SAM helps buyers to impact bottom line
By Susan Avery -- Purchasing, 3/26/1998
One way software buyers can have an impact on the bottom line is to stop thinking of the commodity they purchase as an expense.In so doing, purchasing can maximize cost savings and return on the company's investment in software, says Mickey McIntire, vice president and technical evangelist, Corporate Software & Technology, Norwood, Mass. At some companies, he says, purchasing spends more than $10 million annually on software.
McIntire recently led a nationwide series of workshops on software asset management (SAM) for corporate purchasing and information technology managers. With him at many of these workshops was Anthony Rauseo, technical evangelist with Microsoft Corp.
By implementing SAM, McIntire says, a company has capability to deploy software faster, lower upgrade costs, and narrow the time between software consumption and entitlement (right to use)--all activities which maximize the company's investment.
Return on investment (ROI) in software, however, can be elusive. As McIntire points out, software is refreshed at a faster rate than other fixed company assets. It is intangible, and can be easily copied and altered throughout corporate networks without specific management controls. Software also tends to be more broadly deployed than other assets.
Defining software asset management also isn't easy; implementations may vary from company to company. There is, however, a common framework and set of requirements surrounding software asset management. SAM, as described by McIntire, encompasses "all of the policies, processes, and technologies used to purchase, deliver, deploy, administer, and manage network, desktop/notebook PC, or server software assets."
Buying is more complex
As buyers well know, processes surrounding the software purchase are becoming increasingly more complex. New technologies, delivery methods, and licensing practices help complicate the software buy (PUR: Jan. 16, '97, p. 102). With a comprehensive SAM strategy in place, McIntire says, buyers may be better equipped to meet some of the challenges they face every day. Among them:
* Legal compliance. Organizations must look at their legal positions and assess potential risks.
* Software tracking. Often, buyers address asset tracking by deliberating over-licensing (for instance, buying word processing software for every user although only 80% actually use it).
* Accounting methods ap-plied to software. In most companies, the value of software is transient--it exists only in the year it is expensed. Once it's booked, software usually is forgotten in terms of potential residual value as an asset.
* Tactical approaches to software management. Companies should not allow concerns for legal compliance, difficulties in deploying software, or an attempt at standardization to affect licensing decisions. Maximizing software assets requires a strategic perspective.
* Software deployment delays. While software resellers now provide overnight delivery, right-to-copy media duplication programs, and electronic software distribution, a company does not gain any return on its investment until software is installed and properly configured.
* Inadequate tools. Electronic Systems Management and asset-management-technologies tools provide data only, not in-depth analysis and reconciliation with procurement and financial data necessary to effectively manage software as an asset.
* Organizational confusion. New technologies promising total-cost-of-ownership benefits often ignore the real management of software assets, concentrating on the network and operating environment.
Beyond total cost of ownership
Until now, some companies' attempts to manage the software purchase have involved use of total cost of ownership (TCO) practices. TCO is a method of measuring and managing desktop-computer costs, developed about 10 years ago by researchers at Gartner Group, Stamford, Conn.
While somewhat limiting when applied to software, total cost of ownership does encourage buyers to establish improved asset management practices such as consolidating licenses and standardizing desktop software to reduce administration costs.
Still, total-cost-of-ownership practices treat software as an expense to be managed and maintained, dealing with not much more than buying x-software for y-number of workstations over z-time period. And, as McIntire points out, TCO does not, for instance, address legal liability/risk or licensing issues.
Asset management practices currently used by many companies to manage and control network and desktop PC assets are similarly limiting. Take, for example, the asset management practice of reclaiming hardware components when PCs change hands. Available parts are inventoried and salvaged before being retired so they can be re-deployed by others.
Asset management is an approach to the management, control, and valuation of network and desktop assets, McIntire explains. Companies use asset management as a way of understanding what software they have running at any given time.
Software, however, is more difficult to track than PCs. Users change standard settings and other variables, making it difficult to keep track of the configuration, performance, and, even the location of this asset.
When PC components are re-used, the only piece that is not saved or recycled is the software. All applications and rights to use these assets are wiped out when the hard drive from the retired PC is prepared for the next user. With an average desktop containing seven software applications valued at about $60 per application, that's more than $400 per desktop. Many organizations unknowingly discard these assets each time they retire a PC or recycle it to a new user. They still own the asset, but its potential to generate ROI is lost.
The next step
Companies that embrace the thinking behind SAM go beyond both total cost of ownership and asset management practices. SAM, however, does not replace TCO and asset management, but builds on their success.
As McIntire sees it, a well-thought-out SAM strategy allows companies to develop policies and procedures related to all phases of the computer life cycle. These include: establishing organizational standards; defining proper procurement practices; outlining and establishing policies for software distribution; forming guidelines for setting up new employees; and retiring assets of employees who leave the company.
"SAM requires ongoing practices that enable an organization to gain greater control of its software investment," says McIntire. "Through a series of measurable, short-term projects, an organization will see an overall SAM model emerge, resulting in maximized ROI."
Performing these activities requires a company's commitment, vision, and focus as well as cross-functional discipline, says McIntire. SAM involves many departments within an organization: purchasing, information technology, human resources, and management. "Each functional area," he says, "possesses independent data sources that hold the keys to identifying where current assets are deployed and how additional value can be captured from their use."
Whether by managing costs, improving processes and procedures, or getting the right software into the right hands at the right time to generate competitive advantage, the objective of software asset management, McIntire says, is to maximize the value generated by the customer's investment.
An integrated SAM strategy also helps minimize the risk from audits by giving IT managers and administrators tools and procedures necessary to maintain tighter control over the network environment. Elements of a comprehensive SAM framework include:
* License tracking and management: processes for controlling consumption, inventory, and distribution of software entitlements.
* Global license strategies: long-term planning, negotiation, procurement, and management of license agreements worldwide.
* Standard and customized reporting.
* Asset repository and procurement systems: databases that record changes of software inventories.
* Electronic systems management: tools involved in the control of network services.
* Electronic software distribution: deployment of software through networks to PCs.
* License reclamation: one-time recovery and re-deployment of a software asset.
* License harvesting: continuous recovery and re-deployment of a software asset.
* Electronic commerce-based asset management: integrating software asset management consumption and right-to-use data into digital procurement and selling processes and systems.
By managing software as an asset, buyers should be able to answer these questions:
* What software am I using?
* Where is it?
* How is it being used?
* What software do I own that I'm not using?
* What software am I entitled to use? Is that what we're using?
* Are we legal?
* Where did it come from?
* Are we licensing software effectively?
* Can I tie purchasing to consumption?
* Who should get the upgrade?
* What happens to the software when a desktop is replaced?
* What happens to the software when someone leaves the company?
* What's our company policy regarding "software"?
* How can I control my software environment?
* Can I prevent variances between entitlement and consumption?
* Can I re-use an existing license instead of buying a new one?
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