Software Upgrade - Fuhgeddaboutit
For many CIOs, the cost of updating and maintaining hardware doesn't even come close to the numerous costs associated with software. There's licensing fees, patches and service packs, maintenance, customisation and frequent upgrades that hit the market faster than some companies can roll out the previous version.
There's an answer. Don't upgrade. And look to negotiate a better deal.
Ted Barnicoat, CIO of Trimac (2001 profit margin: about 3 per cent) is well versed in the art of unearthing cost savings from software contracts. His talent is a necessity - Trimac, a bulk carrier and transportation company based in Calgary, Alberta, has an IT budget of $US5.5 million to support 5500 employees and 130 branch locations across North America.
Barnicoat's knack for minimising costs has been honed by years in the trucking industry, a notoriously low-margin business, particularly for bulk carriers that haul loads such as chemicals and paint. Bulk carriers require special trailers, some that can be pressurised or heated, and have very strict delivery deadlines.
Every year, Barnicoat takes a look at software contracts about to come up for renewal and renegotiates with his vendors. "Software is a major cost to us, and we do this because the vendors tend to be flexible about renewal,"he explains.
Barnicoat often finds that his organisation doesn't need to upgrade to the latest version of a program, and then he decides whether to defer or refuse the upgrade. Recently, he decided to forgo an upgrade to Windows XP.
"We won't do it,"he says. "Right now we're paying 25 per cent a year for maintenance, and they want 29 per cent if we upgrade. We can't afford it, and we don't need it. So my position is we'll wait until our current licences run out over the next four years."(Barnicoat's position is not unusual. See "The Meter Is Running", March CIO.)Mark Settle, CIO of New York-based Arrow Electronics in Melville, (2000 profit margin: 2.8 per cent), says he will also delay a move to Windows XP. Settle anticipates saving between $US2 million and $US4 million by upgrading from Windows 98 to XP in a year, rather than doing so now. "We're just moving the cost out, but when we spend the money we will be spending it more effectively,"he says.
Another reason Settle thinks it's more valuable to delay the upgrade: the longer he waits, the more time other early users will have to discover and fix the inevitable bugs in the system. If the bugs have been patched by the time he upgrades, that's a more effective use of his money, he says.
Subbakrishna of Mercer Management says upgrade delays can save short-term dollars, but they come with a caveat: the need to consider what will happen if the vendor stops supporting an older version of a software product.
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