All in the mind

What price can be put on intellectual property? How does one determine the value of a product that has taken years to perfect? These are questions typically asked by developers and vendors of software products.

But, from many end-users' points of view, software is seen as a necessary evil - expensive, difficult to install and probably not worth the effort. Some businesses regard it as an unnecessary evil, to be avoided if at all possible.

The specialist area of software for automated contract management (or contract life cycle management - CLM) is subject to the same perceptions and misconceptions as ERP and other enterprise software. While the value and return on investment of CLM software are obvious and easy to demonstrate, many businesses still baulk at the prospect of purchasing such software. The question begs answering: Why is contract management software seen as so expensive? And what is meant by "expensive"?

A CLM solution for an enterprise can cost anything from R100 000 to R5 million. An amount of R100 000 would be the cost for a division of a large enterprise, or a medium-sized company, and R5 million for an enterprise-wide solution for a large corporate, such as a bank, with multiple sites, multiple divisions, hundreds of thousands of contracts, multiple contract types and between 100 and 300 users. The Aberdeen Group cites an example of a company with $750 million in revenue, for which the cost of a CLM solution would come in at R4.5 million at current exchange rates. This is made up of licence fees ($275 000), implementation ($261 250) and the first year of maintenance ($53 600).

Regardless of whether the costs are justifiable, or even whether the investment will be recouped by the enterprise through savings or revenue, the cost is still perceived as too high. The root cause of this thinking can be traced to common perceptions about software and the benefits of software to businesses.

There is the perception that the size of the problem does not equal the cost. Many companies do not realise that contract management is a serious enough subject to warrant significant expenditure.

Only when a problem occurs or a mistake is made does that realisation strike home. CLM software is a form of business insurance, which prevents costly mistakes and protects business against the repercussions of contractual breaches. It is not coincidental that the first businesses in this country to adopt CLM were large insurance companies, which are, by the nature of their business, risk aware and future-oriented.

Many companies do not realise that contract management is a serious enough subject to warrant significant expenditure.

Paul Maddison is MD of Realyst.

There is the common idea that installing software solutions will be problematic. Reports and anecdotes of failed software implementations are rife. However, research has shown that better project management, risk awareness, executive sponsorship and after-sales support, as well as companies' own readiness for change, could save projects from failure.

For these reasons, software service providers are loath to provide a solution without customisation, modelling, consulting and project management services as part of the deal. While such services increase the overall cost of the solution, they are critical to the proper implementation and long-term success of the project.

The most prevalent, and unfortunately not unfounded perception, is that software pricing is unnecessarily complex and a way to hike prices. According to research company Forrester: "Software licensing and pricing continues to be marred by complexity, soaring maintenance costs, and a lack of flexibility and alignment with business goals."

Forrester says software vendors are adding even more complexity to their pricing and product portfolios to blur or avoid comparisons with other vendors (and thereby keep prices high for as long as possible). Proprietary enterprise software vendors give significant discounts on licence fees while raising maintenance prices.

However, if the playing field were levelled, companies would find that with CLM software, they get what they pay for. In the case of the company mentioned earlier, installing the R4.5 million system would have saved them $1 896 300 - more than R14 million - an ROI in the first year of more than 321%. Viewed in the light of potential savings, reduced risk and business process optimisation, the cost of CLM software seems more reasonable.

The perceptions mentioned here are just that - perceptions, which can be changed when the facts are made clear. CLM is one of the few software solutions that, contrary to expectations, will deliver quantifiable benefits quickly and will be worth the expense. Victor Hugo said: "There is nothing more powerful as an idea whose time has come," and contract management is one such idea.

* Paul Maddison is MD of Realyst.