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A Comprehensive Guide to Evaluating Software Licensing Costs for Enterprises

August 7, 2024August 8, 2024Leave a comment

When it comes to evaluating software licensing costs for enterprises, understanding the various facets involved is crucial. Making an informed decision can significantly impact an organisation’s budget, operations, and overall efficiency. Here’s a detailed look at the key aspects to consider:

1. Types of Software Licences

Different types of software licences come with varying costs and terms. Understanding these types is fundamental:

Perpetual Licences: A one-time purchase that allows indefinite use of the software. Typically includes initial high costs but lower long-term expenses.
Subscription Licences: Recurring costs, usually monthly or annually, offering flexibility and access to updates and support.
Concurrent Use Licences: Allow a specific number of users to access the software simultaneously, beneficial for organisations with varying usage patterns.
Open Source Licences: Generally free but may involve costs related to implementation, customisation, and support.

2. Total Cost of Ownership (TCO)

Evaluating the total cost of ownership is essential. TCO includes:

Initial Purchase or Subscription Costs: The upfront fee for acquiring the software.
Implementation Costs: Expenses related to installing and configuring the software within the enterprise environment.
Training Costs: Investment in training employees to effectively use the software.
Maintenance and Support Costs: Ongoing costs for updates, patches, and technical support.
Hardware Costs: Additional hardware requirements, if any, to support the software.

3. Scalability and Flexibility

Consider how well the software scales with your business growth:

User Expansion Costs: Understand the cost implications of adding more users or seats.
Feature Expansion Costs: Evaluate the costs associated with upgrading to more advanced features or modules.
Integration Costs: Consider the expenses related to integrating the software with existing systems and tools.

4. Vendor Reputation and Support

The reliability and support quality of the vendor can impact the overall cost-effectiveness of the software:

Vendor Stability: Ensure the vendor has a solid track record and is likely to provide long-term support and updates.
Support Quality: High-quality, responsive support can reduce downtime and improve efficiency, indirectly saving costs.
Service Level Agreements (SLAs): Review SLAs for guaranteed uptime, response times, and resolution times.

5. Compliance and Legal Considerations

Licensing compliance is crucial to avoid legal issues and fines:

Licence Compliance: Ensure adherence to the terms of the licence to avoid penalties.
Audit Preparedness: Be prepared for potential audits by maintaining accurate records of licence usage.
Legal Protections: Understand the legal protections offered by the licence, particularly in the case of open source software.

6. Hidden Costs

Be wary of hidden costs that can inflate the overall expenditure:

Overage Fees: Costs incurred from exceeding the allowed usage limits.
Additional Modules or Features: Sometimes, essential features are offered as add-ons, leading to unexpected expenses.
Migration Costs: Expenses related to migrating data and processes from one software to another.

7. Return on Investment (ROI)

Calculating the ROI helps in understanding the value derived from the software relative to its cost:

Productivity Gains: Evaluate how the software improves efficiency and productivity.
Cost Savings: Identify areas where the software reduces costs, such as automating manual processes or reducing errors.
Business Value: Consider the strategic advantages provided by the software, such as improved decision-making and customer satisfaction.

8. Customisation and Extensibility

The ability to customise and extend the software can affect long-term costs and benefits:

Customisation Costs: Assess the costs involved in tailoring the software to meet specific business needs.
Extensibility: Evaluate the ease and cost of extending the software’s functionality through plugins, APIs, or other methods.

9. Alignment with Business Requirements

Aligning software features and functions with actual business requirements is crucial for maximising value and minimising costs:

Assess Business Needs: Clearly define the core functions and features required by your business. This involves understanding the specific tasks the software needs to perform and the problems it should solve.
Features and Functions Offered: Compare the software’s offerings with your business needs. Ensure that essential features are included and evaluate the relevance of additional features that might be offered.
Included vs. Extra Costs: Determine which features are included in the base licence and which ones require additional fees. Sometimes, seemingly minor features may come at a premium, impacting the overall cost.
Usage Patterns: Analyse the actual usage patterns within your organisation. Avoid paying for features or capacities that are unlikely to be used.
Customisation and Integration: Consider whether the software can be tailored to meet unique business needs without excessive costs. This might include integration with other tools or platforms used by your organisation.

Consultant’s Perspective on Tech Stack and Licensing Evaluation

As a consultant, assessing a client’s tech stack is vital for understanding their software licensing needs. Here’s a narrative based on common consulting scenarios:Understanding Business Requirements:

When evaluating a client’s tech stack, the first step is to understand their business requirements. For instance, if the client is a mid-sized retail company looking to enhance their e-commerce platform, the software needs might include robust inventory management, customer relationship management (CRM), and seamless payment gateway integrations.

Evaluating Current vs. Needed Features:

Next, we compare the features offered by potential software solutions with the client’s current needs. If the client’s existing software lacks advanced analytics capabilities, we identify solutions that offer this feature. Additionally, we assess whether these features are included in the standard licence or if they incur extra costs.

Cost-Effectiveness Analysis:

For example, a retail company might be evaluating two software solutions: Software A and Software B. Software A includes basic features required by the client but charges extra for advanced analytics and CRM modules. Software B, on the other hand, includes these features in its base subscription fee. While Software A has a lower upfront cost, Software B could be more cost-effective in the long run due to the inclusion of essential features without additional charges.

Integration with Existing Systems:

A critical aspect is ensuring the new software integrates seamlessly with the client’s existing systems. For instance, if the client uses a particular accounting software, the new solution must offer smooth integration to avoid costly custom development.

Scalability Considerations:

Scalability is crucial for growing businesses. If the client plans to expand their operations, the software must scale accordingly without exorbitant costs. We assess licensing options that allow easy addition of users and features.

Vendor Support and Reliability:

Finally, we evaluate the vendor’s reputation and support services. For a retail company, reliable support is essential to minimise downtime during peak shopping seasons. A vendor with a proven track record in the retail industry and strong SLAs is preferred.

By meticulously analysing these aspects, a consultant can help enterprises select software that aligns with their business requirements, offers the necessary features, and fits within their budget, ultimately ensuring a strategic and cost-effective investment.

Conclusion

Evaluating software licensing costs for enterprises requires a thorough analysis of various factors. By considering the type of licence, total cost of ownership, scalability, vendor reputation, compliance, hidden costs, ROI, customisation options, and alignment with business requirements, businesses can make informed decisions that align with their strategic goals and budgetary constraints. A comprehensive approach ensures that the chosen software not only meets current needs but also supports future growth and innovation.

Bimodal Organisations

March 13, 2018May 27, 20183 Comments

The continuous push towards business improvement combined with the digital revolution, that has changed the way the customer is engaging with business through the use of technology, have introduced the need for an agility in the delivery of IT services. This speed and agility in IT delivery, for the business to keep abreast of a fast evolving and innovative technology landscape and to gain an competitive advantage are not just required in the development and/or introduction of new technology into the business, but in the way “keep the lights on” IT operations are reliably delivered through stable platforms and processes enabling business growth as well.

IT Bimodal

We can agree that once systems and solutions are adopted and integrated into business operations, the business requirement for IT delivery changes with IT stability, reliability, availability and quality as key enablers to business performance optimisation. There are thus two very distinct and equally important ways or modes of delivering IT services that should seamlessly combine into the overall IT Service Operations contributing to business growth.

Gartner minted in 2016 the concept of IT Bimodal – the practise to manage two separate coherent modes of IT delivery.

Mode 1: Focussed on *Stability*	Mode 2: Focussed on *Agility*
Traditional	Exploratory
Sequential	Non-linear
Emphasis on: Safety & Accuracy	Emphasis on: Agility and Speed

Each of the delivery modes has their own set of benefits and flaws depending on the business context – ultimately the best of both worlds must be adapted as the new way in which technology delivers into business value. Businesses require agility in change without compromising the stability of operations. Change to this new way and associated new Target Operating Model (TOM) is required.

Bimodal Organisation

This transformation is not just applicable to IT but the entire organisation. IT and “the business” are the two parts of the modern digital business. “The Business” needs to adapt and change their work style (operating model) towards digital as well. This transformation by both IT and “the business”, branded by Gartner as Bimodal, is the transformation towards a new business operating model (a new way of working) embracing a common goal of strategic alignment. Full integration of IT and business are the core of a successful digital organisation competing in the digital era.

The introduction of Agile development methodologies and DevOps, led to a transformation in how technology is being delivered into business operations. IT Service Management (ITSM) and the ITIL framework have matured the operational delivery of IT services, as a business (#ITaaBusiness) or within a business while Lean Six Sigma enables business process optimisation to ultimate quality delivery excellence. But these new “agile” ways of working, today mainly applied within IT, is not enough for the full bimodal transformation. Other aspects involving the overall organisation such as business governance and strategy, management structures and organisational architecture, people (Human Capital Management – HCM), skills, competencies, culture, change management, leadership and performance management as well as the formal management of business and technology innovation and integration, form additional service areas that have to be established or transformed.

How do organisations go about defining this new Bimodal TOM? – In come Bimodal Enablement Consulting Services in short BECS.

BECS – Bimodal Enablement Consulting Services

Gartner’s definition: “An emerging market that leverages a composite set of business and technology consulting services and IP assets to achieve faster more reliable and secure, as well as business aligned, solutions in support of strategic business initiatives.”

To establish a Bimodal enabled TOM, organisations need to architect/design the organisation to be customer centric, focussing on the value adding service delivered to the client/customer – a Service Oriented Organisation (SOO) designed using a Service Oriented Architecture (SOA). This set of customer services (external facing) should relay back to a comprehensive and integrated set of supporting and enabling business services (internal facing) that can quickly and effectively enable the business to innovate and rapidly adapt and deliver to changing customer needs and the use of technology within the digital era. This journey of change, that businesses needs to undergo, is exactly what digital transformation is about – not just focused on the technology, processes, quality and customer service, but on the business holistically, starting with the people working within the business and how they add value through the development and use of the right skills and tools, learning an applying it rapidly throughout the business value chain.

A customer centric delivery approach requires the development and adoption of new ways in which work are conducted – new management structures, building and enhancing A-teams (high performing individuals and teams, getting the job done), optimised processes and the right tool sets.

BECS must address the top bimodal drivers or goals, as identified by Gartner research:

Deliver greater IT value to the business
Shorten the time to deliver solutions
Enable digital business strategies
Accelerate IT innovation
Transform IT talent/culture/operations
Increase the interaction between business and IT
Embrace leading-edge technologies, tools and/or practices
Reduce IT costs (always a favourite)
Change the organisation’s culture

Take Action

Are you ready, aligned and actively engaging in the digital world?

Can you accelerate change and enable revenue growth with rock-solid service and business operations?

Are you actively practicing bimodal, continuously adapting to the changing digitally empowered customer demand?

The ultimate test to determine if you are bimodal: Every business process and every enterprise system needs to work without a blip, even as more innovation and disruptors are introduced to make the business more efficient and responsive.

It is time to be a bimodal organisation!

___________Renier Botha specialises in helping organisation to optimise their ability to better integrate technology and change into their main revenue channels – make contact today.

The Business Consulting Industry Is Booming, and It’s About to Be Disrupted

February 22, 2018February 24, 2018Leave a comment

Guest Blog: Soren Kaplan via Inc

Image CREDIT: Getty Images

Whether the focus is strategy, operations, tax, finance, HR, or IT, business consultants are a staple of corporate life. Today, over 700,000 consulting firms provide services across virtually all aspects of business globally. From defining strategic direction to simply serving as an additional pair of hands for outsourced work, consultants have become inextricably linked to the success of most large organizations.

Here’s the issue: Festering underneath myriad consulting offerings, methodologies, tools, and firms lie some vulnerabilities that will eventually unravel the consulting business model — the same kind of dramatic disruption that other industries like photography, publishing, health care, and many others have experienced.

An industry becomes susceptible to disruption when it becomes entrenched in its longstanding solutions and financial structure. Disruptive innovations provide simpler or more elegant solutions to existing problems, enabled by new technology and often at a lower cost. Think portable calculators versus computers, Amazon versus bookstores, Netflix versus Blockbuster, or digital cameras versus film.

Management consulting is not immune to the dynamics of disruption. According to IBISWorld, for example, “the Management Consulting industry is in the mature stage of its life cycle. The industry is characterized by growth in line with the overall economy, an increasing number of industry players, and technological change based on improving efficiency rather than developing entirely new services.”

In any industry, when the basis of competition becomes efficiency versus innovation and new solutions, disruption lies on the horizon.

Five fatal flaws of the consulting industry

Here are five inherent qualities of the management consulting industry that make it susceptible to technology-driven disruption:

Labor intensive. Most consulting services rely on humans as the fundamental source of research, analysis, recommendations, process definition, process management, and facilitation.
Billable time-based business model. The fee structure underlying most consulting services is tied to billable hours or days, which encourages lengthy, overstaffed engagements to maximize revenue.
High margins. The cost of “goods” in consulting refers not to products but to people. The billable rates of junior consultants in most large firms far exceed what they are paid by the firms in which they work. Value pricing models also dramatically increase the profitability of many projects and firms.
Time-bound value. With the increasing pace of change, the moment a research report, competitive analysis, or strategic plan is delivered to a client, its currency and relevance rapidly diminishes as new trends, issues, and unforeseen disrupters arise.
Knowledge commoditization. The models, templates, and tools of the consulting trade have historically been kept “secret” by consultants and locked away as intellectual capital. The “democratization” of just about everything, including management information and knowledge, will continue so that anyone can access and apply “best practices” on their own.

Paradoxically, even with these fundamental flaws — all of which are contrary to the best interests of clients — the industry continues to grow. Last year, for example, the management consulting industry saw a 4.1 percent growth rate.

So why be concerned?

Intersecting trends drive disruption.

Rapidly emerging trends have created a new breed of competitor — even if the industry doesn’t yet view these upstarts as competition. Firms like Domo, Looker, Qlik, Radius, and CBInsights tap into the converging trends shaping the future of business, and the world. By creating solutions at the intersection of big data, data analytics, the cloud, cognitive computing, visualization, and cross platform anytime access, these firms provide a glimpse into the type of automated, scalable data gathering, insights, and decision-making made possible by next generation technology.

The first to feel the detrimental effects of disruption will likely be the large research and advisory firms such as Gartner, Forrester, and IDC. With models that rely on armies of analysts, PDF reports that become outdated the moment they’re published, and significant annual subscription fees, these firms embody the most significant vulnerabilities of the larger consulting industry. And this is just the tip of the iceberg. Just about any consultant or firm that conducts primary or secondary research will see the value of these offerings — and clients’ willingness to pay for them — diminish significantly.

While many consultants and consulting firms have established practices advising clients on strategies to leverage disruptive trends and technologies, few apply this to themselves. Investing in the technological innovations and next generation business models is a fundamentally paradoxical concept in an industry driven by billable hours, billable days, and closely held best practices in the form of “knowledge capital.”

Eat your own dog food.

In 2000, I wrote an article in the first issue of Consulting to Management (C2M) about the importance of creating “knowledge assets” as a strategy to scale professional services offerings. The article described the importance of capturing and codifying intellectual capital in the form of process methodologies, tools, and templates. Many firms do that quite successfully today.

Repeatable processes, models and tools are indeed important for efficiency, scalability, and profitability. Yet the physical delivery of these staples of the trade remain chained to an entrenched business model. A new approach is needed if the management consulting industry — let alone individual firms and consultants — will have the chance to unlock the next phase of its evolution and value, before some dramatic external threat forces the issue.

Many clients hire consultants to tap into strategic thinking — seeing the big picture, identifying scenarios, choosing options, and creating game plans. Yet a conspicuous void exists when it comes to addressing strategic questions by and for the industry itself.

Here is a set of questions that can help jump start new business models for management consulting:

Transformative problems. What emerging client challenges and needs exist that, if addressed, would transform their business by 10x, or even 100x?
Radical intelligence. How do we leverage big data, artificial intelligence, collaboration tools, and other technologies to create a step change in the level of knowledge and insight we deliver?
Scalable relevance. How do we scale our tools and methods while ensuring applicability to the widest possible audience globally?
Knowledge democratization. How do we make our models, tools, and resources ubiquitously available while building a sustainable business model?
Collaborative ecosystems. What networks can we build or join that exponentially elevate the value we create and deliver?

In the field of business strategy, the “tyranny of success” is a well-known dynamic: what led to today’s success will ultimately lead to tomorrow’s failure. Individual consultants and consulting firms that recognize the limitations of their existing business model while exploring opportunities that tap into emerging technologies and new delivery models will have the best chance of thriving in the fast-approaching disruptive future.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.