Software urbanism and rationalization: A lever to negotiate with ISVs

“Software urbanism” is a methodology designed to make sure that all software installed within your IT infrastructure brings the most added value possible. In a previous article, Jacky Hofbauer reviewed the direct impact of software urbanism on costs associated with the localization of the software on your mainframe infrastructure. But costs are also greatly influenced by the type of contracts you signed and your software portfolio.

According to Giga Information Group (now Forrester), software costs are seven times greater than hardware costs. Thus, software has become the central target for cost-reduction strategies. Gartner confirms this in a recent study on Software Asset Management (SAM):

“Companies can expect cost reduction by 30% the first year (5% to 10% the following years) after a software asset management project.”

A SAM project requires a specific process:

• Map the software
• Analyze the functional coverage
• List equivalent software that could replace existing software
• Create a calendar of software contract termination dates
• Detect potential overlaps
• Estimate migration efforts

Solutions dedicated to SAM, such as IBM’s Tivoli and CA’s Unified Infrastructure Management, are available today from different vendors. These tools enable you to conduct a quick software-portfolio study by collecting the necessary information:

• What software is currently installed on my infrastructure?
• Which software is being used effectively?
• What are the licensing/contract costs for each product?

With this information, you can identify four scenarios:

With this clear overview of your situation in hand, five different strategies are possible:

• Retire – Remove the unused software from your infrastructure
• Reduce – Prepare to retire little-used software by restricting access for new users
• Re-host – Isolate expensive and capacity-consuming software on a dedicated LPAR (logical partition)
• Renegotiate – Adapt the licensing model to your actual usage
• Replace/rationalize – Remove duplicates or migrate to more affordable products

For the negotiation and replacement/rationalization strategies, you can decide between two different approaches:

The holistic approach

A (generic) holistic approach consists of choosing a single software vendor to cover all your needs so as to obtain more discounts and pricing stability. This approach has both pros and cons:

Pros:

• Increased power of negotiation
• Larger volume leading to more discounts
• Long-term contracts result in more discounts
• Greater protection against potential price increases
• Suitable for quick consolidation in case of merger or acquisition

Cons:

• Choices are limited to three major independent software vendors (ISVs): IBM, BMC Software and CA Technologies
• Cost-effective, but less technically adapted to needs

This approach is contract-driven. This means you are making a long-term engagement with the ISV, which can be risky in a perpetually changing computing world. My best advice is to define the end point as soon as possible and to anticipate and plan the renegotiation before the end of the contract. In case of a migration, the impact on your activity will be high and you need to be prepared for it.

The case-by-case approach

This is a more piecemeal approach. The idea is to choose the best product that fits perfectly with your needs, for the best price. This is a product-driven approach that also has pros and cons:

Pros:

• Potential for price competition between ISVs
• Fits your specific requirements
• More options to choose from
• Licensing model for each software program is adaptable to your situation
• Removing the software will likely result in direct savings, and efforts to optimize your infrastructure will be rewarded quickly
• Migrations are less complex

Cons:

• More relationships to manage with the different ISVs
• Less opportunity for package deals and discounts
• Harder to maintain technical consistency
• Smaller ISVs mean greater potential that updates and new versions will contain
• Loss of ergonomics

Whether you choose a holistic or case-by-case approach to maximize cost reductions over the long term, it is important to negotiate regularly with ISVs. Consider putting an end to some relationships if you feel that negotiations are no longer in your favor. It is a harsh position, but it can result in significant savings. Moreover,  to be ready for changes when necessary—even if it requires effort from the IT department—it is good practice to implement a regular process for testing new software and conducting a proof of concept (PoC).

To close this topic on software urbanism, it is important to point out that the ultimate and perfect software configuration does not exist; it depends on your own needs and your environment, and it requires a complete and precise study to highlight all the available opportunities to control costs. Although the holistic and case-by-case approaches are the most common ways to manage software portfolios, a single ISV cannot cover all your needs; the best practice is to rely on multiple, specialized ISVs that can react quickly as your business evolves.