Mid-Term Health Checks – Why Every Software Contract Needs One

Spend Matters welcomes another guest post from NPI, a spend management consultancy, focused on delivering savings in the areas of IT, telecom and transportation.

Last week, I discussed how the software licensing landscape is changing and how it will impact software spending in 2013. At the end of that post, I mentioned the role that a "mid-term health check" can play in staying ahead of vendors' changes to pricing and licensing. If you're wondering exactly what a mid-term health check is, how it works and why it's important - keep reading.

There has been a flurry of pricing and licensing changes from major enterprise software vendors. When it comes to pre-empting and mitigating the impact, most customers fall into one of two camps: the "there's nothing I can do" camp or the "I'll worry about that closer to when my contract is up for renewal" camp. But, the fact is that you can take steps to mitigate vendor pricing/licensing changes mid-term even when you're on some flavor of an enterprise agreement.

In the short-term, a mid-term health check can uncover opportunities to reduce licensing and support costs. It's important to note that companies can often re-structure contracts mid-term to reflect changing business needs. In many cases, they can even recoup revenue commitments through additional discounts and credits.

In the long-term, a mid-term health check helps enterprises manage their software investments as strategic resources for productivity and value, and align their long-term IT strategy with vendor offerings.

A mid-term health check should begin with a review of the "as is" state, including current usage environment, footprint, license rights and agreements to identify issues and opportunities; as well as a projection of the "to be" state, ideally looking out three years. From there, companies can evaluate the following:

  • License and price optimization opportunities: Most enterprise licensing agreements involve buying more than you need in case deployment projections are off (or simply because vendors want to provide everyone with access to a breadth of solutions – even if you don't plan on using them). A mid-term review is a great opportunity to compare what you are actually using against what you have rights to under your license/product use rights. The results of this can be quite surprising. You may find that certain IT or business units have been testing the products you didn't think you would use or deploying far more "full-use" licenses (e.g. most expensive) than estimated. Or, you may discover that transaction based pricing models are incurring far higher or lower charges than projected.
  • Alternatives to current licensing programs: Should you continue with your current program, or explore new options? This discussion is common around enterprise agreements (like Microsoft's EA or IBM's ELA). Many companies are trading in these licensing structures for more flexible, cost-friendly programs.
  • Fair market value pricing: Once you determine what your demand is and how best to license for it, you need to confirm current market pricing practices for your incumbent AND their peers. Is there a discrepancy between how and how many are using the software today versus what you're paying for?
  • IT roadmap risks: How does your short/long-term IT roadmap intersect your vendor's product strategy? If your vendor is moving towards new licensing and delivery models that aren't compatible with your IT strategy, now's the time to plan for change.

Finally, it's important to note that mid-term health checks deliver more than cost savings. It's a checkpoint on the path to strategic IT planning, vendor relationship management and business agility.

- Jeff Muscarella, EVP of IT, NPI

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