Mapping business priorities and ability to deploy
More than 90 percent of companies fail to map Microsoft software purchases with qualified business requirements or IT group ability to deploy, which leads to unsatisfied business needs or overstretched IT resources. We recommend that IT management create a three-year road map (reviewed annually) describing key Microsoft product deployment plans, mapped against business requirements, other infrastructure and application projects, and available financial resources and manpower. This should include consideration of contractual lock-in of unit costs and exit costs in the event of circumstances changing (e.g., because of divestments). This form of visualization allows users to define (and prioritize) their requirements and gives IT management the ability to describe and understand business project priorities, dependencies, and resource gaps arising from overambitious or ill-thought-out business requests. Creation of this road map also enables software procurement teams to visualize long-term software requirements and align deal negotiation with business needs (e.g., whether to purchase maintenance or periodic updates, or to purchase nothing).

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Evaluating current licensing agreements
Our client research indicates widespread client naivete about Microsoft licensing and its directions as well as the cost impact of Microsoft licensing deals. Yet we note that users now more frequently include both procurement and IT professionals as part of the license negotiation team, albeit in an ad hoc way. We recommend as a best practice that IT management establish hybrid teams of IT management, IT procurement, and financial management staff to assess different licensing options to determine correlating implications for cost (e.g., regarding cash flow) and the IT group (e.g., regarding ability to deploy software). Although approximately 30 percent of companies involve some form of procurement professional in a licensing discussion, this is mostly from the perspective of reducing deal cost rather than understanding licensing options and their broad implications. Organizations must instead have a broader view of agreement negotiation, balancing the cost of software licensing with software business requirements and ability to pay for the software. We advocate creation of purchasing scenarios (usually three, covering high, best-estimate, and low-growth/risk scenarios). These scenarios will highlight the risks of any vendor proposal to determine the cost and functionality implications of different options and to test finance, business-unit, and IT management attitudes (as well as gain buy in) for different purchasing options.

Centralized administration. Our research indicates that centralized purchasing of software results in cost reduction of 10-15 percent for most large organizations by exploiting greater economies of scale and reducing both non-standard product purchasing and the cost of administration in software purchasing. Organizations should aim to have no more than three (by region or line of business) Master Business Agreements with Microsoft (preferably just one) to define the terms under which that entity buys software (pricing, versions, delivery, invoicing, reporting, etc.). At the same time, these agreements should specify the number of "defined purchasers" through which local entities are able to order--and where appropriate, pay for--Microsoft products as part of the predefined framework. These purchase points should be tightly defined (e.g., in finance or IT operations) to minimize frivolous non-standard software purchases. This blend of strong administration control and local purchasing allows organizations to manage their Microsoft costs in a more defined way while providing local geographies with the choice of buying products within a predefined range of standards. Microsoft's move to intermediate itself into large accounts and replace its large account resellers means that it will increasingly be the primary customer relationship point users will deal with. Over the next 24 months we believe Microsoft will provide further software capabilities to support the tight software asset management model we advocate (primarily for purchasing and reporting) as part of its .Net initiative. However, we do not believe Microsoft will actively provide tools for proactive support of scenario planning and license process management because of the revenue uplift it accumulates from software license overpurchase.

Business impact: Structured license management processes enable appropriate cost-savings while supporting businesses requirements for new software. A "do nothing" licensing management approach leads to excessively restrictive product adoption (low cost but low flexibility) or excessively permissive licensing (unwanted and expensive license flexibility).

Bottom line: To cost-effectively align license purchase requirements with business needs, organizations need to pay as much attention to their license acquisition and management processes as they do to build testing and deployment planning.

How is your company handling Microsoft's new licensing? Let us know in our TalkBack forum.

"Microsoft Licensing Management: Fortune Favors the Prepared"
By Ashim Pal
Originally published on June 3, 2002 by Meta Group

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