- SAP investments tend to have negative ROI in companies where they over-invest in SAP.
- We cover the issue of mixed allegiances of IT departments.
The conclusion of our research in this area is that IT departments are insensitive to this exact thing. That IT departments, particularly those that buy a great deal of SAP and Oracle have sold out the interest of business users for their own interests. This is covered in detail in the article From IT to the Business: Go Jump Off a Bridge.
The Common Problems with Agency Outside of IT
The claim we are making sounds very controversial. However, selling out the interests of the individuals you are supposed to represent is quite common outside of IT. Let us discuss two very prominent areas where this occurs.
- The US Political System: It is challenging to look at the voting record of US politicians and see it as anything more than representing the interests of financial contributors. No one would think that their representatives in government look out for the voters. Voting is how the political system is made to look legitimate. The entire concept of representing the interests of the overall population (the vast majority of which are not financial donors) is no longer really a feasible hypothesis by those that are both honest and know how the US political system works.
- Financial Advisors: In the area of financial advising, it is far more common for the financial advisor to look to maximize their income and to sell out the interests of their clients. Financial firms that provide financial advisors often provide higher compensation to move lower quality financial products. And only around 10% of financial advisors are “fiduciaries.” That is only 10% of financial advisors sign a fiduciary statement that they will put their client’s financial interests above their own.
This issue with financial advisors is explained in the following quotation.
“If you’re looking for a financial adviser to give you advice on saving for retirement, you’d probably want one that looks out for your best interests. But finding such an adviser may be more difficult than you’d expect. Some advisers are just as concerned—maybe even more concerned—about their own financial interests.
Those that look out for your best interests are known as fiduciaries. Such advisers invest your savings, say, in low-cost funds for a fixed fee instead of comparable funds that charge more in commissions. They promise there won’t be any hidden fees that surprise you later. And if your adviser has any conflicts of interest that could sway his judgment about which investments are best for you, he’s required to tell you.
Savers also have the option of turning to commission-based advisers who may not be fiduciaries. These advisers are only required to make investments on your behalf that are “suitable” for your needs. That means that while the investments your adviser chooses could be appropriate for your financial goals, you could end up paying him more money in commissions and other fees than if you had hired a fiduciary.”
So why should IT departments be immune from agency issues? Virtually no one will write on this topic, because they need to flatter IT decision makers to gain business from them.
The financial advising industry has repeatedly fought against law requiring financial advisors to be fiduciaries. The reason is quite simple. Financials firms want to continue to make the most money off of those they advise, which means putting them into investment vehicles that primarily benefit the financial advisor.
Are IT Departments Fiduciaries?
The concept of a fiduciary is that the entity places the interest of a party above their own interests. However, this argument would be very difficult to make for IT departments that we have worked with. Furthermore, SAP has sold so many non-functional or semi-functional applications and databases to IT departments, that whose interests the IT departments represent is a very natural and quite logical question to ask.
Our Advise to IT Departments
We maintain probably the largest store of information on SAP products for what works, what does not work, and so on. We disclose this to clients.
What might be surprising to readers is that even after we tell clients that they are buying a problematic or failed item, they go ahead and do it anyway. It is strange, but they don’t seem to care. It is as if they have a certain amount of SAP they need to buy, and they are going to buy it.
One of the significant observations from these interactions is that IT departments do such a tiny amount of research before they buy.
What it All Means
If one takes stock of this behavior by IT departments, it almost appears as if the IT decision makers are agents for the vendors, as if they have sold out the interests of the companies they work for to these powerful vendors. One possibility that has been brought up to us is bribery. We don’t have the evidence for this, but there are various benefits that powerful vendors like SAP can provide to IT department decision makers. SAP has been involved in several bribery scandals in South Africa and Panama. There is no doubt that SAP has paid bribes. It is a matter of public record. However, the broader question is how widespread is bribery.
Our analysis of the decision making by IT departments for companies that use SAP is that something strange happens when SAP offers software to companies. IT departments perform very little research, are easily swayed by claims made by SAP sales reps, and disregard warnings about SAP software, even when that software is declared by us as not capable of being implemented of being extremely difficult to maintain. IT departments routinely bypass far more mature non-SAP applications, and applications which are far better fits with business requirements in favour of SAP applications.
Financial Bias Disclosure
Neither this article nor any other article on the Brightwork website is paid for by a software vendor, including Oracle, SAP or their competitors. As part of our commitment to publishing independent, unbiased research; no paid media placements, commissions or incentives of any nature are allowed.
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The software implementation is risky business and success is not a certainty. But you can reduce risk with the strategies in this book. Undertaking software selection and implementation without approximating the project’s risk is a poor way to make decisions about either projects or software. But that’s the way many companies do business, even though 50 percent of IT implementations are deemed failures.
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Chapter 1: Introduction
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Chapter 3: The Basics of Enterprise Software Risk Management
Chapter 4: Understanding the Enterprise Software Market
Chapter 5: Software Sell-ability versus Implementability
Chapter 6: Selecting the Right IT Consultant
Chapter 7: How to Use the Reports of Analysts Like Gartner
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Chapter 10: Using TCO for Decision Making
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