Transcript
Page 1: Gaining Visibility Over Licensing in a Diverse Technology Market

The 2016 ProcureCon IT Benchmarking Report

Gaining Visibility Over Licensing in a

Diverse Technology Market

Page 2: Gaining Visibility Over Licensing in a Diverse Technology Market

2

Table of ContentsExecutive Summary .............................. 2

Additional Contributors ...................... 2

Key Findings ............................................. 3

Research Analysis

As IT spending grows, the procurement department must adapt ................................................ 4

Managing the procurement team for peak efficiency...................... 5

Creating visibility around cloud technology .................................... 6

The challenges of sourcing major enterprise solutions ................. 6

Key Recommendations ........................ 9

Appendices

Appendix A: Methodology ..............10

Appendix B: Who Responded to the Survey .........................................10

Flexera Software ..................................10

WBR Digital ...........................................10

It’s an exciting time for IT and IT Procurement, as the increasing prevalence of the cloud promises new opportunities for a more agile approach to delivering software and infrastructure. With many in the IT procurement field predicting up to 20% growth in their cloud spending within the next couple of years, the technology’s adoption is as rapid as it is promising. This creates its own set of challenges for procurement. The ease with which Software as a Service (SaaS) and Infrastructure as a Service (IaaS) solutions can be purchased makes controlling costs and optimizing utilization more difficult. This necessitates a centralized approach to cloud purchasing that can avoid redundancies, establish the right service level agreements, and extend the benefits of a single negotiation and purchase across the business as opposed to within a single business unit.

The cloud is not the only area that requires a centralized approach to handle effectively. With major enterprise software vendors dominating the IT landscape, making sure that software license entitlements are kept track of is another vitally important role for the procurement organization. With a growing risk of vendor audits, migration to cloud based services, and a need to secure the latest functionality going forward, procurement must understand their current license position if they are to negotiate from a confident position and gain the best contract terms from their enterprise software vendors.

Ultimately, the increasing complexity of negotiations and contract terms means that the relationship between procurement and IT must be stronger than ever, and a collaborative approach to controlling technology spending will become more essential. Procurement’s role around technology must evolve into that of a trusted advisor to IT, a partner in the sourcing process, and an empowered negotiator that can obtain the best contract terms, and not just the best discounts.

Selected quotations from industry thought leaders have been used to add context to the statistical information contained in this document. Interviews centered on benchmark findings as well as key trends identified by research.

Matthew Corsi Director, Global Technology Vendor Management Office, MetLife

John Emmitt Senior Marketing Manager Flexera

Ed Rossi Vice President of Product Management Flexera

Executive Summary

Additional Contributors

Page 3: Gaining Visibility Over Licensing in a Diverse Technology Market

3

62% of IT procurement groups are embedded in a centralized procurement department.Procurement has successfully moved to centralize in order to facilitate a more strategic approach to spend management. By operating out of a center-led or centralized structure, a more complete view of organizational spending can be created, which in turn builds efficiency around leveraging purchasing power and avoiding risks.

60% of procurement teams with IT responsibilities work consultatively with their IT departments.The large majority of IT procurement groups recognize that the IT department will typically be the most attuned to the needs of the organization from the standpoint of functionality. However, in order for them to be able to create the greatest level of value for the organization, they also need to be involved in the sourcing process. Now, IT procurement will play a consultative role throughout the sourcing process, working with IT as a team.

44% of IT procurement teams manage their enterprise software license positions on an ad-hoc basis.Despite the importance of actively managing software license entitlements, nearly half of IT procurement groups will still wait till they feel they need to access this information, managing them on an ad-hoc basis outside of a centralized database. This can lead to increased organizational risk, issues with vendor audits, and decreases in the ability of a business to adequately prepare for renewals.

Within the next two years, 27% of respondents predict that their cloud services spend will grow by more then 20%.While in some cases, cloud spending may not be a large part of an organizations current IT costs, the trend of both vendors and businesses moving towards cloud based solutions is continuing, with many businesses predicting a drastic increase over the next several years. Creating centralized views of cloud spending and utilization is another task that demands attention in the near term in order to protect value for the organization.

Key Findings

Page 4: Gaining Visibility Over Licensing in a Diverse Technology Market

4

As IT spending grows, the procurement department must adapt

23%Center-led

27% 16%

15%Decentralized

62%Centralized

What is the structure of your procurement department?

What is your estimated annual software procurement spend?

<$10M

$10M-50M

$50M-100M

Over $100M

$1M

$1M-2M

$2M-5M

$5M-10M

Over $10M

What is your estimated annual cloud services spend (including SaaS, PaaS and IaaS)?

Currently, the majority of procurement professionals with IT responsibilities (62%) are operating out of a centralized department, reflecting the increased level of control over total indirect spending that many departments have cultivated over the past several years. Close to a quarter (23%) are operating in a center-led model, which can confer its own advantages within a growing business, where granting individual teams some autonomy can help a center of excellence focus on more strategic aims.

Procurement departments are typically being called on to manage a growing range of specialty categories, such as travel and energy. Of these categories, IT tends to be one of the largest in terms of total costs. This can be seen in the breakdown of annual software spending, where 73% of respondents are paying somewhere above $10 million annually for their software costs, and 22% are paying over $100 million.

Apart from the growth in actual dollars spent for IT procurement, a trend of increased spending on cloud based services and infrastructure is adding complexity to the technology-sourcing role. For 26% of respondents, their cloud services costs are already north of $10 million annually. With 32% paying under $2 million annually, it seems that cloud solutions are already being widely integrated into sourcing strategies, with market pressures indicating that these adoption rates are only going to increase in the near future.

Research Analysis“Having a more centralized approach to software and cloud services procurement definitely has advantages from a software asset management perspective. We see that organizations benefit from that because it helps them to fully leverage global enterprise agreements that cover several different regions. Centralized procurement also helps organizations to negotiate better contracts and pricing because they’re looking at meeting needs across the whole enterprise, as opposed to a scenario where individual groups might be procuring software independently. In that setup, you’re probably paying more than you have to for software and don’t have as much flexibility to utilize assets across different parts of the organization.”

- John Emmitt, Senior Marketing Manager, Flexera

39% 16%

12% 24%

22%

18%

26%

Page 5: Gaining Visibility Over Licensing in a Diverse Technology Market

5

13%

36%

What is the level of control procurement has over sourcing cloud based solutions?

How many employees make up your procurement team?

Full oversight and control

Consultative role assisting IT or other departments

Tactical involvement during negotiations

No direct involvement

1-5

6-15

16-25

26-35

>35

The role that IT procurement plays in sourcing for cloud solutions can reflect the level of centralized control of the department at large. While 13% have managed to fully take cloud based sourcing under their control, the most common method of sourcing is for procurement to work collaboratively with the IT department, which is the technique of choice within 60% of departments. For 23% of IT procurement groups, involvement in cloud sourcing only comes at the end of the process, where they are called in for their expertise in negotiating to close the deal. At this point, only 4% of respondents have no involvement at all in sourcing cloud technology.

Compared to last year, the percentage of respondents who are operating with a team of over 35 employees doubled, from 10% in 2015 to 20%. However, the percentage that have a team of 1 to 5 employees also increased, albeit by just 3%. Just under a quarter (24%) have a team of between 6 to 15 employees. The pattern is a concentration around smaller teams, with a bump at the end of the spectrum, suggesting a gap between IT procurement in businesses that are still developing their roles, and those that have become key components of a centralized procurement department in mature national or multinational businesses.

“The companies that are the most mature in this space are investing in vendor management, asset management, and category planning. I would say at this point most companies have an IT procurement function, but the question is: are they managing contracts after they’re being executed. You can get a great price on the frontend, but if costs leak through on the backend through deteriorated performance, missed SLA’s/deliverables and/or overstaffing of agreements, then you are shifting costs to other places in the organization.”

- Matthew Corsi, Director, Global Technology Vendor Management Office, MetLife

60%

24%

23%

13%

4%

7%20%

Managing the procurement team for peak efficiency

“Many companies have very complex software environments where maintaining and understanding their licensing positions is a challenge. As companies begin to understand these financial implications they are beginning to invest in asset management tools and resources. These deficiencies pose a lot of risk for the enterprise from over-deploying software, legal costs, as well as overpaying where they may be re-buying licenses they already own.”

- Matthew Corsi, Director, Global Technology Vendor Management Office, MetLife

Page 6: Gaining Visibility Over Licensing in a Diverse Technology Market

6

Do you believe that your IT procurement team has the necessary knowledge to effectively buy cloud based solutions?

39%Yes

17%Not Sure

44%No

Similarly, there is a divide between procurement groups that feel they have the support of their staff to effectively purchase technology contracts, and those that do not. While 17% of respondents are not sure either way, 44% believe that their team lacks the ability to source technology at peak effectiveness, compared to 39% who feel that they are able. Given the amount of spending that now goes through a sourcing process where procurement is at least tangentially involved, it’s surprising that such a high percentage feel that they should be more prepared. However, that may have a significant amount to do with the complex and constantly evolving nature of the technology marketplace, where the differences between on-premises software and cloud-based contracts are rapidly changing the way procurement must negotiate.

Chart 11: What percent of your cloud services spend is for Infrastructure as a Service (IaaS), such as Amazon Web Services?

62%

What percent of your cloud services spend is for Infrastructure as a Service (IaaS), such as Amazon Web Services?

0-20%

20-40%

40-60%

60-80%

80-100%

Separate from other types of cloud technology, infrastructure as a service (IaaS) is an emerging technology solution that reduces the need for on-premises IT hardware infrastructure for a business, instead allowing a suite of services and infrastructure to be rented on a pay as you go basis and accessed remotely. The current market leader, Amazon Web Services, launched their IaaS offerings in 2006, yet while the technology has been around for a decade, many organizations are just now awakening to the potential it represents for controlling technology costs. While about one in four procurement groups will now spend between 20-40% of their cloud services spending on IaaS solutions, 62% spend less than 20% of their total cloud expenditures on this type of solution.

24%

10%

4%

0%

Creating visibility around cloud technology

“Analysts are saying that cloud spend is growing at five times the rate of other IT spend. And, infrastructure as a service is growing at a 15% annual rate, according to IDC. Amazon Web Services is the market leader in that space with about 30% market share. Because they are the market leader, we have focused our first release of FlexNet Manager for Cloud Infrastructure specifically onmanaging Amazon Web Services, with the plan to expand out to other cloud infrastructure providers like Microsoft and others in the near term.”

- John Emmitt, Senior Marketing Manager, Flexera

“When it comes to software license management, moving to the cloud is a big challenge for organizations. There’s a lack of consistency from the software publishers themselves around how they want their software to be managed in the cloud, and therefore, there is an increase in risk. One example is ‘bring your own software license ( BYOSL)’, where companies take on-premises software and load them into cloud instances. Publishers are still considering the license and consumption measurement implications of this concept and not all have defined policies to address it. Software as a Service (SaaS) is another cloud model, one that is flexible, subscription based, and in theory, has the benefit of not needing to worry about being in compliance. The reality though is that there is significant risk of overspending on SaaS products. In addition to an accurate count of users that are actually utilizing the software, organizations need to understand the usage levels of each user relative to the type of license they are consuming. It’s not uncommon for organizations to start by assigning users a higher level license assuming they’re going to take full advantage of the software product, and then later finding that those users are just using a portion of the product and could be put down to a lower and less expensive level.”

- Ed Rossi, Vice President of Product Managment, Flexera

Page 7: Gaining Visibility Over Licensing in a Diverse Technology Market

7

5%

14%

On a scale of 1-5, 5 being fully visible, what is the level of visibility you have over your organization’s cost and utilization of cloud IaaS services?

What is your projected growth in cloud services spend over the next 2 years?

1

2

3

4

5

0-5%

5-10%

10-20%

>20%

As IaaS spending grows, so too does the need for IT procurement to effectively centralize and monitor the costs and utilization of their purchased infrastructure. However, currently only 8% of respondents gave themselves the highest possible marks regarding their visibility around these solutions. While a third of respondents placed their levels of visibility at a four out of five, another 32% only had a medium level of visibility into their cloud based infrastructure, and 21% felt that their visibility was generally poor. For procurement, outside of controlling upfront costs through negotiation, monitoring usage and costs across multiple accounts is critical to optimizing utilization and making the right business decisions on cloud services going forward.

The need for this visibility is only set to increase. Within the next two years, 27% of respondents predict that their cloud services spend will grow by more then 20%. Another 26% place their predicted growth in cloud spending between 10% and 20%. With over half of respondents predicting double-digit growth in their cloud spending, it’s clear that they will need to aggressively build out their cloud management capabilities as well.

“Regarding our involvement in Cloud, the vendor management office (VMO) has a seat at the table regarding what cloud providers we are using. Cloud is a complex category because the market is constantly maturing, and security and technical requirements often outweigh price. However, in our environment, we are engaged early so our sourcing process takes into account both technology and price. From MetLife’s perspective, gaining visibility into your cloud spend is all about building your value statement with your business partners. You earn a seat at the table once you can demonstrate you accelerate the sourcing process, while adding value from a risk and cost mitigation perspective.”

- Matthew Corsi, Director, Global Technology Vendor Management Office, MetLife

21%

33%

32%

33%

26%

9%

27%

“For SaaS solutions, as well as Infrastructure as a Service (IaaS), we’re still in the early days and in some cases organizations are just getting started with deploying more SaaS applications and/or purchasing a significant amount of cloud infrastructure services through a third-party like Amazon Web Services, for example. Obviously, there are some SaaS applications which have been out for quite a while now, like Salesforce, but in terms of a significant percentage of IT spending on SaaS and cloud infrastructure, we’re still pretty early in that transition. I think with that being the case, many organizations really don’t have good processes and tools in place to help them manage their cloud spend and utilization. We’re seeing that there’s definitely a need for solutions that let these businesses get their arms around their cloud based spend, and as more of their total spend becomes cloud based, it will be critical to have mature cloud management processes in place to control costs.”

- John Emmitt, Senior Marketing Manager, Flexera

Page 8: Gaining Visibility Over Licensing in a Diverse Technology Market

8

“MetLife uses a center-led model for IT procurement. We’ve designed a Vendor Management Office (VMO) within IT that’s maximized the success of our central-led procurement practice. Our centralized VMO creates proactive category plans that are aligned with IT’s demand. These category plans include sourcing wave plans that highlight our needs for the coming year, along with contracts coming up for renewal. Using these, we create vendor/category negotiation plans and augment market data to support our strategy. We’ve received many benefits from this approach, for instance, if we identify we have 3 new programs and 4 existing renewals with Microsoft, we can highlight the areas where we have leverage to offset the areas where we do not. This effort moved us from a reactive to proactive sourcing model which allowed us to leverage our spend at a holistic level and prepared us to understand what we should be paying prior to entering the

negotiation.”

- Matthew Corsi, Director, Global Technology Vendor Management Office, MetLife

27%

41%

What best describes your visibility and management of enterprise software license entitlements and license position?

What are your greatest challenges around enterprise software licensing? (select all that apply)

Consolidated in a central asset management database or solution

Managed centrally by procurement using spreadsheets

Managed on an ad-hoc basis by procurement and/or IT

Unsure

Negotiating a contract that best meets the organization’s needs

Controlling software costs

Determining the best solution between on-premises and cloud

based options

Understanding and leveraging software license entitlements

Avoiding software vendor audits

Other

Enterprise software license management requires best practice processes and next generation tools to enable the organization to achieve the greatest return on investment from its software portfolio while minimizing license compliance risk. In a distributed environment, there is potential for different groups to purchase software in ways that are not optimal for the enterprise as a whole. And complex license entitlements make if difficult for business units to fully understand and leverage them across the enterprise. Though 27% of respondents now use a central asset management database or solution to help them keep track of their enterprise software licenses, 44% manage them on an ad-hoc basis, or leave it to IT to account for those that they own. For 15%, a centrally managed spreadsheet is the extent of the technology they use to keep track of their enterprise software licenses.

When it comes to the most challenging aspects of sourcing enterprise software, 68% of IT procurement practitioners cite controlling software costs as their greatest obstacle. In an environment where major software vendors can exert a lot of leverage, it takes more than just strong negotiation skills to win concessions. Understanding and leveraging software license entitlements is one of the techniques that can have the greatest positive effects on costs, and yet 42% cite this area as a problem for their organizations. Negotiating the most appropriate contract for the organization’s needs, and then determining the relative merits of on-site versus cloud based technologies are challenges for 41% of teams. Ultimately, creating a more mature approach to license management is the primary way that procurement can avoid paying for redundant or unnecessary features and maintain leverage going in to the sourcing or renewal process.

15%

68%

44%

41%

14%

42%

27%

8%

The challenges of sourcing major enterprise solutions

“The number of procurement teams managing their license entitlements on an ad-hoc basis is a telling number in this survey. The challenge is that when you are only looking occasionally at licenses, you’re also likely only preparing to respond to vendor requests or vendor audits as they occur. Audits are a very painful process within an organization, both in terms of the manpower required, the potential for a negative financial result, and the emotional impact it has on an IT team. The best way to minimize all of that is to implement a program that allows proactive management of your primary software entitlements. It’s something that not only gives you the visibility that you need when you need it, but allows you to then start moving from managing risk to managing cost, which is the next opportunity for an organization.”

- Ed Rossi, Vice President of Product Management, Flexera

Page 9: Gaining Visibility Over Licensing in a Diverse Technology Market

9

Make the case for increased centralization of procurement processes, adopting a center-led framework where necessary. While the majority of procurement groups are operating out of either a centralized or center-led structure, increasing the consolidation of procurement’s authority within a centralized apparatus has several benefits, including the ability to centrally track spending and become more strategic as a result.

Similarly, in many cases software licenses are being managed in a siloed capacity, without the benefit of a central viewpoint. The information around theses licenses is often still stored in Excel spreadsheets or owned by individuals within the IT or procurement organization, taking away the ability for a team to fluidly share license information and hampering coordination between business units.

Adopt solutions that can provide visibility into both SaaS and on-premises software, as well as cloud infrastructure services. Enterprises should seek out technologies that provide 360 degree visibility across their entire IT environment, from traditional on-premises software to cloud based software and infrastructure services. This will enable them to control costs, mitigate risk and drive higher ROI.

Leverage software license entitlements to reduce license consumption and leverage software usage data and trends in negotiations with vendors.A benefit of license management aided by automated software license optimization solutions is the ability for procurement to use their knowledge of the organization’s license position and software usage as leverage in software negotiations. Procurement also needs to ensure that the organization is fully leveraging its license entitlements to reduce license consumption. For example, in datacenter environments, backup rights may allow the backup server to be covered under the same license as the production server. License management tools can automate the process of understanding and applying these license entitlements, and help the IT team to rationalize and consolidate the software portfolio so that procurement isn’t buying redundant software. The tools can also provide insights to help reduce ongoing software maintenance costs and gain trade-in credits based on visibility into usage data.

Key Recommendations

“I would encourage organizations to think holistically as they look through their use of software and to really understand their corporate vision in terms of how they’re going to deliver services to their stakeholders. Software has gone from being hosted in simple on-premises environments, to virtual containers, and now to the Cloud and its many variations. The transition across these delivery models will result in Hybrid environments where software is managed in all three areas at once, causing a significant increase in environmental complexity. Defining a corporate vision of an organizations software delivery strategy is an important step in managing these transitions.”

- Ed Rossi, Vice President of Product Management, WFlexera

Page 10: Gaining Visibility Over Licensing in a Diverse Technology Market

10

Appendix A: Methodology

12%Retail/Consumer Products

7%Energy, Oil & Gas, Utilities

12%Other

1%Public, University, Non-profit

3%Media, Publihing, Travel, Tourism, Entertainment

12%Telecom, Electronics, Hi-Tech, Software

7%Aerospace, Defense, Automotive, Transportation

16%Chemical, Construction, Engineering, Industrial Manufacturing

13%Pharmaceutical, Healthcare, Medical Devices

17%Financial Services, Insurance, Real Estate

What industry does your company represent?

The results analyzed in this report were gathered from responses to an on-site benchmarking survey delivered at ProcureCon IT 2016, and prepared by report author Andrew Greissman. 75 executives responded to the survey. Interviews with sources were conducted after survey data was compiled, and centered on discussion of benchmark results.

Flexera Software helps application producers and enterprises manage application usage and increase the value they derive from their software. Our next-generation software licensing, compliance, security and installation solutions are essential to ensure continuous licensing compliance, optimize software investments and future-proof businesses against the risks and costs of constantly changing technology. Over 80,000 customers turn to Flexera Software as a trusted and neutral source for the knowledge and expertise we have gained as the marketplace leader for over 20 years and for the automation and intelligence designed into our products.

WBR Digital connects solution providers to their target audiences with year-round online branding and engagement lead generation campaigns. We are a team of content specialists, marketers, and advisors with a passion for powerful marketing. We believe in demand generation with a creative twist. We believe in the power of content to engage audiences. And we believe in campaigns that deliver results.

WBR is proud to be virtually paperless. Together, we’re saving trees, helping the environment and are looking to improve every single day.

Appendices

About

Appendix B: Who Responded to the Survey


Recommended