Chapter 10 Methodologies for Purchased Software Packages
Chapter 10
Methodologies for Purchased Software Packages
Objectives and Overview
The primary objective of this chapter is for students to understand how to use a disciplined
approach for purchasing large packaged software, and the advantages and potential pitfalls
associated with purchased systems and leased versus customized applications (i.e., make-or-buy
issues).
Purchasing packaged software has become a standard approach for acquiring new applications for
A section on the overall make-or-buy decision is included at the beginning of the chapter. The
following sections emphasize that purchasing a system does not mean that a disciplined approach
is abandoned: We refer to the methodology described here as a modified life cycle approach for
software purchases. However, additional steps for identifying and selecting a package are added
to the Definition phase, as shown by the boxed-in steps in Figure 10.1. The Construction steps
may consist of system modifications, although in the enterprise system implementation section
we introduce the concept o
A section on open source software explains this increasingly viable option for acquiring
applications (to run either on your own hardware or via software services). The market for open
source applications is explained. The distinct advantages and risks of open source software are
identified in comparison to proprietary application software.
The last section of the chapter introduces the application service provider (ASP) (also called
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[Note: The issues associated with contracting out to external organizations for the custom
development of a new system are discussed in Chapter 10, Methodologies for Custom Software
Development, and Chapter 13, Leading the Information Systems Function.]
Specific learning objectives for this chapter are:
1. To increase awareness of the pros and cons of purchasing (including open source and ASP
3. To increase understanding of the importance of assessing not just the capabilities of a
4. To increase awareness of the criticality of including persons with IS expertise in the selection
process for purchasing a packaged system.
5. To introduce the tradeoffs associated with modifying a package vers
6. To increase awareness of the criticality of allocating sufficient resources to the
implementation phase of a purchased package implementation, including resources for
change management for enterprise-wide implementation projects (ERP and other enterprise
system projects).
Teaching Suggestions
This is a relatively short chapter. However, since we refer to the packaged system methodology
as a modified life cycle approach, the assumption is that students will first be exposed to the
content on SDLC and prototyping processes in Chapter 9. The overall make-or-buy decision is
discussed at the beginning of the chapter.
Because of the critical roles played by business managers in the selection and implementation of
We recommend that a minimum of one class period be devoted to this chapter, as well as using
one or more of the case studies in the textbook (especially those in Part III) to help highlight key
issues with purchased systems. The relevant cases include several case studies dealing with ERP
selection and implementation issues.
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Case Study III-2, Make-or-Buy Decision at Baxter Manufacturing Company This is an
excellent example of the classic build or purchase options for information systems. This case can
be used to either motivate the chapter or to show how the concepts in the chapter have been
applied (or not applied) in this example situation.
Case Study III-3, ERP Purchase Decision at Benton Manufacturing Company This case
Case Study III-4, The Kuali Financial System: An Open Source Project This case addresses
the issues faced when multiple independent organizations are involved in reaching agreement
about system requirements for an open source system.
Case Study III- The NIBCO case works well for learning what it
takes to implement a full suite of SAP R/3 modules within a mid-sized manufacturing firm.
Case Study III-6, BAT Taiwan: Implementing SAP for a Strategic Transition This case
study describes a project for a very small country office in which the project is internally led but
utilizes regional IT personnel (in a shared services unit) and an ERP template developed for
another country office.
Case Study III-8, Purchasing and Implementing a Student Management System at
Case Study I-3, VoIP Adoption at Butler University, describes an approach that involved all
stakeholders in acquiring new technologies for communications in a university setting.
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A possible field assignment related to this chapter is to evaluate the processes and roles used by a
real-world organization for purchasing a software package, in light of the approach described in
Review Questions
1. What are the major trade-offs in a make-or-buy decision?
The opportunity cost of scarce IS specialist resources must be weighed against timeliness of
purchasing and/or making major organizational changes to accommodate a purchased system.
2. Summarize the five additional steps for purchasing a system that are not part of the
Definition phase of a traditional SDLC process.
Create short list of suitable packages:
Establish criteria for selection:
Functional capabilities and technical requirements are needed
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Package must allow for an adequate number of options
Develop and distribute the RFP:
Invite vendors to submit a proposal
The more detailed the RFP, the more likely it is that the package and vendor can be
adequately assessed by the user and that systems requirements can be adequately
understood by the vendor
Evaluate responses to RFP and choose a package:
Project team members help to determine relative strengths and weaknesses, based on RFP
Negotiate contract:
Specify functional specifications, testing procedures, timetable, maintenance, liabilities,
documentation, and options to terminate
3. What is an RFP, and what critical tasks does it facilitate in the purchasing process?
RFP is an acronym for request for proposal, in this case a systems proposal. This formal
4. Why is making a lot of modifications to a packaged system sometimes a risky approach,
and what are the alternatives?
Attempting to modify a package in order to better match the way a business operates is risky
because it:
Requires additional testing
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5. Briefly summarize how the phases of the traditional SDLC are similar to or different
from the phases of the modified life-cycle approach for purchasing in support of the cost
comparisons in Figure 10.2.
Definition:
The Definition phase still requires documenting As-Is and To-Be systems. In addition, the five
Construction:
The major cost savings are in the Construction phase. This phase depends heavily on whether or
Implementation:
Figure 11.2 shows the initial Implementation costs of a purchased system to be greater than a
custom system; this is partly due to the addition of the software purchase price. Further, the
installation steps are the same as in the SDLC, but additional data preparation and more extensive
implementing new versions of a system (the timetable for which may be dictated by the vendor).
6. Describe the role of the vendor for each of the three phases of the purchasing life cycle.
Definition phase:
Promotional material is provided by vendor through advertisements, journals, trade
Construction phase:
Vendor modifies package, as specified in the contract.
Vendor helps with system testing and modifies documentation as necessary.
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Implementation phase:
7. Describe why the methodology for purchasing a small system could differ from
purchasing a large system.
8. Describe what a purchasing company might want to learn from a vendor demonstration
of a packaged system.
A demo using appropriate hardware and system software for the purchasing organization should
be arranged for, usually with multiple vendors. Figure 11.5 provides an example of requirements
that could be pre-specified for the demos, so that they are comparable. From a vendor
9. What are the criteria that should be applied when choosing among candidate application
software packages?
10. What do you think are the most important advantages and disadvantages of purchasing
a package?
Advantages:
Reduces the time to implement
Costs less initially, and vendor provides upgrades and support
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Disadvantages:
Training costs
Lack of internal knowledge about the package: IT staff may be unfamiliar with hardware and
11. What kinds of modifications tend to be easy to do and what others tend to be difficult to
do with packaged software?
The easy modifications are those that the vendor has designed into the package for modification.
These tend to be customizing report titles and some reformatting of reports, adding new screens
12. What are some of the major differences between a process to implement an ERP
package and the process to implement a less complex package?
The level of system complexity is much greater as an ERP consists of tightly integrated
functional modules.
13. What are the critical success factors for running an ERP project?
The chapter outlines five CSFs for running an ERP project
Top management is engaged in the project, not just involved.
14. What are the relative advantages and disadvantages of open source software versus
proprietary application software?
Advantages
Pre-packaged software that you have the right to modify (but you may be obligated to
make changes available to all who have acquired the software)
Free (or very low cost) to acquire
Disadvantages
Total cost of ownership may not be clear
15. What is an ASP and why is this an attractive purchasing alternative?
Using an application service provider (ASP) entails contracting with an outside organization to
Discussion Questions
1. Critique the following statements: It would cost us $800,000 to build this system, but we
can purchase an equivalent package for $125,000. Therefore, we can save $675,000 by
purchasing the software package.
The actual price of the software package is typically a very small portion of the total cost of a
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2. Discuss the options an organization needs to choose from when the best packaged-system
solution is not a perfect fit with the needs of the organization.
There are four approaches that can be taken when the software packages available for purchase
and the needs of the organization do not perfectly match. First, the system can be modified. The
3. You run a small business. You have no IS specialists on your staff and plan to purchase
all of your software. What might be your three most important concerns?
Numerous challenges might be encountered, but three especially important ones are:
Freeing up business personnel to help define the requirements of the needed software and
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4. You are a manager in a company that has a lot of in-house IS expertise. What might be
your key decision rules for when to purchase a system versus when to develop it in-house?
A system should be purchased if the application is fairly standardized and there is software
5. Discuss why an assessment of the financial stability of the vendor can be a critical
consideration when evaluating responses to an RFP.
6. Choose one of the five factors associated with successful ERP implementations (presented
different this really is (or is not) from other packaged system implementations.
Example:
7. Many midsized firms are investing in ERP system packages, such as SAP and PeopleSoft.
Comment on what you think might be particularly important parts of the decision-making
process when the purchasing organization has only a small IS department.
Installing an ERP may require significant organizational change to fit the package, depending on
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8. Revise Figure 10.3 to make it a list of criteria for assessing an application service provider
(ASP).
Because an ASP is also hosting the package, a new category needs to be added with criteria such
as:
Operational Capabilities of the Vendor
9.
sources, are there any differences between cloud computing and SaaS? If so, what are some
of the unique advantages and disadvantages?
Cloud computing is just emerging as this book is being written, so the answer to this question will
likely change once the book is in print. Cloud computing appears to be a general term, covering
10. Research two competing packages for some application, one proprietary and one open
source. Develop a list of criteria for selecting between these packages and then compare
these packages on the criteria. What advantages does the open source package have? What
disadvantages?
Answers will vary depending on the packages selected. Some factors for comparison will be
based on the items listed in the answer to Review Question 12 above. Other factors will be those
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11. Modify Figure 10.7 to focus just on ERP packages.
To a great extent, the items listed in Figure 11.7 still apply to ERP packages just as with any
software package. There are, however, some unique, additional factors to consider, as listed
below, for purchasing an ERP packaged compared to attempting to develop the equivalent as
custom software.
Purchasing ERP Packages Advantages
The package provides a roadmap for development over time, rather than having to
Purchasing ERP Packages Disadvantages
You have to make an upfront commitment to potentially a new technology platform,
which may mean considerable training costs for your IT staff.
12. Modify Figure 10.7 to focus on open source packages.
To a great extent, the answer to this Discussion Question is similar to the answer to Review
Question 12 above. We summarize below some unique advantages and disadvantages of
acquiring open source packages compared to building equivalent custom packages from scratch.
Purchasing Open Source Packages Advantages
from scratch.
The open source package can provide features (functionality and platform) that can be a
Purchasing Open Source Packages Disadvantages
Depending on the license agreement, you may have to share your new code with other