Tips for Approaching the Supply-Side of Licensing

By Kristopher Wong

The main strategic objective of a SAM practice should be to optimize software spending while increasing your software governance.

A key aspect of delivering on that objective is by understanding the two sides of the SAM equation: (1) the supply-side, and (2) the demand-side. But all too often, SAM practitioners only focus on one side of that equation. Can you guess which side that is?

You probably guessed it: most SAM practitioners focus on the demand-side, typically referred to as the deployment or consumption of licenses.

While there are merits to this approach, there are also drawbacks. By not understanding your supply of licenses, you cannot easily communicate or harvest savings from your licenses, and this only increases control and governance. This approach is not efficient or effective in delivering on the value of a SAM program.

As such, I propose approaching SAM from the supply-side.

A holistic perspective

By focusing on the supply-side of software licensing, you can glean a holistic perspective as well as identify strategic opportunities for the SAM practice.

In my experience, organizational leaders appreciate presenting SAM as opportunities to positively affect their costs through low-risk activities. Understanding the size of software spends, the opportunities that exist, and presenting a plan of action will win the hearts and minds of these organizational leaders.

Gather historical data

How does a SAM practitioner approach understanding the supply-side of licensing?

This is no easy matter; however, from my experience, it is best to work collaboratively and closely with two main stakeholder groups: purchasing, and business decision-makers. SAM can act as the “glue” that establishes, maintains and strengthens the communication between these groups.

Initially, this means SAM will need to gather data on the past and present supply of software. Where the long-term is concerned, it requires understanding the technology roadmaps of the organization and helping to present options.

Gathering historical data can be painful but worthwhile—and can be accomplished by:

  1. Sourcing at least the last two fiscal years of purchase transactions.
  2. Broadly categorizing the transactions into categories (Hardware, Software, Services, and Other).
  3. Sub-categorizing the software items into the types of purchase (New licenses, Maintenance and/or Support, Other).
  4. Enhancing the data by adding metadata at the line item-level. Highly valuable types of metadata include:
    1. Manufacturer
    2. Supplier (who you purchased from)
    3. Quantity
    4. Unit of measure
    5. License basis (how the license is measured, device, user, CPU, process, etc.);
    6. Unit cost
    7. Extended cost (Qty * unit cost)
    8. Date of transaction
    9. Type (New licenses, Maintenance, etc.)
  5. Creating multiple graphs that will help articulate the areas of spend:
    1. Spend by Manufacturer in a pie chart
    2. Spend by Type (New licenses vs. Maintenance) in a pie chart
    3. The trend of Spend by Type in a line graph

This type of analysis is highly valuable because it will allow you to speak intelligently about the current state and provide a rationale, tangible and achievable opportunities for savings.

Presenting a business case

By conducting the above analysis and exposing opportunities, SAM practitioners can create a solid and robust business case.

This business case should include SMART (Specific, Measurable, Attainable, Realistic, and Time-oriented) goals, which should be relatively easy because you will be armed with the output from your analysis.

Key opportunities to consider

I have worked through this process a number of times for organizations as an employee, a contractor, and a consultant.

The key opportunities that always seem to present themselves include the following:

ID Opportunities That Impact

1. Co-termination and consolidation of all transaction and maintenance/support from each Manufacturers This reduces the administrative burden for both parties and increases your bargaining power during negotiations. Single transaction per year for all OpEX expense from each manufacturer.

2. Obtain pricing alternatives through multiple quotes. This allows you to understand the margins that Value-Added Resellers (VAR) are charging and allows you to negotiate any pricing variation. Obtain the best price possible.

3. Compare current renewal quotes to previous renewal quotes. Manufacturers charge uplift on maintenance but they offer little value to the licensee. By 3. understanding the historical trend on these, you can negotiate a reduction in uplift. Reduces, controls, and governs the spend with the manufacturer.

4. Find a Value-Added Reseller (VAR) or Licenses Solution Provider (LSP) that you can partner with. Changing your relationship from transactional to relational with your Value-Added Reseller or License Solution Provider will provide you with access to license expertise as a value-add to the relationship. Access to licensing experts to help select and govern your future license acquisitions.

Provides a back channel for information on the manufacturer and/or your purchase history.

5. Systematize your purchase process/procedure. Renewals should be a different process than Net New acquisitions. This ensures that a common process is applied and a standard due diligence process occurs on all purchases. Reduces the variation when purchasing software, and increases the SAM program’s velocity at processing transactions.

6. Plan for quick “wins.” Planning for quick “wins” where tangible value and operational savings can be achieved will see the SAM program garner attention by senior leaders. Political and stakeholder support for SAM’s activities.

7. Take an incremental approach Performing an optimization of an organization software estate is an arduous journey. Shows progress on a continuous and constant velocity for your stakeholders. Furthermore, it provides you time to perform the tasks and improve the process while you progress your activities.

8. Re-invest a percentage of savings achieved. Gaining agreement from your leadership team that re-investment in the SAM team is essential to long-term success. Approaching SAM without a toolset for discovery is difficult, time-consuming, and prone to manual errors. Although a toolset is expensive, it will further accelerate your SAM program’s success. Agree in principle with your stakeholders that you will re-invest your savings back into the SAM program and eventually fund a toolset to help automate some manual activities.

9. Keep accurate records of the auxiliary purchase documents. Auxiliary documents (such as contracts, agreements, quotes etc.) are invaluable tools to understanding how your software should be used and the rules that govern them. Access to primary information on how and what was agreed to between your organization and the manufacturer. Without this, you will need to defer to what the manufacturer alleges what was agreed.

Consider a different approach

Looking to create or mature your SAM practice?

Then consider approaching your SAM program initially from the supply-side rather than from the demand-side.

This approach allows you to easily create a business case that will resonate with leaders and provide a positive return on investment. Plus, it does not require a large tool investment.

Instead, this approach allows the SAM team to understand the financial landscape of the organization and then propose specific, tangible and achievable opportunities, which the business can then choose to capitalize on or forego.

About the Author

Kristopher Wong is a SAM Consultant for Beaconize, Inc.