On Your Assets?

The Executive Vice-president of procurement in Amsterdam for the major international finance company put it bluntly. "Whenever an employee comes to me and says he's saved $10 million," he told Michael Swanson, president of US-based software asset optimization firm ISAM (Information Systems Asset Management), "I interpret that to mean he wasn't doing a good job before, if he had that much waste out there."

And after analyzing hundreds of data centres of all shapes and sizes and across all industries, Swanson can only agree.

"The best companies don't save the most money," says Swanson. "In the same sense that your best athlete — say Ian Thorpe — doesn't break the record by 10 seconds; he breaks it by maybe 100th of a second. When you get really good, you're not saving a lot of money."

The figures seem to tell the story clearly: with top performing companies spending less than half of what their peers do on software costs, the average data centre would effectively have to negotiate to get all of its ISV software for "free" to match them.

However, armed with a raft of fresh data, Swanson insists there is not a company in the world that cannot achieve best-in-class status by imitating those high achievers. Just be sure to ignore all the myths about just how good those best-in-class companies are, and how they got there. "There's nothing hard about lowering software costs — in fact, every company, big or small, and in whatever industry, can achieve superior results by following the example of best-in-class companies," Swanson says.

"So, how do some companies typically spend less than half of what others spend on software costs? They work on managing product inventory and usage, obtaining the best available software pricing — and they don't buy into the myths of Software Asset Management (SAM)," he wrote in a paper for ISAM. To reach this conclusion, ISAM examined data centres of all shapes and sizes across every industry against eight commonly held myths and found no statistical data to substantiate even one of them.

The constant evolution of mainframe hardware technology, software licensing and vendor consolidation have left many companies scrambling to meet growing business demands on a shrinking budget. Many organizations have turned to IT asset management and, more narrowly, software asset management, as the answer, Swanson says. But vendors offering solutions to perceived SAM problems have left companies no better off; they are not spending less on software, and the chasm between vendors and customers is as big as ever, he says.

The only way to start salvaging the situation is first to confront the myths, then defy them, according to Swanson.

MYTH 1 :

Low software costs depend on data centre size.

Reality: Traditional thinking, which says the bigger your data centre the less money you spend, fails to differentiate between the money you pay and the cost to the business, Swanson says. While larger data centres often have enough muscle and reputation to secure steep price cuts, it isn't discounts that make a company best-in-class.

Look at it from the point of view of buying a plane ticket and getting a discount. A discount off a coach ticket is very different from a business class discount. A discount on a seven-day purchase will differ significantly from the discount on a three-week purchase. A discount on a ticket to return the same day will be very different from the discount on a ticket that includes a three-day stay. And that doesn't even start to consider the factors influencing variations in the list price.

"You have to look at what kind of discount you're getting, because the discount is very artificial," Swanson says. "It's not always about price; it's about how much you have. People think if you have a big IT data centre you're going to get a better discount and therefore you're going to be performing better, and that's not always the case."

Big data centres often cannot manage hundreds of products running on dozens of large LPARs (logical partitions), struggle to get a handle on their product inventory usage and must rely on discounts to manage their software costs, Swanson says. Small data centres are frequently more efficient in managing their costs, and better at understanding their inventory, usage and product value.

"The average large data centre (one with over 5000 MIPs has over 300 products, compared to 92 products at data centres smaller than 500 MIPs, so it is not surprising that smaller data centres manage their software costs better," Swanson says. "The reality, however, is that there is a statistically insignificant relationship between large data centres and low software costs."

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