Achieving that Critical Financial Edge
In order to reduce departmental running costs, organizations that rely heavily on mission critical IT systems look to Managed Service Providers, and Outsourcers, that can significantly reduce business risk, manage uncertainty, enhance IT skill levels and control costs while also reducing the complexity of their operational environments.
For the service delivery organization the challenge is in meeting the tough contractual service obligations, probably negotiated in the heat of competitive battle, and to work at achieving a reasonable gross margin on the overall deal.
It is now normal for some level of IT Asset Management to be mandated by Consultants acting for the end-user organization, this can be from a one-time asset inventory through to a full Hardware and Software License Management solution, delivering certifiable software compliance.
The latter is not cheap but it can deliver a financial edge over and above the contractual cost controls required by your client.
Click on each of the following links to find out how .....
- Order and Purchase Time Arbitrage
By calculating and processing credits and debits for software at the business unit cost center level, a detailed picture of the cost of software compliance can be achieved and maintained. This then offers a potential time arbitrage that can be taken advantage of. Business units are charged for software when it is installed, but the actual purchases of the software licenses are done centrally at the time when installed software is reconciled with the owned software. This is done periodically as the license terms allow but typically every 12 months. The time gap means that charges from business units are accrued before the actual cost of purchases at the time of reconciliation hits the books, a lead time which can be as much as 11 months.
- Software Reuse Gain Share
By using automated workflows business units can request, approve and purchase software which is then charged at market price. This relieves business units of the responsibility of having at any time to prove license compliance; it now rests with the Service Provider organization (as your contract usually requires). A credit process incentivizes those business units with software that they no longer require, to flag and then relinquish that software through an auto-harvest process, to a central pool. This credit is typically between 50% and 70% of market price. The difference of 30% to 50% between the charged market price and the software credit provides further opportunity to gain a financial edge.
- Arbitrage-driven Bulk Purchasing Discounts
Typical departmental buying patterns tend to yield low quantity transactions, resulting in full market pricing. By centralizing visibility and taking full advantage of license terms, true-up can be done in bulk, yielding 20-30% additional discount over normal purchasing behavior. This can go right to the bottom line, or be offered as yet another gain share. From the customer's perspective, nothing has changed - users still get their software when they order it and pay the same price they're used to paying.
To realize the benefits as described above, you need a solution that closely ties software optimization to true financial impact. ESI's (eTelligent Solutions Inc.) innovative, value-driven solution is what enables service providers to deliver software license compliance and management, and increase margins.For sizeable organizations this translates to millions of dollars.
ESI offers the capability for organizations to fully manage software license use, including the capture of software licenses through automated de-installations, software harvesting, disposal activity and other events which are placed in a queue for reallocation.
All approved software applications that participate in harvesting and detailed tracking are defined in a Managed Software List (MSL). From experience we know that ~80% of the available value and compliance risk is in ~20% of the installed software titles, so unlike other providers ESI does not attempt to build a huge database to track everything, it focuses on just enough to support creating the identified value. This takes less effort, which consequently represents a lower implementation cost and is significantly easier to keep to a high level of accuracy ... possibly one of your contractual obligations?
It certainly can create early success and measurable value. BUT ...... software license reconciliation is much more than comparing purchases and installations. License types need to be understood in conjunction with the computing environment. Managing software in a server computing environment with virtualization, multi-processor machines, multi core machines, and specific vendors’ license terms demands an innovative approach. ESI has the technology and software licensing skills to address all of this.
ESI's primary differentiator is a rapid-process-development platform called the Management Information Exchange (MIE). The MIE is a web-based collection of applications, or modules, which together form building blocks to address specific work areas. Modules, for all intents and purposes, are individual applications that fast-track a custom ITAM solution. They are built on the common MIE platform and therefore share features that are inherited from that platform. However, each module has unique functionality designed to address a specific domain area, such as Software License Management, Asset Management, Change Management, Workflow Automation, Value Analysis and Remote Data Management.
Margin opportunities are easier to achieve if you own the Procure-to-Pay (P2P) delivery. If you have P2P responsibility for software then you need to investigate our proposition in more depth. If you do not have Procurement responsibilities think about the opportunity to bid for them in new proposals, or at contract renewal time. There is a lot of potential for margin improvement.
In the above we have described in a concise way how financial benefits can be identified in a solution that automates software ordering and harvesting for reuse. Easily absorbed within your existing P2P processes, it calculates and processes charges and credits of software purchase and harvest transactions at the business unit cost center level.
As a Service Provider these savings can be accrued for distribution under a gain share arrangement with your clients, or as a straight benefit to your service delivery P&L.
We can help you achieve this. Contact us by clicking here.
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