Reversion occurs when one model fails and another has to be adopted. For senior management, lower levels of management often disguise reversion as something else. In a recent case of reversion a software supplier was encountering some serious financial problems and effectively had had a significant negative balance sheet for several years after an abortive attempt at product development. For small software firms, product development is a knife-edge as they often don't have the financial strength either to develop more than one product at a time or to suffer a failure of a product to sell. So, what starts out as a positive in an RFP, that the firm is awarded a contract partially on the basis of its seeming strength in product development (which would of course benefit the vendor), the end result can be very different. The absolute value of a software vendor lies in its source code. So, the signs of a failing vendor are clear, as shown below. The end result is often the acquisition of the source code by the financial institution.
This is almost the reverse of how most financial servicesfocused software firms come into existence. Usually either the software company is so strapped for cash due to plateauing or declining sales and failure to invest or it manages finances well or through competitive pressure, that it is forced to first lower its license fees. This is a signal that cash flow is more important than the product. Apart from the signal that this sends to earlier purchasers of the product, an intelligent project manager will analyse a prospective vendor's pricing history to look for such tell-tale signs. Other signs include a change in the structure and level of maintenance fees and/or a more frequent update and upgrade program. All tell a similar tale - cash flow is tight and taking over management decision making. Typically this means that purchasers are faced with an increased frequency of updating or upgrading the software in the vendor's efforts to generate cash flow to support its operations. The end result, if all the above fail, will be loss of source code. This will happen in one of two ways. If the purchasing financial institution recognises the signs in time, it may ‘require' the source code from the vendor in order to protect its own operations and mitigate risk. Alternatively, and much the worse scenario, the vendor may be in such a difficult position that it has to ‘offer' the source code to its client. In the first instance, the lower levels of management in the financial institution may see the risk and disguise the source code acquisition as a necessary move because of the vendor's inability to keep up with the needs of the institution.
Effectively ‘we need to get the source code because they can't meet our needs and we have more resources to manage the code'. Much of this obviously depends on the criticality of the application to the institutions day-to-day operations. So, for financial institutions the control issues of purchasing technology are both external and internal. Reversion describes the process of starting off with one model.
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