Michael McKeon John Plansky. Realizing Untapped Opportunities Managing Software License Assets to Optimize Costs

Transcription

1 Perspective David Yeo Michael McKeon John Plansky Realizing Untapped Opportunities Managing oftware License Assets to Optimize Costs

2 Booz & Company is a leading global management consulting firm, helping the world s top businesses, governments, and organizations. Our founder, Edwin Booz, defined the profession when he established the first management consulting firm in Today, with more than 3,300 people in 58 offices around the world, we bring foresight and knowledge, deep functional expertise, and a practical approach to building capabilities and delivering real impact. We work closely with our clients to create and deliver essential advantage. For our management magazine strategy+business, visit Visit to learn more about Booz & Company. CONTACT INFORMATION Boston John Plansky Partner john.plansky@booz.com Florham Park David Yeo Principal david.yeo@booz.com New York Michael McKeon enior Partner mike.mckeon@booz.com Mehul Desai and Papiya Gupta also contributed to this article. Originally published as: Realizing Untapped Opportunities: Managing oftware License Assets to Maximize Returns, by John Plansky, David Yeo, Michael McKeon, and James hea, Booz Allen Hamilton, 2008.

3 REALIZING UNTAPPED OPPORTUNITIE Managing oftware License Assets to Optimize Costs Executive ummary Major corporations frequently own a jumble of disparate software licenses, sometimes as many as thousands of products from hundreds of vendors. Regionalized procurement, mergers and acquisitions, a fluid and mobile workforce, and various other factors all contribute to an inventory of software assets that often is incomplete, rife with redundancies, and simply inaccurate. Firms spend billions of dollars each year acquiring software license assets, but more often than not treat them as expenses rather than assets to be productively managed. In doing so, they are growing their costs unnecessarily and exposing themselves to compliance risks. The good news is that these issues can be addressed by implementing a robust system of software asset management (AM), which incorporates a rigorously managed inventory and strong procurement processes. In doing so, our research indicates, most firms can reduce the costs related to software assets by 5 to 15 percent. Global financial-services firms have revenues ranging from about U$6 billion to about $90 billion. These companies tend to spend up to 1 percent of their revenues on software assets, depending on their number of employees (which ranges from 20,000 to over 300,000) and level of technology use. By implementing AM, these companies can realize annual cost savings of about $12 million to $135 million. The caveat is that this type of effort requires a rigorous focus on improvements across process, organization, and technology. Although such an initiative is not easily implemented, the resulting rewards make it more than worthwhile. Acting versus Reacting In too many companies, software assets tend to be overlooked until they receive negative attention for instance, when lawyers from Microsoft or Adobe send a letter of notification about an impending software license audit. At that point, without an enterprise-wide view of the software inventory that is properly structured, accurate, and up to date, IT managers can end up spending six months to a Booz & Company 1

4 year trying to play catch-up so they can comply with the audit. At the end of that ordeal, a corporation is likely to be forced to pay penalties for contract violations on software products for which it cannot provide proof of ownership. In addition, the firm may also find that it has surplus licenses for other products, thus resulting in overspending. In this typical scenario, strategic sourcing falls by the wayside, for it is impossible to leverage business demand without accurate usage information and an up-to-date inventory. As an alternative to this haphazard and last-minute approach, companies need to treat their software assets like any other investment. Just as anyone who purchased stock in a company would follow the share price and spend or reinvest the dividends, anyone who purchases software assets must monitor them just as carefully to get the maximum return in terms of increased benefits and efficiency. Many major companies have limited their involvement in AM because of its inherent challenges: It requires a complex, crossfunctional effort across IT, procurement, lines of business, accounting, and legal, supported by buy-in from senior management. In global companies, there are country-by-country regulations and licensing requirements that further complicate the picture. But viewing such effort as an investment rather than as an expense would underscore its importance and firmly establish the necessity for viable AM to ensure maximum returns. The Pitfalls of Poor Asset Management It s important to recognize the magnitude of this problem from two perspectives: cost and compliance. Cost: Consider that a typical Fortune 500 firm spends a good amount of its revenues each year on licensed software, including the initial license cost, upgrades, and maintenance. For financial services, this figure is 1 percent, 1 and it ranges from 0.5 percent to more than 1.5 percent, depending on the industry and level of dependence on technology. This spend is growing by approximately 5 to 8 percent annually faster than the rate of inflation. Unfortunately, a significant amount of this spend is being wasted. Our experience at one particular firm showed that it had 20 percent more software licenses than it needed, due to sleeping users, who had either never logged on to use the software or have not used the software for more than 90 days. In another instance, a limited pilot showed that 12 percent of the software purchases could have been avoided by simply transferring the available licenses that the firm already had. It is certainly easy to understand how global firms can reach such a state of affairs: Getting an accurate measure of software asset inventory and costs is a time-consuming endeavor that requires months of research into information from procurement, IT, and finance organizations. The typical IT budget is made up of many small expenses spread over a large employee base. If a manager in London needs a particular software to complete a project, it is easier to put in a new purchase order than look for existing available licenses that can be reassigned. Multiply all these small but avoidable expenses by 20,000 to 300,000 employees, day after day, year after year, and it adds up quickly. Compliance: A failure to properly manage IT assets leaves financialservices firms vulnerable to audits from software companies. oftware vendors and watchdog groups such as Business oftware Alliance (BA) and oftware and Information Industry Association (IIA) are increasing their vigilance in enforcing licensing rules. Both internal and external audits are becoming more frequent, given the growing amount of money at stake in terms of fines and license costs. BA estimates that 39 percent of all software is pirated, and many enterprises face multiple software audit requests at any one point, both directly from vendors and from industry groups. One Gartner Group study in 2004 predicted that 40 percent of medium to large enterprises could expect an external software licensing audit within the next two 1 Based on the fact that 7 percent of revenues for financial firms are spent on IT, and nearly 15 percent of the IT spend is on software purchases. ources: Gartner Group, Forrester Research, Booz & Company analysis. 2 Booz & Company

5 years, and this finding holds true today. Unfortunately, most firms do not have accurate information on whether and where software products are installed and if the installations have associated licenses indeed, because software is easily replicated, many software products are often under-licensed within a corporation. Unless firms keep track of their software licenses, they will be unprepared to respond to an audit and ultimately may be fined by a series of software manufacturers. One large corporation recently paid nearly U$2 million to a database technology firm for unlicensed software. For public companies, the costs of such piracy include fallout in terms of shareholder goodwill and publicity, in addition to any fines imposed. Another global financial-services firm was in a $12 million licensing dispute last year with a technology firm that provided it with critical software and support; the potential disruption of service could have greatly affected operations. Another leading firm was audited for its use of software licenses, and in the process of responding to these audits, the firm did a cost-benefit analysis. Despite close to U$2 billion in IT expenditures during a threeyear period, it was discovered the assets had disappeared. As a result, management funded a formalized project management office to fill in the gaps and establish a new set of systems and software licenses. Digging Into the Problem AM can make a significant difference in addressing both cost and compliance by forcing firms to look at how they purchase software, how they manage and dispense those purchases, how they supplement them with upgrades, and how personnel changes dictate evolving and changing requirements. Upon implementation, a AM program quickly reduces costs and generates efficiency. Most global corporations need 18 to 24 months to complete a AM project; once started, however, such efforts usually start showing quantifiable benefits after six to nine months. To successfully take control of managing their software assets, firms must address the problem from three perspectives: process, organization, and technology. Process: Most firms lack standardized processes for software demand management, procurement, inventory management, license recycling and transferability, and retirement. Typically each region, country, or business has its own processes and systems for managing software assets, which may not be integrated; this results in a narrow perspective, as well as numerous redundancies. This process deficiency also means that licenses are not being transferred between workers; the IT organization is unable to forecast demand, because it does not have insight across the organization or a way to achieve it; it is unclear who has the authority to make decisions; and there is a lack of coordination among IT, procurement, and business processes. The remedy for such process failure is the implementation of a full life-cycle approach to asset management, from planning to retirement (see Exhibit 1, page 4). The life cycle has six stages: 1. Plan: oftware purchases should be proactively planned and aligned to meet the demands of the businesses. Determining such alignment requires clarity regarding the responsibility and decision rights for purchasing new items. Ideally the business, procurement, and IT would collaborate to anticipate the amount of software that might be needed and find the best supply sources, whether transferring available licenses and hardware or negotiating and purchasing new assets. 2. Procure: An asset inventory system can be used to support procurement negotiations by providing information on licenses or hardware that the firm has previously purchased from a particular vendor. A AM program should also include a system that provides usage levels for software in order to structure optimal contracting terms. Once the purchase has been made, procurement system data should be validated to ensure accuracy before being sent to the asset inventory. 3. Deploy: Once the purchases have been made, the software is deployed to the users by the IT group, with appropriate updates made to the asset inventory system. 4. Inventory: The asset inventory system then tracks the life cycle of all software purchased and in Booz & Company 3

6 Exhibit 1 Process Approach for oftware Asset Management AM Life Cycle Retirement unsetting of application or software Retire Plan Plan Align software needs to demands of the businesses upport Day-to-day operational management upport Procure Procure Negotiate/contract Purchase Receive Inventory Asset tracking reporting/compliance Inventory Deploy Deploy Entitlement ource: Booz & Company use at an organization. Ideally, it provides an enterprise-wide view that links users with assigned software licenses. 5. upport: The IT group typically manages the day-to-day operations of the systems required to support the AM program. A key aspect of the support includes recycling of assets (e.g., freeing up licenses when an employee leaves the firm and transferring them to another employee). A well-designed and executed recycling and transfer program offers significant and quantifiable benefits. 6. Retire: Retirement of assets involves making sure assets are no longer needed and ensuring proper update of the asset inventory. The processes involved in these six steps would need to be consistent throughout the firm, with the procurement, IT, and finance departments aligned globally. In designing the processes, it is crucial to consult with the necessary departments to make sure they are compliant with legal, tax, accounting, and risk management requirements. Organization: The average organization lacks people with the skill sets devoted to managing technology assets and optimizing costs by region, business, and department. Recent M&A activity across the financial-services industry further compounds the problem as firms become larger and more-diversified global enterprises, resulting in a lack of integration and coordination between procurement and IT, as well as siloed lines of business that have no interaction at the level of software assets. The remedy to these embedded organizational issues starts with the development and implementation of a AM organization governance model. uch an organization requires buy-in from executive management, the participation of all affected groups, a schedule for issue escalation and resolution, a tracking system, and regular communication of benefits to the relevant parties. The firm would also need to ensure the availability of adequate resources and skill sets to cover key elements of AM procurement, technology, legal, accounting, and compliance risk management. Each business, department, and region would have staff dedicated to support 4 Booz & Company

7 the global AM effort. Finally, it s important to establish clear accountability for each process in the AM life cycle (see Exhibit 2). Technology: The multiple problems created by disparate systems, databases, and technologies hamper returns on investment (ROI). These problems include an inability to properly maintain and interpret software license inventory; an inability to recycle and transfer licenses; an inability to negotiate better terms with vendors; and an inability to link to related systems in procurement, finance, and IT. The method for surmounting these obstacles is to develop a technology infrastructure that includes key AM and related systems (see Exhibit 3). These include: Exhibit 2 Organizational Considerations in AM Life Cycle Procurement Legal IT Risk Management Finance/ Accounting End User/ Business O = takeholder owns the process and is accountable AM Life Cycle Plan Procure Deploy Inventory upport Retire O O O O = takeholder supports the process O O ource: Booz & Company Exhibit 3 Technology Infrastructure before and after uccessful Implementation of AM Current tate Disparate or missing systems, databases, and applications not linked together Target tate An integrated AM technology infrastructure with the appropriate systems and applications ERP Applications (AP, Peopleoft) Discovery/ Tracking Tools Asset Inventory Request Management Financial Management/ Accounting Master Technology Catalog Configuration Database Contracts and Legal DB Procurement Tools Asset Inventory Discovery Tools Tracking Tools Procurement Tools Request Management Master Technology Catalog AM IT Infrastructure Financial Management and Accounting Contracts and Legal Databases ERP Applications Configuration Database Missing or Not Used ource: Booz & Company Booz & Company 5

8 Request-management tools, which allow procurement to process users needs Procurement tools such as order entry, RFP management, and delivery which ensure that users needs are being met in the most cost-effective way A master technology catalog, representing a complete inventory of the types of products that are available to end users A centralized and scaleable asset inventory of installed software, including information on purchases, installations, cost centers, and financial terms Entitlement and deployment tools to determine who has the rights to which resources and to push them out to desktops or laptops Tracking tools, which keep IT apprised of discovery (what software has been installed and where) and usage of the software A legal contracts database outlining the terms of the purchases and the license rights obtained A configuration database to track incidents and problems, changes, and releases Financial management ledgers and accounting tools Enterprise resource planning (ERP) applications that are integrated with AM systems in order to provide accounting of assets that flows to the balance sheet. Exhibit 4 AM Maturity Model Assessment Pillar cope Level 1 Minimal Capability Level 2 Minimal Capability Level 3 Qualified Participant Level 4 Best-in-Class Process tandardization and integration of processes Elimination of manual or redundant processes Processes may exist but they are not standardized, highly manual, and not integrated Manual processes are minimized, but processes continue to lack standardization and integration Processes are standardized across the enterprise, but they fail to incorporate supply/demand principles ome level of integration exists among procurement, AM, and IT Implementation of a full life-cycle approach, from planning to retirement Processes are integrated, standardized, and aligned Organization Level of executive support Level of involvement from internal organizations Assignment of key resources to AM roles Little or no executive support Lack of integration and coordination between procurement and IT Executives and internal organizations understand importance of AM but are not staffed or aligned at the right levels AM governance model is developed and is well understood by many stakeholders taffing is mostly adequate AM governance model is understood and implemented Resources are optimized across the organization Technology Existence and integration of key systems including asset inventory, procurement, request management tandardization across regions and businesses as appropriate Disparate and/or legacy systems and databases Limited integration among related systems and databases ome key AM systems exist, but are not standardized or integrated across the enterprise No overall architecture Infrastructure includes the required AM systems, with some level of integration Technology architecture road map being implemented Technology infrastructure includes the required, integrated AM systems Organization executed a well-defined technology road map ource: Booz & Company 6 Booz & Company

9 Exhibit 5 Benefits Increase with Level of AM Maturity High Benefits Low High costs due to over-licensing and lack of license reuse Lack of ability to negotiate with vendors Inefficient, redundant, and sometimes manual processes Cost-Related Benefits Exposure to penalties and inability to respond rapidly to software audits Limited inventory of software developed Over-licensing report developed for select products and regions oftware reuse pilot implemented Limited support for vendor negotiations ome ability to identify under-licensed products Audit response processes are developed but not standardized across the enterprise Licenses reharvested and transferred within many lines of business Asset inventory developed and rolled out globally Vendor negotiation support for broader number of products Ability to identify and manage many under-licensed products Audit response processes standardized within lines of business Risk-Related Benefits Global reharvesting and transferability implemented Full integration of AM tools within enterprise Enterprise AM organization fully formed and functioning Under-licensing proactively managed, with monitoring in place to help eliminate audits and fines Enterprise-wide, standard risk reports generated on a regular basis Level 1 Minimal Capability Level 2 Marginal Capability Level 3 Qualified Participant Level 4 Best-in-Class Maturity Level ource: Booz & Company Reaping the Benefits Aligning organization, process, and technology to create a robust system of software asset management will yield numerous results, not the least of which is lower costs (see Exhibits 4 and 5). Firms can reduce the costs related to technology assets by up to 15 percent; for a financialservices firm with revenues of U$35 billion, this translates to cost savings of up to $54 million per year, depending on the current AM maturity level and willingness to adopt best practices. ome of these are hard benefits that can be clearly quantified. For instance, by enabling recycling and transferability of licenses, firms can re-deploy user licenses when an employee changes roles, does not use the software, or leaves the firm. A firm with 50,000 employees can save nearly $15 million per year simply by recycling the software of employees who leave the firm and transferring it to new employees. 2 By giving comprehensive insight into the total asset portfolio, AM facilitates the full use of license inventories and reduces redundancies. 2 This calculation assumes 15 percent attrition per year and $2,000 worth of transferable desktop software per person.. Booz & Company 7

10 AM can also support negotiation on vendor discounts or refunds for software products that are over-licensed. For example, one firm discovered that it was underlicensed by $500,000 on one product to a particular vendor. Assuming a check would have to be written to cover the shortfall, in responding to a series of audits, the company subsequently discovered it was also over-licensed on a different product from the same company for $3 million. As a result, managers were able to sit down with the vendor and say, Let s negotiate this. Furthermore, AM renders audits less expensive, because they can be completed easily without scrambling manually to uncover the extent of the organization s software assets, which often occurs in firms that are not prepared to respond to an audit. Finally, standardized AM processes, policies, and systems can reduce both budget and head count. Reductions in both come via the elimination of redundancy: Many organizations have, for instance, small AM groups spread across business lines and geographies replicating each others work. A global team across all business lines not only provides more effective information, but is more efficient. Rigorous software asset management has soft benefits as well, which are not as easy to quantify but are significant nonetheless. AM allows for accurate and timely risk reporting, giving information about the amount of software lacking proof of license; more real-time inventory tracking; enhanced service levels; faster issue resolution; increased security; and a shorter time to implement a standard desktop build. AM also enables budget or run rate reduction, due to improved pricing and contract terms. This can be achieved by leveraging more accurate business demand, inventory, deployment, and usage information during vendor negotiations for example, bulk purchases based upon usage pattern and demand forecasting. Finally, the soft benefits include not just improving on the positive but avoiding the negative including risks, fines, vendor lawsuits, and the negative press related to these actions. Although the implementation costs of IT asset management certainly exist, the quantifiable benefits are usually several times the costs. For instance, if a program implementation runs $10 million over a two-year period, the direct cost savings are usually multiples of $10 million; they start accumulating after the initial implementation and well before the overall program ends. If you factor in the soft benefits of software license compliance and vendor negotiating leverage, a AM program presents a compelling opportunity for firms to reduce both costs and risks. Key teps to uccess AM success can be split into four levels of program maturity. Generally, the more advanced the capabilities, the higher the benefits. As shown in Exhibit 5, page 7, the -curve success of these programs is obvious. For a firm that is making some, but not all, of the possible improvements, moving from the beginning stages of AM to a higher maturity level will result in substantial benefits. This field is still a nascent one, so many companies, including some of the largest and most prominent ones, are not yet at Level 4 and therefore have the opportunity to streamline their operations and achieve greater benefits. In our experience, it is vital to obtain buy-in from all affected groups to energize the AM program. These include the IT employees who set up and install hardware and software, the procurement department, the business lines themselves, the finance organization to validate the benefits, and the legal department to ensure adherence to licensing rules. Another critical success factor is senior level buy-in and support (usually by the CFO, CIO, and the head of procurement) to ensure that everyone affected is brought into the process. Rigorous planning is another critical success factor, especially as it relates to objectives, scope, and tools. Additionally, goals and metrics definition should be matched to the life cycle of the project. Data and associated accountability should be of the highest verifiable quality. We also recommend that communication of value and generated benefits be emphasized at every stage; senior management should be briefed on a regular basis on all successes, as well as challenges. 8 Booz & Company

11 The Bottom Line If you don t know how much you re spending in software, if you don t have a good handle on software license inventory, and if procurement is decentralized you have a potential problem brewing and a cost-savings opportunity that is being ignored. Although there is no quick fix, initiating change will usually start benefiting your organization within a year and continue for many years beyond. A necessary and vital component is the corporate will to motivate the various businesses and internal groups involved. The resulting impact of gained efficiencies can be enormous, manifested in cost savings, service delivery improvements, ease of compliance, and employee stress reduction no small benefits thus firmly establishing AM as worthy of pursuit. Booz & Company 9

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