise you suddenly wake up to find that you are the only person in the world using an old version of a program. Once you get to this stage, you can spend a fortune catching up because so many other parts of your IT systems may be affected.

The breakneck speed of technological change is just one of many problems faced by computer buyers who spend more than £10 billion a year in the UK on IT. Other problems range from ill-defined contracts and suppliers going bust, to equipment that never performs the functions for which it was purchased. Some systems end up costing a fortune and still failing - witness multi-million pound write-offs at the Stock Exchange, the London Ambulance Service, Wessex Regional Health Authority and the Performing Rights Society.

The huge publicity generated by such cases has fuelled anxiety among company bosses about investing in computers. 'Chief executives are increasingly conscious that IT can go horribly wrong,' says Fritz Janssen, chairman of IT World, a management and technology consultancy. 'Indeed, they are more aware of the problems than the opportunities.'

A survey of 50 company directors conducted by Janssen last year, found that three-quarters regarded purchasing IT as a serious problem. Similar results came in a study by Ernst & Young which polled 121 large-scale UK organisations. It found that although IT remained the biggest single cost on most financial directors' budgets, the majority of respondents were unable to cite the benefits their companies had got from it.

In a bid to improve the situation, the Department of Trade and Industry has just launched a two-year, £1 million campaign aimed at promoting best practice in IT procurement. The campaign, BuyIT, which is being run by IT World, includes the publishing of an 80-page guide to best practice along with a series of conferences and seminars on the subject.

But for most company chiefs, the problems are likely to get worse rather than better during the next few years. One hazard is that as technology becomes increasingly complex, and computers merge with telecommunications, buyers are forced to take many more variables into consideration when weighing up the relative benefits of different systems. As Taylor puts it: 'When you're buying office furniture or plastic cups, it's relatively easy to say what you're after. But defining IT can be very difficult because you need a detailed understanding of what's involved.'

Even systems that are supposed to be off-the-shelf commodities can turn out to be more complicated on closer inspection. So-called industry-standard 'open systems', for example, based on Unix software, come in a host of different flavours. Getting different Unix machines to talk to each other can be extremely difficult.

The need to communicate with other machines has created another minefield for IT purchasers. No longer can they consider their needs in isolation, they must now take into account the software and hardware being used by organisations with which they want to do business.

Given the lack of industry standards, many buyers resort to products with the biggest market share. This was why Collins chose to introduce the Microsoft Office suite of programs when he reviewed the market in 1994. The trouble is that now, like many other users, he feels locked in to Microsoft in the same way that people used to feel locked in to IBM.

Of course, not everyone buys from Microsoft, but therein lies another problem. Plunging hardware and software costs have brought many computer systems within the budgets of individual departments. Fed up with the bureaucracy of centralised purchasing, some managers have been tempted to go out and buy their own hardware and software.

Such unilateral action has often been encouraged by mischievous IT companies who have found themselves excluded from centralised lists of approved suppliers, says Professor Chris Edwards of Cranfield University School of Management. But the resultant proliferation of systems generates extra overheads in technical support and can create a myriad of incompatible islands of information. 'I know companies supporting 16 different spreadsheets,' says Edwards. 'What sense is there in that? They're all doing more or less the same thing. It just represents a huge amount of money down the drain.'

Companies where IT is fully controlled from the centre suffer in other ways, says Edwards. 'Very rarely does a company spend too little on IT. But many spend too much in the wrong place.' This happens because IT departments in large organisations can receive hundreds of requests from users for system changes. Instead of focusing on the few that really will transform the business, they try to do too much. 'The result is that they cut corners and dedicate inadequate resources to the tasks.'

Another big problem for IT buyers is the risk of computer companies disappearing off the face of the earth. Taylor has lost three suppliers in the past three months. 'They were not all hugely strategic. But when they disappear it can be very time-consuming looking for an alternative supplier in the same niche,' he says. 'Also, your bargaining power can be very limited.'

Picking suppliers that are here to stay is not easy. There are no kite marks or trade association seals of approval. 'As a customer, it is very difficult to know whether a supplier is good or bad,' says Richard Hampson, head of purchasing at Centre-File, a computer bureau. 'It is a bit like Russian roulette - you can take up references, but there is still a considerable risk involved - which is a depressing thought after so many years of these issues being prevalent.'

Unscrupulous operators are a particular hazard in trendy enterprise-wide systems, where entire organisations may become vulnerable. 'It's easy for a few cowboys to set up Lotus Notes, e-mail and a few other packages and get customers to throw out all their paper files and manual methods,' says Collins. 'But the customer is then betting his whole business on the new technology and if it fails, the business could be finished pretty quickly.'

Even with good suppliers there can be difficulties over contracts. Unlike the construction industry, for example, there are no standard industry contracts for IT. Disputes frequently arise over issues such as whether bespoke systems should be charged on the basis of time and materials or at a fixed price. 'Customers tend to assume fixed-price agreements will protect them, so they favour that approach,' says Hampson. But with IT it is hard to specify everything in advance. 'When the requirements change, you can find yourself paying twice what you originally planned.'

The problem is that customers are buying an intangible. You can't see a proposed computer system in the way that you can see a car or a house. Yet IT buyers often don't even apply the procedures they would use when buying a car or house, such as reviewing the market, comparing different products, and taking a close look at a short-list. They are often lulled into a false sense of security, thinking that a supplier might have been good in the past, that modern technology is much more reliable, or that a system they want to buy is already installed and working elsewhere. 'What's dangerous about IT is that people are taking risks without even knowing it,' says Collins.

At least you know what a proposed car or house looks like. With IT, all you can do is endeavour to specify your requirements as accurately as possible. What matters is the task that the equipment needs to perform, not the number of gigabytes in its memory. Don't be seduced by snazzy gadgetry. 'Just as with purchasing other assets, users should determine the management function rather than worrying about their computer literacy or allowing themselves to be bamboozled by technology,' says Collins.

Take the biggest item of expenditure for most IT departments this year - Microsoft's Windows 95. Priced at around £40 per licence, Windows 95 may not seem expensive, but multiply it by hundreds or even thousands of users in a large organisation and the costs soar. Moreover, Windows 95 needs a state-of-the-art machine to run on, involving yet more capital outlay on hardware. 'What will buying Windows 95 do for most companies?' asks Edwards. 'Chief executives need to question how it will transform their businesses. If it saves one tenth of a secretary's time, how on earth will it make anybody more productive?' Edwards, who works with the previous version of Windows, says it is perfectly satisfactory. The drive to move customers on to the next generation is typical of the whole IT industry, he says.

Another tip for successful IT spending is provided by Keith Holland, purchasing director at Midland Bank. Holland suggests that from the outset very clear terms and conditions should be set as to what is expected from products and services. 'Spell out precisely what you want in terms of throughput, reliability, uptime, levels of maintenance and reliability and all performance criteria.'

Midland also specifies a timetable for the implementation with each phase clearly identified. Payments correspond to the completion of each phase, but there is always a retention kept until the very end. Only by waiting until the last building block is in place can you be sure that the system meets your original requirements.

Central IT departments do have to assert themselves. This can be difficult in an an organisation that has moved to flatter management structures and devolved decision-making. The best approach is to give people several choices but require them to conform to corporate standards for networking, security, and data manipulation.

'IS departments should be like soft dictators,' says Collins. 'They should be mildly proscriptive, not autocratic, so that people can satisfy 95% of what they want but not feel straightjacketed.'

As for BuyIT, users welcome the initiative, but it will take more than a government campaign to solve the problems, they reckon. 'BuyIT is a laudable initiative and most professional bodies will have to support principles of partnership, industry standards and best practice,' says Holland. 'All these things have to be right, but whether they are enough to solve the problem in isolation is another question.'

Most users agree that there needs to be a change of attitude on the part of suppliers. Computer companies need to be genuine when they talk about collaboration with their customers. 'Lots of people are espousing partnership,' says Taylor. 'It is an oft used and much abused expression.' Genuine partnership involves shared risks as well as shared benefits, he points out. 'IT companies are too often only interested in reaping the rewards.' As long as this goes on, and as long as users feel forced to invest in unnecessary technology merely to keep up, the gulf between customers and suppliers will remain gaping wide.

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