I’ve met with a number of intelligent device (hardware) manufacturers recently. Many of them are getting very serious about bolstering their software business. To some, it’s a key growth strategy and for others it’s about survival. A big part of their R&D budgets are being spent on software development – sometimes more than half – and yet software revenue is paltry by comparison. With software gross margins typically 80% or more, and hardware margins shrinking steadily, few can continue to ignore creating a bona fide software business. Realizing that the software component of the overall system is undervalued is one thing, but doing something about it, even for world class hardware companies, is usually a challenge. Most need software operational expertise that they don’t usually have on hand. Some of the areas that need attention include:
• Aligning business needs to the software lifecycle
• Establishing a comprehensive software licensing and pricing strategy
• Coordinating product structure to support packaging, up-selling and cross-selling
• Defining compliance and enforcement for customer categories, regions and product types
• Defining the prospect-to-support processes with seamless integration of customers and partners
• Integrating back office systems to create a great, self-service experience for customers
These areas might seem difficult, but there are subject matter and transformation experts like Flexera Software that can help to quickly address them. There is one other area that almost always overshadows all others – software governance. All of the areas listed above are vital and the transformation can’t succeed without addressing all of them, but they’re all for naught without adequate software governance.
Software governance is a cross-functional group of leaders in the company that manage the end-to-end software lifecycle – the development, implementation and management of the policies and processes associated with the operational aspects of a software business. Some traditional software companies don’t practice software governance very effectively, and they suffer for it. But for traditional hardware companies trying to monetize their software assets, governance is critical. Good software governance consistently differentiates those hardware companies that successfully realize a thriving, high margin software business from the ones that take their customers through an unfortunate series of trials and errors before giving up.
It takes a village. The software governance team represents many of the functional groups in the company – engineering, product management, sales, marketing, operations, IT, order management, finance, legal, partners and customer support. There’s no need to employ a large team, as long as the functional areas are covered. This group needs to be empowered to represent the interests of their respective functions – developing, reviewing and making decisions about policies and processes, managing the day-to-day implementation of those policies and processes and actively participating in exception and change procedures. This group owns the operational success of the software business – they’re empowered and accountable.
Software governance is vital because all functional aspects of the policies and procedures must be comprehended throughout. Any functional element that isn’t included causes the inter-dependent system to breakdown in the functional area that isn’t represented. Having represented functions make decisions on behalf of unrepresented functions is almost always a recipe for disaster. In some areas, depending on the policy and process involved, one unrepresented function can detrimentally impact the viability of multiple dependent functions.
At Flexera Software, we’ve observed an easy way to determine if software governance does not initially exist in a company. When we work with customers to perform an Entitlement and Compliance Management Assessment Overview – a best practice sharing and improvement opportunity workshop, that helps intelligent device manufacturers improve business growth, operational efficiency and the customer experience – most/all of the customer personnel that attend introduce themselves to one another for the first time. Fortunately, most of them go on to become the initial Software Governance Team as illustrated in Figure 1 below.
Figure 1: Establish Central Governance and Processes with Cross Function Participation
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