Software Has No Value

Years ago I was involved in an ERP selection project. That stands for Enterprise Resource Planning (or some variant thereof); basically the core database and interfaces for a company (in this case manufacturing) to track inventory, orders, purchases, engineering documents, and often a great number of other things. At some point in this long and arduous process, I entered into a meditation of sorts on what I was doing, and why, with a particular eye to explaining just why we were paying larges sums of money for bits. The end result of this, cleaned up and put into more logical order, was a manifesto of sorts.

Software Has No Value

  1. The goal of a company is profit.
  2. Software does not improve profit
    1. If we go to our vendors, and tell them that they must charge less because we have software, they will laugh at us.
    2. If we to prospective customers, and tell them that they must buy from us because we have software, they will laugh at us.
  3. Profit arises from reduced costs and increased sales
  4. Reduced costs and increased sales are a function of business processes, such as
    1. Researching different vender prices and choosing the lowest one.
    2. Procedures that find and correct quality problems before they reach the customer.
    3. Responses to customer inquires that are timely, informative, and courteous.
  5. Business processes do improve profit
    1. Directly through reduced costs.
    2. Indirectly through increased customer satisfaction and return business.
  6. Business processes are a function of labor
    1. Someone has to perform them.
    2. Some processes, though they may be beneficial, may be cost prohibitive for human labor.
  7. Software is a tool to automate labor
    1. Improving the cost efficiency of current processes.
    2. Enabling formally prohibitive processes.
  8. Software has no value
    1. Software costs money. (A capital investment.)
    2. Software, however, has no value – it can be copied in few moments.
    3. Since software has no value, software is not sold – licenses for software are sold.
    4. Licenses are legal agreements.
    5. Legal agreements have no value, (they cannot be sold) except as provided by the agreements.
    6. Therefore, software is a capital investment which, itself, has no value.
  9. Software must create value through profit
    1. Software has no value itself.
    2. If the software improves profit, then some value is created for the company.
    3. The increase in profit must be substantial enough to cover the cost of the software (and disruption from changing it) and then create a net profit.
  10. Software must facilitate the improvement of business processes
    1. Software doesn’t improve profit
    2. Business processes do.
    3. In order to increase profit, software must enable improved processes.
  11. Software selection is a business concern, not a technology concern.

Posted Friday, January 7th, 2011 under Essay.

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