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Is software licensing costing you £2 million?

(Image credit: Image Credit: Andrey_Popov / Shutterstock)

Economic uncertainty from the coronavirus pandemic has placed organizations under enormous pressure to curb spending and optimize their operations. Cutting costs by reducing staff numbers or sweating IT assets might seem an easy win. But these measures can come at a price if they ultimately inhibit growth, prevent the organization adapting to new working environments or market conditions, or add to long-term costs. Research shows that software licensing is one area where IT departments can generate the cost savings they need without reducing headcount. The reason? Many organizations are not currently fully optimizing their software investments.

Investments going to waste

Investment in software licensing and Software-as-a-Service (SaaS) has surged as firms look to enable a remote workforce. Enterprises spend an average of £10.4 million a year on software licensing, and a further £4.1 million on SaaS. However, more than 20 percent of software licensing spend alone is on software that isn’t being used. This represents £2.13million a year in wasted investment – enough to pay the wages of 45 IT specialists!

There are several explanations for this, based on systemic issues around cost management. For example, many IT teams are already on the back foot when it comes to negotiating with vendors. They may have experience dealing with key publishers, but still face the challenge of keeping up to date with changing licensing terms and commercial arrangements, especially as the choice of on-premise or cloud applications adds further complexity. With the research showing that an average enterprise deals with 15 vendors, it’s maybe unsurprising that 76 percent say they could negotiate better if they had better knowledge and expertise. Ultimately, many will choose to over-spend to avoid falling foul of future licensing audits.

At the same time, the greatest cause of over-spending is that organizations don’t know what assets they have or need. Spending on technology by Line of Business (LoB) decision makers is set to outpace spending funded by IT departments by 2022, with no guarantee that IT will have visibility over purchases. On average, organizations are already using nearly 100 different applications from multiple vendors, with a strong possibility of overlapping functions – and some are using more than 700. Without oversight, the end result will be a disparate landscape of licenses where it’s difficult to track and identify waste.

Both of these factors have been exacerbated as organizations seeking greater agility have adopted more decentralized operating models, with each group or region making its own IT purchasing decisions. While making organizations better able to adapt to changing demands, it makes it more likely that each region won’t have the licensing knowledge they need to get a good deal – or be able to consolidate spending to their advantage. It also makes the overall IT landscape more complex, and so harder to identify waste.

Release cost savings through SAM

Enterprises recognize the need to reduce licensing costs: over the next 12 months the average organization aims to cut SaaS and software spending by £1.45 million. Optimizing licensing costs would enable this without having to cut potentially valuable technology. However, the challenge is knowing where to begin: for instance, 56 percent of firms believe they over-spend on licensing but do not have the data to confirm and address this.

Even if it made strategic sense, organizations cannot reverse decentralization overnight; and building the experience and knowledge to negotiate with vendors will require extensive training or bringing in the right skills. The top priority therefore needs to be easily identifying waste, such as unused software, or applications that perform exactly the same task.

This is where effective Software Asset Management (SAM) comes in. This is traditionally seen simply as a means to ensure software compliance – although with 84 percent of IT decision makers expecting licensing audits to increase as software vendors look to protect themselves during the pandemic, this might be enough of a reason to invest. Yet over the past decade it’s become clear that SAM allows IT teams to understand exactly what resources they have, where they are used, and where they could be removed or consolidated to reduce costs, without disrupting or damaging the business. The challenge is convincing the C-Suite to invest in new technology and skills when businesses have multiple, immediate priorities.

Winning the business over

It is critical that IT implements the appropriate level of SAM across the organization. There’s no ‘one-size-fits-all’ SAM strategy because each organization, and department, has its own set of challenges. We spoke about software purchasing by LoB managers earlier – any strategy needs to consider the challenges facing all relevant stakeholders, and include them in the conversation. This means reaching beyond IT and understanding the needs of HR, finance, legal and – in a decentralized business – different regions. 

In order to then win over the C-Suite, it’s important to have clearly defined goals for the SAM strategy, and be able to show the benefits this will provide. For instance, goals might be strengthening the organization’s negotiating position with vendors; standardizing and rationalizing application portfolios; or streamlining the procurement process so that it isn’t seen as an obstacle for businesses that want to act quickly.

Proving the benefits can be as simple as showing the savings SAM could provide, and how they vastly outweigh the costs. For example, removing the average organization’s wasted spend on unused software would more than account for their target reductions in software and SaaS spend. And according to Gartner, organizations that can standardize and rationalize their application portfolios can realize savings of between 15 and 25 percent of their application budget. In this case, it’s also important to present the risks of doing nothing – whether that means continued waste, or the cost of a sudden licensing audit.

Enterprise-wide SAM has taken on new levels of urgency in 2020, with its ability to help organizations reduce costs, secure the best return on their investment, and ensure they are compliant in the face of vendor software audits. Whether organizations roll out SAM in-house or outsource it to an expert, it will help make licensing optimization a crucial part of any organization’s post-2020 IT strategy: potentially reducing the need for cuts in other areas of the business that would cause long-term strategic harm.

Howard Daws, Head of Software Lifecycle Services, Insight (opens in new tab)

Howard Daws, Head of Software Lifecycle Services at Insight.