By Dan Anderson, Flexera Software
Introduction
In 2015, it’s generally accepted that Information Technology is a critical enabler of most businesses, regardless of industry. Companies that effectively use technology can bring products to market faster and at lower cost and have opportunities to move into new markets; conversely, companies that lack focused, efficient IT capabilities have difficulty in responding to competitive pressures and maintaining their current market position. According to the 2013 IBM Global C-Suite Study, 56% of CEOs of outperforming organizations plan “…to make emerging technology the top strategic priority over the next three years.” [i] Clearly, IT is viewed as a key enabler to achieve strategic growth, and CIOs are focusing increasingly on making IT capabilities into “Critical Enablers of Business/Enterprise Vision” at their organizations over the next 3-5 years.[ii]
Effectively Buying and Using Software is a Critical Capability
A key aspect of an organization’s IT strategy is its ability to effectively use its software investments to provide the business services and insights that drive that vision. Yet at many organizations, the inability to track productive use of software creates risks of non-compliance and costly software audits that drag down the entire IT organization’s effectiveness in achieving that vision. Companies which experience major software audit true-ups essentially make investment decisions without regard to how those purchases align with the IT strategy. The unplanned expenditures and excessive IT staff time involved also act as a drag on the IT organization’s ability to implement the projects and initiatives that provide the customer business value that CIOs and CEOs are looking to achieve.
No organization has unlimited resources. While the business wants the IT organization to innovate and enable it with the tools to leverage things like big data, mobility, and social insights, IT is also supposed to do more with less. In my experience working with very large companies, there is a rigorous budget process to approve projects, and not every project can be funded, even if the project has a solid business case. Software is, of course, a key part of the cost of many requests, and those projects may have to be deferred or scaled down due to the cost of licenses, even though the organization may have under-utilized licenses elsewhere in the organization. A 2011 IAITAM/Opinion Matters survey showed that 23% of software, on average, sits unused as “shelf-ware.” [iii] Organizations are in many cases reluctant to re-allocate existing licenses out of fear of becoming non-compliant with their license agreements. Instead, they purchase additional licenses because they can’t accurately determine availability of licenses, and this artificially inflates the cost of project delivery.
From the Vendor’s Perspective:
The pace of software vendor audits is not something to be blamed on vendors, who are acting to maintain and build revenue, just as any successful business does. Many of the changes to license models and the increasing complexity in measuring consumption and usage comes from a desire to protect current vendor revenue streams and build new ones as other revenue sources decrease over time. In many IT organizations, the objective is to achieve immediate savings and limit or eliminate the growth of software spend. This is in direct conflict with the revenue objectives of the software vendors. The chart below shows the five year revenue growth of five of the top independent software vendors (IBM, Microsoft, Oracle, SAP, and Adobe):
Vendors are looking to deliver revenue growth through software license audits if necessary, and as you can see from the chart below, most if not all, of the top software vendors are engaging in audits. They are increasingly (and successfully) using them as a core part of their revenue strategy.[iv]
The Disruption of Software Audit Activities
Anyone who’s been involved with a license compliance audit from one of their major software vendors knows that it can be a long, arduous process that requires significant resource hours from across the organization, and may also require unbudgeted outside resources. According to the 2014 IDC/Flexera study, the average true-up cost for organizations with greater than $100 Million in annual revenue was $.0004 X annual revenue, or $400,000 per billion of organizational revenue.[v]
Beyond the financial impact of these unplanned expenditures, the level of effort involved in responding to audits across the organization takes the focus of the IT organization away from their more strategic projects. Audits also create adversarial relationships between enterprises and their software vendors. Enterprises feel forced to pay for software that in many cases isn’t delivering the value originally expected, while the vendors feel that enterprises aren’t paying for the software that they’re using. The difficulty that organizations face in responding to audits also creates a defensive, bureaucratic approach to licensing software and partnering with software vendors, which limits IT’s effectiveness in achieving the enterprise’s business strategy.
Software Audits Distort Your IT Strategy
When a company experiences an unplanned audit true-up settlement, it is essentially making a purchase decision to address prior usage without regard to whether that investment is aligned to the company’s future growth strategy. Because organizations have limited resources, these purchases and the IT Staff time required also limit the progress that the organization can make in implementing the CIO’s IT agenda. Many organizations also find that the lack of available license data and consumption data to support project decisions ultimately lead to unexpected license exposure, or accidental piracy—more than 40% of respondents to the IDC-Flexera survey reported that greater than 10% of their annual spend was associated with non-compliant applications[vi].
Mergers and Acquisitions, data center consolidation, and server virtualization programs in many cases ignore potential license compliance issues. The lack of “what-if” planning has led to after-the-fact reductions to anticipated benefits at many organizations because the new usage is out of compliance with a legacy software agreement.
Software License Optimization Changes the Equation
As software is viewed as a more strategic investment, CEOs and CIOs recognize that developing better information and working with vendors as partners is critical to creating business value. Well over half of CIOs in the 2013 IBM C-Suite Study say their priority is increasing value through their vendor partnerships.[vii] The key change that can enable that partnership is improving the available software license compliance and application utilization information that is readily at hand to the enterprise. Software License Optimization is all about maintaining continuous license compliance, maximizing utilization of assets and reducing the ongoing cost of software.
Traditional Software Asset Management (SAM) has focused on counting and comparing installed software to purchases to reduce risk of non-compliance and limit the costs of new software. So what’s different about Software License Optimization? Software License Optimization uses the license compliance position as the starting point, not the objective. Organizations that can maintain accurate information on a license position (especially for complex license models and metrics) and actual software usage, are in a much stronger position to make better decisions on how those licenses should be used to maximize value to the organization. When IT decision-makers have accurate insight into what software can be redeployed for more productive uses, they have the ability to make decisions on what software to buy and how they can advance the business strategy faster and at lower cost.
Obviously, organizations need to invest resources to achieve these benefits. Manually managing ongoing license compliance is feasible only with significant labor and a focus on only a few key vendors. The amount of data required from across the entire organization to determine license compliance at each point in the software product lifecycle is something that most organizations have difficulty managing. Luckily, solutions are available today that automate the normalization of application discovery data and reconciliation with license entitlements to understand the organization’s license position for a given vendor and application. This automation is critical to achieving the benefits of an optimized software portfolio.
In an optimized environment, the license management team as well as IT Operations have much better information to proactively manage demand for software and reclaim licenses not only via standard use cases like employee off-boarding or hardware retirement, but also in cases where that software isn’t being effectively used. Times have changed.
Software License Optimization puts the organization in a stronger position to have fact-based discussions with vendor partners supported by actual software usage data. Both organizations can work to achieve better business value using the software the enterprise already owns, as well as adapt the software portfolio to align with the IT strategy. Aligning enterprises’ and software vendors’ business objectives is the ultimate outcome in moving away from disruptive software audits in favor of building strategic partnerships, and Software License Optimization plays a critical role in enabling that to occur.
To learn more, please read the Flexera Software - IDC survey report: Software License Audits: Costs & Risks to Enterprises.
[i] “Insights from the Global C-suite Study: CEO perspective”, Copyright IBM Corporation 2013
[ii] “Chief Information Officer insights from the IBM C-suite Study”, Copyright IBM Corporation 2013
[iii] “Software Efficiency Report – 2011”, Copyright Opinion Matters and IAITAM, 2011
[iv] “2013-14 | Key Trends in Software Pricing and Licensing Survey –Software License Audits: Costs & Risks to Enterprises”, Copyright IDC and Flexera Software, 2014
[v] “2013-14 | Key Trends in Software Pricing and Licensing Survey –Software License Audits: Costs & Risks to Enterprises”, Copyright IDC and Flexera Software, 2014
[vi] “2013-14 | Key Trends in Software Pricing and Licensing Survey –Software License Audits: Costs & Risks to Enterprises”, Copyright IDC and Flexera Software, 2014
[vii] “Chief Information Officer insights from the IBM C-suite Study”, Copyright IBM Corporation 2013