By John Emmitt
Bob Evans of Oracle wrote an interesting article posted on Forbes on the top 10 strategic CIO issues for next year. First on the list is:
1) Simplify IT and Transform Your Spending: Kick the 80/20 Budget Habit. The article states: "...Far too many companies today find that they need to devote 70% or even 80% of their IT budget just to run and maintain what they’ve already got, leaving as little as 20% for innovation. And if you wonder sometimes why you’ve got precious little IT budget available to fund growth-oriented innovation, the answer becomes pretty clear by looking at the list of usual suspects that have brought us to this point: server sprawl, massively underutilized storage resources, unproductive data centers, labor-intensive integration requirements, and a near-endless list of “strategic” vendors...."
I'd like to add another item to the list of "usual suspects"-- software licenses and maintenance. Since Bob works for one of the world's largest software vendors, he might be forgiven for leaving this off the list. But enterprises can't afford to ignore the money poured into the software that is pervasive throughout their business. A large portion of the IT budget is typically allocated to software and too often there is little oversight of this spending and there are poor controls in place to manage it. Nothing is done to avoid overspending on software licenses and reduce ongoing maintenance costs beyond taking a tough negotiating stance and going for the best discount they can get from the vendor or reseller. Getting a good discount is all well and good, but it misses the point if organizations don't know how many of what types of licenses they need in the first place.
Many organizations don't know that they are overspending on software, because they--
- Don't know what they already have in their IT environment-- many of the customers we have worked with, for example, drastically underestimated how much Oracle software was "out there" in their organization. Knowing what you have and what is being used is the first step on the road to software license optimization.
- Don't understand or apply license entitlements that come with their software license agreements. These product use rights (e.g. right of second use, roaming use rights, virtual use, DR/failover rights, etc.) can be complex and are difficult to manage in highly dynamic virtual environments. But softwware product use rights can have a significant impact on the number of licenses needed by the organizations by driving down license consumption for a given number of software installations. (See also the example of Oracle in VMware virtual environments in this recent blog). Fewer licenses, of course, means lower cost.
- Don't have processes and tools in place to monitor application usage and buy too many high cost licenses when lower cost licenses would do. This is particularly true of SAP named user licenses, for example. There is a wide range of SAP license classifications at different price points; the default license type is Professional User, one of the most expensive types. By monitoring SAP usage and analyzing the data, software license optimization tools can recommend the optimal license type for each user. This usually results in a lower cost license profile for the organization, with more Employee and time card users (less expensive types) and fewer Professional and Limited Professional user licenses.
- Don't fully utilize the licenses they already own. When licenses have been allocated but are unused, organizations need to have the software asset management (SAM) processes and tools in place to reharvest those licenses and reallocate them to other users, rather than purchasing more licenses. Similarly, when hardware is being retired or refreshed, licenses allocated to those devices should be recycled to the new hardware, rather than purchasing new licenses.
So, kick the 80/20 budget habit by optimizing your spending on software. This can free up budget for some of the other innovative ideas discussed in Bob's article.
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