Or, Why SAM and License Optimization should be on the CIO Top 10 List
By John Emmitt
Everyone who is deeply involved in software asset management (SAM) will tell you that (a) its not a quick fix type of thing—its got to be an ongoing program, (b) its mostly about having good, indeed best practice, processes and skilled people (but having robust, proven technology can make a huge difference in terms of successfully implementing those processes—more on this later), and (c) it can be hard to build a business case for implementing a SAM program and get the support of senior management. Why is that?
The Gartner list of top 10 CIO tech priorities for 2012 shows that SAM and License Optimization are not (specifically) on the list:
- Analytics and business intelligence. (Last year's rank: 5)
- Mobile technologies. (Last year: 3)
- Cloud computing, including SaaS. (Last year: 1)
- Collaboration/workflow technologies. (Last year: 8)
- Legacy modernization.
- IT management. (Last year: 4)
- ERP applications
- Virtualization. (Last year: 2)
If you look back at previous years, I’m quite certain that software asset management and license optimization weren’t on the list then either. We do see “IT management” on the list, and maybe this is where we need to assume that SAM and license optimization are really “showing up”—SAM programs help organizations manage IT assets— to gain control and improve visibility of those assets and have better financial management of the assets.
The same Gartner survey that produced the above list also looked at top business priorities, and in third place they have “reducing costs”. So, we see that cost reduction is still a high priority. And guess what? Software asset management and license optimization programs can help organizations reduce costs for software, not to mention helping to avoid unbudgeted software audit true-up expenses. Furthermore, software typically represents 20 to 35% of the IT budget—it’s a big chunk of the CIO’s budget. So, again, why isn’t it on the list?
I have a couple of possible explanations for this. First, traditionally, software asset management technologies and projects focused on counting assets—hardware and software inventory and maybe doing some reconciliation against purchases. But the process was not very automated and was far from easy—it was a lot of work to bring in the license entitlement (purchase order) data, figure out what was actually purchased and match that up with the inventory data. You may have purchased Adobe Creative Suite 5 (CS5) Design Premium, but your inventory data showed that you had Acrobat and Dreamweaver on some machines and Photoshop and Illustrator on some others, for instance. It took some real digging to figure out that the Creative Suite purchase covered some or all of those installations. At the end of the day, maybe all this hard work got you through an audit or annual true-up event, but it didn’t help you dramatically reduce software costs or avoid the audit in the first place.
Second, customers who have been successful with SAM programs are almost always reluctant to tell their stories. So there is not a lot of verifiable data out there that says, if I invest X in SAM and license optimization, I’m going to have an ROI of Y. The reasons for this include the fact that these organizations have to continue to do business with the software vendors, even after they have achieved significant cost savings with that vendor, and they don’t want to rankle the vendor by publicizing the savings. That’s understandable, but also unfortunate from the standpoint of advancing the cause of SAM in the marketplace. Its also ironic, because the enterprises have been over-spending on software with these vendors for many years in some cases.
To address the first issue, I can say that SAM and license optimization technology has come a long way over the past few years. Tools now have built-in Stock keeping Unit (SKU) libraries, for example, that allow purchase order data to be automatically matched up with inventory data to help streamline the reconciliation process. Now you can see your license position at “the push of a button” and maintain continuous license compliance—avoiding those license audits. License optimization tools provide product use rights libraries that capture vendor license entitlements, which, when properly applied can reduce your license consumption considerably—right of second use, multiple (versions) installation rights, virtual use rights, cold backup/failover rights, etc. all entitle you to have multiple installations covered under a single license. This type of optimization was hard to do before, and as a result, companies over bought software licenses.
With regard to the second issue, we have many major enterprise customers that have successfully implemented SAM and license optimization programs and have reaped the rewards in terms of—increased control and visibility of their assets, reduced license liability risk, and significant cost savings. The actual savings is typically between 10% and 30% of their software spend in the first year of implementation. One Global 500 customer with more than 100,000 employees, for example, has realized a savings of more than $35 million on just two major vendors. That equates to about 17.5% of their total annual software spend of $200 million. In several cases customers have achieved reductions of 50% to 60% of their ongoing software maintenance costs for major vendors such as Adobe and Oracle.
Building the Business Case
Let’s build a rudimentary business case for a software asset management and license optimization program for a hypothetical financial services company that has $5 billion in revenue. The typical IT budget as a percentage of revenue varies by industry, with financial services coming in at about 4% of revenue:
Pharmaceuticals - 5.8%
High Tech - 4.6%
Consumer Products - 2.6%
Automotive - 2.1%
Aerospace & Defense - 4.3%
Retail - 2.6%
Chemicals - 2.2%
Oil & Gas - 1.8%
Financial Services - 4%
For our hypothetical Financial Services company
Total IT budget: $5B * 4% = $200 million
If their software budget is say, 25% of their IT budget, then:
Total Software budget: $200M * 25% = $50 million
If the company can realize just a 10% savings on its software spend by implementing a SAM and license optimization program, the savings is:
@10%: Savings from SAM and License Optimization: $50M * 10% = $5 million
Let’s estimate that the first year cost of their SAM program, including IT staffing, consulting services and tools is about $850,000. Then the return on investment in the first year of implementation is:
ROI @10% savings rate: $5,000,000 - $850,000 / $850,000 = 488%
We see that the return on investment is substantial, even at the 10% savings rate. And we have empirical evidence from existing customers that this savings rate is very realistic and in fact is at the low end of the range. Now what CIO doesn’t want to invest in a program that returns more than 400% in cost savings and reduces license liability risk at the same time?
To learn more about getting started on a Software Asset Management program, view our on-demand Webinar. You may also be interested in reading our newletter on Demonstrating the Business Value of Software Asset Management and Software License Optimization that contains a full Gartner research report on "How to Demonstrate the Business Value of SAM by Choosing the Right Metrics."