A Comprehensive Guide to CPQ Software Selection

Over the years, various unconventional IT practices and failed software implementations have damaged the reputation associated with selecting and implementing new software. To prevent potential errors, misjudgments, and consequently failed implementations, many companies tend to make the selection process unnecessarily complex and resource-intensive. Research indicates that the average software selection process for small to medium-sized enterprises can cost anywhere from €20,000 to €40,000.

After investigating numerous CPQ software selection processes, we've observed a clear difference in approaches. We'd like to elaborate on this in this blog: Traditional Approach to CPQ Software Selection vs. New Approach to CPQ Software Selection. 

The Traditional Approach to CPQ Software Selection

As previously mentioned, manufacturing companies tend to overcomplicate and assign major resources to the selection process over their fear of failed software implementations. Who has ever heard of a company being positive about their software implementation? It’s often delayed, over budget, or it simply doesn’t live up to expectations. 

In order to prevent this, the selection process for CPQ software has become more important than ever. And to be fully sure the solution will live up to expectations, the following steps have typically been taken in the Traditional Approach:

1. Gather specific functional requirements and user stories for each relevant department. These are selected based on internal experiences rather than external expertise.
2. Summarize requirements in extensive Excel sheets, prioritized using MoSCoW or other methods.
3. Check online for all software vendors and create a longlist.
4. Send out Request for Information (RFI) and/or Request for Proposal (RFP) to the longlist.
5. Evaluate responses, create a shortlist, and schedule multiple meetings for introductions and to discuss RFIs.
6. Reach out to references based on feature functionality similarities.
7. Select the preferred supplier, negotiate terms, agree on a contract, and commence implementation.

Of course, in between each step often a lot of internal meetings take place that all need to be prepared and evaluated by the project group. And based on all evaluations, oftentimes a lot of revised RFIs for extra requirements will be included in the scope. It now becomes clear where the estimated budget of €20,000 to €40,000 comes from for the average software selection process. 

When searching for a partner that creates fully customized software tailored to the exact needs of the company, this might be an efficient approach. When searching for a software partner that delivers standardized SaaS software, it is arguably not the right approach. 

Why the Traditional Approach Doesn’t Work

No standard software vendor can deliver all functionalities. Case closed. Standardized software vendors, who follow a customer selection approach similar to the traditional method, often resort to creative responses in RFIs to ensure their inclusion in the shortlist. This is done to convince the customer that all required features are readily available in the vendor's software. While the majority of those functionalities might only be available after a lot of customization during the implementation, ending up in another delayed or disappointing software implementation.

Standardized SaaS software typically doesn't offer fully customized solutions tailored to every company's unique needs because it's designed to serve a broad range of users. However, the strength of SaaS vendors lies in their expertise in building and refining their software to address common industry challenges and requirements. By leveraging their extensive knowledge and experience, SaaS vendors can optimize their solutions to deliver maximum benefit to their customers. 

The New Approach to CPQ Software Selection

Taking the explanation above, frontrunners in the manufacturing industry often take a more active approach, and they believe in the power of SaaS. They are aware that in order to drive scalable growth, increase profitability, and maintain a competitive edge in their industry they need to join the SaaS revolution. These frontrunners are characterized by having a clear vision on how to position CPQ in their IT strategy and are guided by best-practices. They’re willing to learn from others and take a hands-on approach in the process. The following steps are typically taken in the New Approach:

1. Define fundamental and technical requirements
   • In order to avoid getting stuck with the status quo and ending up with the wrong  partners, right decisions should be made about your IT infrastructure. Based on your company’s strategy, a clear vision on how to position IT should be defined. The fundamental requirements of the software to be selected should be the outcome, such as cloud-based, API availability, and integrativeness. 
   • In addition, in order to avoid being fully dependent on scarce resources while implementing and growing your business, It should be clear from the start who should be leading the CPQ implementation. Is it IT, or is it the business? For manufacturing companies that deal with ever-evolving complexity of their products and processes, it is especially relevant that this should not be controlled by scarce IT resources. Business-led CPQ should, therefore, be an essential requirement. 
2. Research online for expert software vendors that fulfill your requirements
   • A potential software partner would combine your fundamental and technical requirements together with industry expertise. In order to research the industry expertise, look for business cases online as well as blogs or podcasts to gain valuable information on the potential partner: Are best-practices shared? Do they have relevant business cases? Do we share the same values as the partner or its customers?
   • In addition to the typical research, check out the possibility of starting a trial of the vendor’s product. This gives you even more information on the interfaces, self-service possibilities, or key functionalities. 
3. Engage with the vendor 
   • It’s now time to actively engage with your potential software solutions. Typically, the software provider organizes deep-dives into their platform to understand your vision, your current process, and your specific requirements for the new process. In addition, demos should be organized tailored to your business case. 
   • This interactive exploration allows you to assess usability, performance, and alignment with your organizational needs. Yet, beyond assessing functionalities, equal attention should be given to the implementation process. Planning for seamless integration and user adoption is crucial for maximizing the software's value post-selection. Therefore, you should inquire about implementation support, training resources, and ongoing assistance to ensure a smooth transition.
4. Use a Proof of Value to kick off your implementation
   • A Proof of Value (PoV) serves as an essential stage in the selection process of CPQ software. Each business operates within its distinct ecosystem, necessitating a tailored solution. Hence, a PoV allows you to witness firsthand how the CPQ software aligns with your specific needs and workflows.
   • Furthermore, a hands-on PoV sets the stage for successful CPQ software implementation by serving as a practical test to validate its viability. The PoV ensures alignment with your business case requirements while uncovering opportunities for enhancement. This methodical approach ensures that the selected CPQ software isn't only a conceptual match but a functional tool ready to drive scalable growth.

In conclusion, the Traditional Approach to CPQ Software Selection often involves unnecessary complexity and resource-intensive processes, leading to potential errors and failed implementations. However, the New Approach to CPQ Software Selection emphasizes fundamental requirements tailored to specific software and seeks partners aligned with the company's vision. By focusing on essential needs and industry expertise, companies can streamline the selection process and maximize the benefits of their chosen software. This shift towards a more active and informed approach ensures that software implementations meet the evolving needs of businesses while driving scalable growth and a competitive advantage.