Monday, May 04, 2015

Last on the list (of IT budget priorities)

I got a call from a frantic CIO, someone I had not spoken to for long; he was upset and I could visualize his agitated state, not that he was prone to such behavior. Listening to him I realized that his situation was indeed worry worthy; so cutting short his outpouring we decided to meet the same evening to help him find a solution. The timing was interesting considering that just a few days back this was a subject of discussion with someone senior from the software industry and how it was putting some customers in a difficult situation.

Almost every enterprise uses some off-the-shelf application to run their business; it could be financial accounting, sales and distribution, ERP, SCM, CRM, BI, or plain and simple office automation tools like word processing, spreadsheets, and presentation. At the base level it also includes the operating system on their compute devices or database on servers. It is a rare case where everything is open source with no licensed software. Licensing norms vary by provider and can be simplistic per instance to complex revenue based.

If we go back in time to more than two decades back, equipment suppliers would freely provide these unscrupulously until software providers started tracking activation keys over the internet and made it difficult to deploy unlicensed software. Enterprise licenses for software were named or concurrent user based with IT being responsible to track use and buy licenses with growth in use. Server instances moved from CPU to core to Cloud and back to user base depending on which model maximized the revenue for the provider.

True-ups became the way to declare use and procure additional licenses for most with occasional audits to ascertain the gap if any. Licensors were willing to forgo minor aberrations in use if revenue continued to flow with increased numbers and annuity from maintenance contracts. Plateauing sales created an industry around rigorous audits by third party to aggressively seek non-compliant customers and corner them to sell at rack rates versus standard volume or relationship based discounts resulting in higher revenue but broken relationships.

Every 2-3 years, whenever there was a threat of legal action, they had bought limited licenses of the software which had now become business critical. He knew the company was living on the edge and could be in trouble should an audit be initiated. The management had tasked the CIO to “manage” the shortfall not willing to spend or allot budget to regularize the licenses. It is not that they could not afford to pay; the mindset was to keep it that way until a confrontation was unavoidable, so the gap just kept growing.

The CEO had called the CIO and handed him a letter instructing him to find a way out; it was a legal notice from the licensor to conduct an audit of all computing equipment across all premises and data centre, including subsidiaries. The CIOs protests and reflection of reality did not appear to make a difference to the CEO. The CIO illustrated similar incidents with much larger enterprises who had not been able to “manage” this situation. Unable to make headway he decided to seek counsel from friends and peers from the industry.

Listening to him, a clear case of wilful non-compliance, we realized it would be a difficult task for him to face the audit which his CEO also did not want; at the same time the vendor was unlikely to back out. His allies within the company were shy to stand up to the CEO; collectively his peers advocated that he take help from the legal function to delay the action on the ground while he talk to the vendor to negotiate a deal. The licensor was known to be amenable to a settlement and that appeared to be the best option.

Licensing complexity indeed puts CIOs and Purchase functions in a bind which has cropped up a new industry around Software Asset Management. That does not obviate the need to actively manage budgets for increasing licensing requirements of a growing business. I believe that it is upto the CIO to keep the business informed of license compliance at all times including new business planning, monthly review meetings, budgeting exercises, and finally in their own dashboards. Don’t wait for a calamity to start the discussion.

Finally, if IT budget is the only place where this is going to be discussed, it will always settle at the bottom of the priority list !

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