In this Return on Assets series, we have previously discussed how improving the usage of sourcing/procurement software can improve your returns (here and here). Yes, software can be a huge asset for procurement and for the larger enterprise, but if you’re overpaying for it or paying for software that you don’t need or use, it may be a liability. For some enterprises, it may be a much bigger liability than ever imagined. Attacking this area can potentially lead to significant savings (or returns).
A review of my family’s credit card bills this past June identified two separate charges for services to McAfee. My wife, who is also our family CIO, had apparently ordered security software services with auto-renewals from McAfee. As the family CPO, I called McAfee to understand the details of the services provided under each charge and discovered that the first charge was the renewal of a three-year security software subscription for a desktop purchased in June of 2007 and the second charge was the renewal of a one-year security software subscription (that had been free the first year) for a laptop purchased in June 2009.
The customer service rep initially explained that each annual subscription actually covered security protection for two computers and offered to cancel the first (from 2007), lower-priced renewal and give me credit for the days used on it in the new term. I asked why there was a price difference between the two and after checking, the rep came back and explained that the second (from 2009 but was free the first year) higher-priced renewal was actually a subscription for protection on three computers. Long-story short, I canceled both and found a cheaper renewal for both computers on the McAfee.com site (I also did not accept auto-renewal) – total savings on what I had been billed was more than 75%. Not lost on me is the fact that I overpaid last year and in preceding years on the 2007 contract.
The point in all of this is not that I saved some money, but rather, that I got lucky not over-paying by more than 300% for a software subscription. Why I tell this story is that I believe my home situation with McAfee may be analogous to how some enterprises manage their software licenses and subscriptions. I also believe that the factors in my recent success, which I was lucky to achieve, are the keys to finding savings on software assets in the enterprise. Consider that the invoice detail provided no explanations of the service and the payments were automatically made. If hadn’t identified the duplicate payments AND if I hadn’t been persistent with the supplier AND I hadn’t understood market pricing and my requirements, I might have missed the opportunity entirely and subscribed to more software than I needed, while significantly overpaying for the privilege.
How many enterprises have clear visibility into all of the software packages that have been licensed or subscribed to for the current year and next? What is the status of each of these software packages? How many are in production and delivering value? What are the payment amounts and timing for any subscriptions or on-going maintenance? Is there a single source of truth for all software contracts?
For enterprises unable to answer the questions above, it is time to perform a “software audit.” (Sidebar: this software audit would be much easier if you had followed the eSourcing 2.0 doctrine and had all software negotiations captured in an eSourcing system).
At the most fundamental level, the software audit should establish what software packages the enterprise has a right to use, that status of each package, and the current financial liability or obligation that is associated with each package. After the audit has been performed, the enterprise has the information it needs to make smart business decisions about usage and for procurement to analyze current pricing and renegotiate contracts (price and requirements/scope) where appropriate. If the enterprise has never performed an audit of this kind, I imagine that the results will be surprising and that the opportunities will be significant (I have seen specific examples where the current annual maintenance expense approached and even exceeded the price of a new license). SaaS software pricing trends should also be reviewed before the renewal negotiation begins.
A software audit is also a great opportunity for procurement and IT to collaborate (if IT is resistant to the idea, procurement should forge ahead on its own) and a great opportunity for procurement to roll up its sleeves and really drive value.
Has any reader recently been involved with an enterprise software audit? Care to share any recommendations or stories?