Agenda Overview for IT Asset Management and Procurement, 2014

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1 Agenda Overview for IT Asset Management and Procurement, January 2014 ID:G Analyst(s): Alexa Bona, Stewart Buchanan, Laura Salmons VIEW SUMMARY ITAM and procurement executives in 2014 will begin to realize how few digital technologies and costs are under their control. Act now to stay business relevant and avoid the risk of being bypassed when stakeholders meet their own technology needs. Analysis Figure 1. Agenda Overview for IT Asset Management and Procurement SUGGESTED NEXT STEPS To begin your 2014 journey, read Gartner's "ITScore for IT Sourcing and Procurement" to gauge your maturity level and decide how far you would like to progress. If you are negotiating contracts with software and hardware vendors, schedule an inquiry call with one of our analysts to review it. Sign up to Gartner Peer Connect to participate in important discussions among your peers and to exchange knowledge with other IT procurement executives and asset managers. Additionally, plan to attend our 2014 IT Financial Procurement and Asset Management summits in Orlando, Florida (8 to 10 September) or London, U.K. (17 to 18 September). RELATED AGENDAS IT Services Sourcing Vendor Management IT Infrastructure and Operations Leaders PROFILE Alexa Bona is a vice president and distinguished analyst for Gartner Research, where she focuses on IT management. As part of the ITAM and IT procurement research practice, Mrs. Bona is responsible for coverage of future trends in software licensing and pricing practices, as well as maintenance and support models for business applications, both on premises and in the cloud. She advises clients on software licensing and contracting issues relating to SAP, Oracle and many cloud providers and is a generalist for software asset management trends and issues. Source: Gartner (January 2014) The digital universe is growing rapidly and IT procurement and IT asset management (ITAM) professionals cannot afford to ignore its impact in They can view it as a threat to their roles or as new set of opportunities to their advantage in the digital economy. Everything is faster in the digital universe.it procurement and IT asset management teams must keep pace with the speed of the digital universe or business buyers will purchase and run assets without IT procurement and IT asset management involvement. Chief marketing officers (CMOs) are already commissioning mobile app-driven campaigns that yield pay back in two weeks the same amount of time it takes IT procurement to just gather requirements. A simple "disposable" mobile app costing a few cents needs far less diligence than a multimillion dollar enterprisewide application but the need for speed will only increase as the digital universe drives business decisions that are made in the business moment. As CIOs develop digital business strategies and adapt their business models to deal with both threats and opportunities, so must the IT procurement and IT asset managersupporting them. 1 Business leaders will require technology for shorter periods as they begin new projects and scrap them in a matter of months. In this environment, the three to five year asset life cycle plans and contracts for IT procurement and ITAM will seem irrelevant, as highlighted in "Predicts 2014: The Digital Economy and the Cloud Raise New Licensing, Services and ITAD Challenges for ITAM and Procurement." ACRONYM KEY AND GLOSSARY TERMS IT asset A framework and set of processes managemen for tracking and managing the t (ITAM) financial, physical, licensing and contractual life cycles of IT assets. Its goal is to provide an account of IT asset costs and risks and offer executive support for IT strategy, architecture, funding and sourcing decisions. IT The discipline and process of procurement advising on and acquiring IT goods and services optimally to meet the needs of IT and the business, in terms of quality, quantity, time, location and risktolerance and with the best possible TCO. Gartner's research on this discipline is aimed at IT procurement and IT sourcing executives, CIO s, business procurement staff and IT contract and legal staff. Different roles are now involved in IT procurement and IT asset management. The trends of digitalization and the Internet of Everything are spreading rapidly and technology is increasingly involved in operational processes and even the products you sell. The people responsible for the devices your organization uses, such as heads of engineering, marketing or product design, will see the responsibility for these technologies as their preserve and not fundamentally as an IT "product." Software asset managemen t (SAM) As a subset of ITAM, SAM plays an important role in the acquisition and disposal of software, including strategies to identify and eliminate underused software, the consolidation of licenses and the move to new licensing models. The SAM discipline aims to create a

2 This means that heads of departments may not consider involving IT procurement or ITAM in their plans, even though the consequences of their actions will remain with IT procurement and ITAM leaders, who will need to inform and influence better decision making to maintain accountability and ensure positive business outcomes, as described in "2014 Strategic Road Map for ITAM Get Ready To Manage the Digital Technology Asset Portfolio." Buyers are more isolated from cloud services technology.technology has become more abstract to business buyers and much easier to consume. As increasing numbers of technologies become offered "as a service," the business can buy access to technology without having to know anything about how it works. However, business buyers still need to understand how their service contract will work to ensure that it is aligned with their objectives. A compound annual growth rate of 37% is forecast from 2012 through 2017 for public cloud services. 2 Generation Y influences how technology is bought and used.businesses now have a higher percentage of younger employees who are highly IT literate and believe that their personal technology buying experience also makes them skilled business buyers. They expect to procure the technology that they want without involving or being constrained by IT procurement not realizing they lack the skills and experience needed to optimize complex enterprise technology contracts. These developments accelerate the "every budget is an IT budget" trend. IT spending is not entirely controlled by CIOs and business buyers are bypassing IT procurement and ITAM, which threatens the relevance of these important roles. Gartner surveys show that more than 25% of IT spending is already outside CIOs' control and by 2015, we predict that will grow to 40%. In some media organizations, where digitalization is already happening, the CMO already has more IT budget than the CIO. 3 To retain strategic relevance in the organization, IT procurement and ITAM must adapt rapidly and stay ahead of trends. Despite renewed business spending, cost optimization remains a priority within IT operations. IT asset managers and IT procurement executives need to watch out for the IT impact on budgets from business spending beyond IT and look for opportunities to optimize combined spending. The Internet of Everything will need to be licensed. Previously "dumb" devices are being made smart in vast quantities. Through to 2020, any non-trivial device will have a processor and sensor embedded and be able to send and receive data regarding status and interactions and these devices are being linked to enterprise systems. This trend has the potential to substantially increase licensing costs for any software licensed by device or with indirect license terms in the contract. Cloud computing doesn't always cut costs.the growing interest in cloud solutions means that ITAM professionals must be able to provide data for accurate cost modeling to compare the risks and benefits of traditional services to those of industrialized and cloud services. IT procurement professionals must be able to communicate the hidden costs and increased risk of cloud models, develop more robust demand and risk management methodologies and negotiate beneficial terms in current immature cloud contracts. Big data has the potential for big costs.consider the vast amount of data generated in a digital universe where every asset costing over $100 is smart and networked, every building contains hundreds of sensors, every process is digitalized and every person and machine has an activity stream that can be subscribed to. That data is money it is the source you mine for new digital business models and new products and services, but it will create new costs and require new skills. We will see requirements for even larger databases and more storage which is often a hidden cost in SaaS contracts and can be difficult to control on premises if based on core-based license metrics. Big data requires analytics and licensing of these capabilities, such as "in memory processing," but is still evolving and often blends hardware and software categories. dependable account of software asset costs and risks and provide support for software strategy, architecture, service management, funding and sourcing decisions. SA M and ITAM are interdependent and should be carried out together. NOTE 1 THE INTERNET OF THINGS The concept that Gartner calls the Internet of Things refers to the connection of consumer items and enterprise assets to the Internet and to each other. Most people are aware that sensors, appliances and cars are joining the Internet. However, when a "dumb" object, such as a drink can or a fertilizer bag is added, new opportunities arise for enterprises, governments, communities and individuals. Vehicle manufacturers are beginning to connect motor vehicles to the Internet to access and provide content and services. Similarly, networkconnected parking meters can provide new services and information linked to mobile devices, such as smartphones and in-vehicle apps. In the future, even aspects of care for the elderly could incorporate wireless connectivity monitoring for improved responsiveness by nursing staff to their intimate personal needs. The benefits of this technology include reduced costs and more time for care workers to interact with their patients. EVIDENCE 1 "Let's Get Digital: A Template for Digital Business Strategy" 2 "Forecast: Public Cloud Services, Worldwide, , 3Q13 Update" 3 "User Survey Analysis: How Public Cloud Strategies Impact Established IT Services Spending" 4 "Board of Directors, CEO and CIO Survey Comparisons Point to Actions That CIOs Must Take Now to Prepare" 5 "Predicts 2014: The Digital Economy and the Cloud Raise New Licensing, Services and ITAD Challenges for ITAM and Procurement" Mobile and app stores must be brought under control.a growing number and variety of consumeroriented devices and technologies are entering enterprises. Software vendors are starting to make it clearer in their licensing programs how they charge for these new devices, so IT asset managers need a firm grasp of compliance tracking, the related costs of employee-owned devices and the various consumer apps being brought into their organizations. For some, enterprise app stores may help optimize mobile asset costs and management. IT assets managers must put controls in place that manage licensing for "bring your own device" (BYOD) schemes (for personally owned mobile devices) to help manage new security and environmental risks including IT asset disposition. Maintenance fees are a persistent challenge.software vendors are now more dependent on highly profitable and predictable maintenance fees that can generate more than 85% of profit for some. Hence, they are more protective of this revenue stream. Maintenance fees are rising steadily and are more difficult to reduce, even when the software is not in use. To deal with these changes, ITAM and procurement managers need to improve their demand management skills, avoid purchasing licenses that are not required and negotiate price protection of maintenance payments. They must also understand the impact of emerging third-party maintenance options and recent EU rulings on license resale. Software audits are getting management attention.a recent Gartner survey found that over 34% of Gartner's mostly CIO Symposium audience were aware of vendor software audits, which distracts them from the task of driving economic growth through innovation. Our client inquiries indicate that audits are growing more intense, are being demanded by both Tier 2 and Tier 1 vendors and becoming more sophisticated. IT asset managers need to improve their reporting and audit-readiness. The arrival of disruptive "new guard" suppliers as the new megavendors.cios tell us they expect different vendors to lead the next wave of innovation. 4 Most suppliers don't dominate from one generation of IT to the next. A few exceptions exist, such as Apple and IBM, but they are the exception rather than the rule. Many of the existing megavendors will struggle to move their revenue models to the much shorter term, transactional and elastic model required in a digital universe. However, the new guard of providers such as Amazon and Google have fundamentally different DNA. They not only offer disruptive technologies, but they disrupt age-old IT procurement and IT asset management approaches. They may not offer global deals, salespeople road maps, or

3 corporate discounts. IT procurement and IT asset managers need to adjustheir approaches to understand what is possible and where they can reap benefits, but also understand that possibilities and benefits will not be in the traditional places or through traditional techniques. This research agenda focuses on the roles of IT asset manager, software asset manager and IT procurement director. This year our Key Issues have evolved to identify what Gartner believes are the most pressing concerns specific to these roles. Each of the Key Issues addresses what our research shows to be the most fundamental challenges faced by each role and highlights the business benefits that can be achieved if these challenges are overcome. Key Issues IT asset and financial managers are challenged to plan and track all IT asset costs through their life cycle from planning to disposition to optimize cost and risk in the context of value. IT asset managers are challenged to understand and mature ITAM roles, skills and responsibilities and the balance of internal/external expertise. Software asset managers are challenged to manage software audits to minimize internal and external cost and compliance exposure. IT procurement is challenged to understand key trends impacting on IT purchases, such as the cloud, consumerization and information, to improve leverage and adapt negotiation strategies. IT procurement is challenged to negotiate an effective contract with entrenched suppliers where there is high dependency and lock-in, to align the contracts with IT and business goals better. IT asset and financial managers are challenged to plan and track all IT asset costs through their life cycle from planning to disposition to optimize cost and risk in the context of value A core objective of IT asset managers and IT financial managers is to account accurately for the cost of all IT assets throughout their life cycles. This enables them to justify IT sourcing decisions economically when challenged by business executives and to optimize cost and risk while providing value. Growing business demand for connectivity to portable, environmental and industrial devices makes this an increasingly difficult task. This task can no longer be completed in isolation by an autonomous IT organization. IT asset managers need to understand and communicate the impact of digitalization across the enterprise on both IT contracts and the cost of providing existing IT services, as well as on the operational and business processes they support. Without additional funding and better contracts, this demand for greater connectivity risks becoming unsustainable under existing IT budgets. In 2014, we explore the funding challenges of IT organizations facing continued budgetary restrictions while business leaders are spending more of their budget on digital technologies and services to innovate and drive growth. IT organizations must become more inclusive and outward looking to make the most of these new opportunities. There are new asset life cycle opportunities everywhere, for software asset managers to help manage the life cycle, maintenance and refresh of software assets deployed as part of operational technologies and for existing IT asset disposal processes to help manage the safe disposal of digital technologies deployed throughout the enterprise. To provide guidance and help ITAM practitioners embrace these new opportunities across the enterprise see "Toolkit: SaaS Contract Negotiation." IT asset managers are challenged to understand and mature ITAM roles, skills and responsibilities and the balance of internal/external expertise IT asset life cycle options are not only becoming more diverse and complex, they now interact with all other lines of business and enterprise processes, including those which have been outsourced or run in the cloud. Digital technologies are no longerestricted to the IT organization, and IT organizations may not have all the necessary internal resources, skills and experience in operational technologies or software licensing, for example. To be effective, the IT asset management role must build working relationships with many key partners across the enterprise and among external providers, over which they may not have immediate authority. These cooperative relationships must be founded on mutual self-interest and the benefits of collaboration Throughout 2014, we will reassess the relationships between ITAM and other necessary internal and external functions. These include the core IT infrastructure operations management roles such as IT service management and IT procurement. IT asset managers also need to improve vendor management when bringing in external service providers to perform delicate tasks, such as helping to improve software license management and to resolve compliance problems. We will look at how to engage with external service providers with scarce and highly sought-after skills and experience to build all-important trust relationships. These challenges extend beyond IT into the increasingly innovative ways in which digital technology assets contribute directly or indirectly to the success of the enterprise and its mission. Software asset managers are challenged to manage software audits to minimize internal and external cost and compliance exposure Our interactions with clients show that software asset managers are getting better at managing their organization's software license rights and entitlements. Software asset managers are helping to ensure their IT organization uses software in compliance with these rights. However, the explosion in end-user and industrial devices, the use of cloud infrastructure and platform providers and other new business initiatives, threaten to amplify the size of the challenge, which now extends beyond IT budgets and controls. We will continue our audit research by publishing additional survival guides for specific vendors,

4 while examining ways of improving controls over the use of software to ensure compliance. Software vendors and licensees often feel that ethics are overlooked so we will revisit corporate ethical policies from the perspective of software intellectual property. Research will also cover the nascent software asset management service provider market, in which offerings are developing from SaaS tool solutions to managed services, where trusted third parties offer increasingly complete software asset management services. IT procurement is challenged to understand key trends impacting on IT purchases, such as the cloud, consumerization and information, to improve leverage and adapt negotiation strategies IT procurement professionals must adapt negotiation strategies in response to the key trends affecting IT purchases. The proliferation of information and the Internet of Things will require IT procurement professionals to understand which operational devices might become connected to core IT systems, the impact on costs and how to control, manage and track them effectively. Traditionally "dumb" operational devices and objects, such as vending machines, medical equipment, industrial engines and even parking meters, now have software and sensors embedded in them and are linked to the Internet to create and receive data streams. Many traditional software vendors have device-based licensing schemes so they can charge license fees for every single device that interacts with their software. As so much software is licensed by device and many software vendors include "indirect use" terms, this can become a major (and often unanticipated) expense. IT procurement professionals need to work with their counterparts in operational or engineering divisions to understand the impact this will have and then minimize the result by negotiation. Most operational devices sending and receiving data will generate requirements to license big data solutions. Unless managed, this will create new costs and require new skills. We will also see requirements for even larger databases and more storage. Additionally, there are new and evolving sourcing options. The cloud as a contracting model brings with it provider-centric terms and conditions that offer little protection for buyers. We believe that contracts will evolve toward a middle ground over the next three to four years and include language such as price caps of 3% to 5% as standard although in 2014, these will still have to be carefully negotiated. 5 Cloud and SaaS contracts in particular, will require close attention to terms concerning usage-based pricing, SLAs, service continuity and recovery. IT procurement executives will need to prepare for a future of more standardized agreements and improve their demand management capabilities. Gartner will help to identify the real costs of new and rapidly evolving technology trends, such as cloud computing, big data, consumerization and the Internet of Things. We will share early adopters' best practices on negotiating contracts to mitigate unexpected cost and risk and look at trends in licensing and maintenance, such as the increased difficulty of understanding, analyzing and managing complex licensing metrics and models in a rapidly changing IT environment. For cloud computing, we will provide Toolkits for contract negotiation, as well as highlighting key terms to negotiate with specific large cloud providers. IT procurement is challenged to negotiate an effective contract with entrenched suppliers where there is high dependency and lock-in, to align the contracts with IT and business goals better High switching costs and strategic dependencies on large suppliers mean that negotiations are often difficult. A significant number of Gartner inquiries relate to concerns about negotiating contracts, particularly those with major vendors in entrenched positions. IT procurement professionals must understand and use the most effective negotiating levers with key suppliers, as well as best-in-class contractual terms and conditions, to protect their software and hardware investments. In 2014, we will continue to analyze the licensing programs of major software vendors, such as IBM, Microsoft, Oracle and SAP. We will share best practices, examine which negotiating levers have proved effective with particular vendors and how these have led to more equitable deals, as well as which terms and conditions are critical to negotiations with these software vendors. We will also examine the impact of the cloud and mobile technologies on negotiation strategies, as many of these vendors seek to migrate customers to new cloud contracts and payment models or find new mobile revenue streams. We will continue to expand our analysis of the new guard providers (companies like Amazon, Google and Workday) that have effectively leveraged the Nexus of Forces to become increasingly important strategic providers. However, these providers often have a fundamentally different way of operating, so we will analyze how IT procurement professionals will need to re-think their approaches to be successful in 2014 and beyond. Related Priorities Key Initiatives address significant business opportunities and threats and typically have defined objectives, substantial financial implications and high organizational visibility. They are normally implemented by a designated team with clear roles and responsibilities, outlined in Table 1, with defined performance objectives. Table 1. Related Initiatives Related Initiative Focus Sourcing and Vendor The sourcing and vendor relationships role is responsible for identifying, developing and deploying the strategies needed to create and manage internal and external

5 Relationships Leaders Vendor Management Outsourcing Deals services and products to drive results. Vendor management is the discipline of managing, administering and guiding vendors in an organized way to drive the right behaviors (product or service elements) to IT or business outcomes. Gartner's outsourcing efforts focus on using external service providers to effectively deliver IT-enabled business processes, application services and infrastructure solutions for business outcomes. Cloud Computing Innovation Source: Gartner (January 2014) Cloud computing is a style of computing where scalable and elastic IT-related capabilities are provided as a service to customers, using Internet technologies Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a registered trademark of Gartner, Inc. or its affiliates. This publication may not be reproduced or distributed in any form without Gartner s prior written permission. If you are authorized to access this publication, your use of it is subject to the Usage Guidelines for Gartner Services posted on gartner.com. The information contained in this publication has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information and shall have no liability for errors, omissions or inadequacies in such information. This publication consists of the opinions of Gartner s research organization and should not be construed as statements of fact. The opinions expressed herein are subject to change without notice. Although Gartner research may include a discussion of related legal issues, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner is a public company, and its shareholders may include firms and funds that have financial interests in entities covered in Gartner research. Gartner s Board of Directors may include senior managers of these firms or funds. Gartner research is produced independently by its research organization without input or influence from these firms, funds or their managers. For further information on the independence and integrity of Gartner research, see Guiding Principles on Independence and Objectivity. About Gartner Careers Newsroom Policies Site Index IT Glossary Contact Gartner