David was in a bad mood that was getting worse. He read the offending email once more. Within six months of joining as Technology Head of a company that developed custom software for multinationals, he had received a letter from a software publisher (SP) insisting on a Software Licensing Review (SLR). He knew that a full fledged SLR assessment would open a Pandora's box. The best option at that time had been to negotiate with the SP and make a small procurement. The matter had thus been closed, although he knew that it was a short term fix.
In just over a year they were right back. David was certain that allowing the publisher to conduct a review would only worsen his predicament.
Sounds familiar? This is a common issue that all Technology Heads encounter. Most organisations share a common perception about Software licensing audits/reviews initiated by SPs.
Software Licensing Audits/Reviews are mechanisms used by SPs for raising revenue. Once an audit is initiated, SPs ensure that they get the maximum ‘bang for the buck'. Audits are time-consuming, resource-intensive and throw the regular Information Technology (IT) department functioning out of gear till the time they are completed. Organisations that get reviewed / audited gain nothing out of the exercise, other than a set of licensing gaps which they are coerced into regularising.
The scope and benefits of Software Asset Management (SAM) extend far beyond legal compliance. Yet SPs largely stress on legal ramifications of using pirated software. As a result organisations find loop holes and use every ‘trick in the book' to keep SPs at bay. The techniques used include stalling to a stop-gap procurement arrangement (in case the SP is very persuasive), but they never really address the root of the issue.
While most SAM reviews/audits result in revenues to the SP, there are some common insights that reviews/audits provide to organisations, which are often ignored.
Excessive Procurement
While there are ‘deployment vs. entitlement' gaps on some products, there are also certain products that are procured in excess, and not utilised. There are obviously no ‘set offs' allowed. The organisation needs to procure software to plug in gaps, but does not get a ‘credit' for excess procurement. Excess procurement is a sunk cost that cannot be recovered. It is like buying tickets for several movies with the same start time, and then asking for a refund of the ticket amount as it is not possible to watch all the movies together!
Deployments in excess of usage
Very often, the extent of software deployment comes as surprise to the IT team. The argument “We do not have so much usage. The software is just loaded but has never been used” is not valid. Why load software with no intention of using it? Do we order an exotic meal at a restaurant when we have no intention of eating it and then refuse to pay for it?
Deployment of ‘crack' software
Software is cracked by reverse engineering the program code until the cracker is able to modify the primary method of protecting the software. For example, the cracker may remove the expiration period of time limited trial software, because of which the software can be used indefinitely. It is very common for employees to download ‘cracked' software from the internet and use them in the regular course of their work. The distribution and use of cracked software is illegal in most countries. Such software may have security vulnerabilities and may put the entire organisation at risk when they are downloaded on machines that are on the corporate network. Usage of cracked software is tantamount to stealing.
It is important that organisations use this insight in improving their SAM processes. When an efficient Accounts Payable, Accounts Receivable and Record to Report process brings about huge cost savings to organisations, an efficient SAM process would yield the same results. Yet, most organisations that have spent thousands of dollars in re-engineering their business processes do not think the same way about SAM processes.
Cost Benefits
Besides the legal compliance aspect, an efficient SAM process helps cut software costs. Software assets management can bring about process improvements in the software procurement and deployment process. Organisations have gained by centralising software procurement and tracking. Informed decisions on software procurement through analysis of deployment and usage of software inventory help avoid excessive procurement. Implementing an approval-based ticketing system for managing software deployments based on user requirements brings about a reduction in the lead time of the user, while ensuring that all software requests support genuine business requirement.
It also enables the use of automated tools that help in tracking usage of deployed software. Software deployed, but not being used can be redeployed to serve other business requirements.
SAM helps an organisation have better negotiating ability with SPs at the time of procurement. Procurements can be centralised and economies of scale arising on account of bulk purchases help in reducing costs. Understanding of software deployment and usage patterns also help in selecting the right licensing agreement which is cost effective, and best suited to the organisation's unique software usage patterns.
SAM enables organisations to effectively address security requirements. An effective process reduces the occurrence of security related incidents which are common with the use of pirated software.
It also helps reduce time and effort for audits/reviews initiated by software providers. Gartner surveys of clients indicate that more than 50 per cent have been audited by at least one software vendor and compliance check activities are on the rise. An organisation thus needs a mechanism to ensure that such activities are carried on effectively at minimum cost.
To summarise, the use of genuine software is a legal requirement. However, there are potentially huge cost savings that can be derived by organisations that use genuine software. SPs need to focus on these benefits, and organisations need to understand that SAM is beyond just compliance.
(The authors are partner and associated director – Advisory Services, Ernst & Young respectively)