Cost Optimisation: A Two-Part story (Part I)
At the beginning of November 2022, The Bank of England announced the increase in the UK’s interest rate and warned that the UK was “… facing its longest recession since records began …” (BBC, Nov 2022.)
The impact of a recession on businesses can vary, depending on a wide variety of factors including their product focus, consumer base and industry sector. Generally, as a recession takes hold, customers will spend less or delay/cancel projects altogether, impacting revenue and triggering businesses to seek ways to cut costs.
In July 2022, Gartner published ‘9 Winning Actions to Take as Recession Threatens’ which includes the following (summarised):
- Reduce the cost of doing business through automation and augmentation with AI.
- Transform processes into digital processes to create an improved customer experience and a more efficient service.
- Migrate to the cloud. Reduces energy costs, embraces collaboration, delivers business agility and underpins more efficient processes.
In our whitepaper ’12 Cost Optimisation Strategies for Enterprise Licensing’ (published during the pandemic, September 2020) we outlined the following objectives, some of which business leaders may need to consider in order to survive the COVID crisis and subsequent turbulent economy — these remain appropriate today:
- Business Transformation — In looking for ways to achieve optimised and agile cost models (such as cloud), many businesses will continue with their transformation plans, provided this is forecasted to deliver lower ongoing costs, enhanced cost management, improved return on investment and faster ‘time to market’ (and cash).
- Cost Reduction — Organisations may choose to lower their cost base by reducing headcount, avoiding unnecessary spending and waste, and optimising what they are currently spending and with whom.
- Diversification — Expanding into new geographies, products, or services, or acquiring new capabilities to differentiate in the market through M&A.
- Supplier Arrangements — Renegotiate/cancel/downgrade existing vendor contractual arrangements to uncover potential cost-saving opportunities.
As much as these are all sensible objectives, there is a cautionary tale to be aware of. In the world of enterprise license compliance, acting on any one of these recommendations without fully understanding the license consequences can create an unintended breach in your license position.
To be absolutely clear, the objective to reduce cost and spend could unwittingly create more, if not given due consideration from a license compliance perspective.
As we face another period of economic uncertainty, I thought it would be useful to reiterate the typical cost-saving business changes, objectives or compelling events that can impact enterprise licensing. I have broken this into two shorter parts for ease of consumption and will start with the following:
- Moving some or all your IT infrastructure to the cloud.
- During your transformation project, there is a period of parallel running between technology platforms
- Some or all your IT infrastructure is in the cloud, and you need to optimise costs
Having clarity on your license estate before cloud migration, how this will be configured during parallel running and how this will be set up on your cloud platform is critical before making the move to the cloud. This will help to avoid any license noncompliance slip-ups during parallel running and once in the cloud. Additionally, managing your cloud consumption is paramount to saving ongoing spending. More information is available in our Enterprise Licensing & the Cloud whitepaper.
You have a virtualised environment or are moving to a virtualised environment.
Virtualisation is a common source of confusion and complexity with enterprise customers and an area where we see a great deal of unintended license non-compliance. There is no reason for you not to benefit from the cost savings that virtualisation delivers — so, familiarise yourself with all aspects of your contracts and the vendor's likely response in the event of an audit before settling upon an implementation. More information on virtualisation for Oracle is available in this post.
You need to reduce unnecessary software spend
As software asset management (SAM) experts, we understand that one of the first steps to reducing software costs is understanding what you have and what you are using. If you do not know what you have, you could be spending on software and support unnecessarily, creating waste or worse, using software that is not covered by a license. Ultimately, gaining clarity of your software asset estate is the practical way forward and underpins your ability to make informed procurement decisions.
How do you do this? Well, it’s not easy and requires a unique combination of people, processes and tools. Engaging with a SAM provider who has a tried and tested methodology would be the most cost and resource-effective way of implementing a SAM process. For more information, take a look through our guide on our SAM Managed Services.
There is also a wide range of optimisation activities that can be carried out on your on-premise or cloud software estate. If you use Azure Hybrid Benefit (AHB) for example, ensure that you are taking advantage of the full benefits AHB offers and tracking this benefit for cost optimisation.
You are looking for ways to reduce software support costs for software not in use anymore
In an attempt to cut ongoing spending, some enterprises try to reduce software support costs for software that is not being used. Unfortunately, this can be difficult to achieve and often results in a recalculated support amount which is similar to or higher than the original support cost.
Enterprise vendors are very strict on how their customers maintain support. You cannot simply cancel support to save money as this could impact license compliance across your entire estate for that enterprise vendor. The knock-on effect could potentially be unbudgeted spending through unexpected and punitive software procurement to resolve non-compliance.
Again, having clarity on your software estate may uncover cost optimisation opportunities, however, there are steps you can take to review your software support costs to ensure that you are paying the right price for the right amount of software.
Summary
The key here is not to rush into making knee-jerk decisions without fully understanding how this impacts your technology platform, software estate and contracts. If you don’t, you may be surprised (and not in a nice way) as to the contractual and financial impact.
The good news is that as experts in SAM and enterprise license optimisation, we can advise and guide you through any of these common business challenges and projects, to a successful, cost-optimised result.
I’ll cover the last 6 examples in part II of my post, meantime, if any of the above sounds familiar to you and you’d like us to check your compliance posture or you need advice on a known non-compliance issue, then contact us confidentially for assistance.
About The Author
Jason Pepper is the Head of SAM Practice here at Version 1.
