Five ways for CEOs to throw away money

Pop into almost any large organisation and you will be astounded at the amount of time, resources and money dedicated to buying, renewing and supporting contracts for "shelfware" - software that is bought on a whim or in accordance with policy, but not actually required for any particular use. In fact, according to some analysts, more than 25% of software bought today ends up as shelfware.

In keeping with that spirit of squandering, here are five ways in which CEOs can waste even more money:

1. Buying software: In accordance with the traditional way of implementing a software solution in a business, the CEO appoints an employee who goes out into the market, or he in turn employs a supposedly independent and suitably expensive consultant to do his shopping for him, and sets out to find an application that meets the requirements of his organisation. Once he finds a product to suit his needs, he is drawn into a costing exercise and ends up forking out pots of money over a number of years for a product which, he believes, is going to revolutionise his business. He is by no means certain that this will indeed be the case, but he is prepared to take a gamble. Sadly, in the majority of cases he will discover that the solution does not, in fact, come close to meeting the business needs for which it was bought.

2. Paying developers on spec: As a result, the CEO will now have to bring in developers to modify and configure the exceedingly costly software so that it can actually be put to some use. At this point, he is walking into darkness, as he does not have any idea of how long the modification process is going to take - it could be months, or even years. He therefore has very little means of setting up cost-effective contracts, and is really at the ultimately mercy of the developers. And if you throw enough money at software developers, you will get just about anything you want.

3. Taking on all the risk: CEOs have become accustomed to spending vast amounts of money for software, and even larger amounts for implementation, and then being forced to make regular payments for licences, upgrades and maintenance fees - all without a single guarantee that the software will actually do the job in terms of meeting business requirements. And usually, there is no comeback or consequence - not for the person who buys the software in the first place, nor for the developers who have to be called in to alter it. And there is no guarantee that the modified product will actually be able to meet business requirements.

4. Buying on brand name: To try and avoid these scenarios, many companies buy brand-name software only. Enormous amounts of cash thus flow offshore into the coffers of the giant US and European software businesses, as local companies remain convinced that brand is better. They buy brand names not because they know the application will work for them, but because everybody else has bought it. So it must be good, right? Wrong. Buying brands can sink you into as deep a spiral of costs as any other software botch up, lulling you into a false sense of security, and actually increasing the amount you spend on wasted software.

5. Building and maintaining an IT empire: The more you spend, the more difficult it becomes to stop spending. So you end up having to hire a whole bunch of people to support your IT infrastructure, including developers, administrators and managers. So before you know it, instead of focusing on your vehicle parts manufacturing business, your attention is taken up by your IT department - and you probably still have not addressed your original problem!

But seriously, folks. There is a viable alternative in the form of service-based software delivery. Software as a service (SaaS) is billed on a per-usage basis, requires no client-owned or -managed infrastructure, and is supported on a virtual infrastructure that is delivered by an independent third party. Because you pay only for the software you use, software becomes a variable cost that is billed on a per-month basis.

Equally important is the fact that vendors who deliver SaaS have domain expertise around the business you are in, and therefore understand your business better than international software giants, and can also offer more targeted support. SaaS vendors are prepared to share the risk with their clients, without requiring you to part with millions in the process. They will also only charge you based on the value metric that is determined between themselves and their client.

In the South African context, SaaS makes valuable use of local applications developed locally by people who understand our market.