New research from Origina suggests that companies may unknowingly be misusing their budgets when it comes to upgrading technologies.
In the world of technology everything breaks down eventually, meaning that repairs, maintenance and sometimes even a complete overhaul of systems are necessary. However, knowing when a technology needs to be upgraded can be tricky. Especially if that technology is relatively new, as are the metrics used to gauge its performance.
For ‘The Software Tax, What does it Cost and Who does it Benefit’ report, Dublin-based IT and software company Origina, in partnership with Thinkers50, commissioned Censuswide to survey 2,018 CIOs and senior IT decision makers.
The decision makers who contributed were either at director level or above and have direct ownership or influence over enterprise software budgets and renewals. They also are employed at organisations that take in an annual revenue of $1bn, with 10,000 or more global employees.
Participants to the survey were from the UK and the US, spanning five sectors, financial services, insurance, telecommunications, the public sector and retail.
What was discovered by the research is that there is essentially a ‘software tax’ that accompanies the implementation of advanced technologies and strategies.
The report defined it as “a recurring burden embedded in the enterprise software model that consumes capacity, diverts talent, wastes working assets and adds cost and risk that organisations have little practical ability to refuse.”
That is to say that, despite organisations implementing ambitious enterprise software strategies as a means of becoming more efficient, many are imposing hefty hidden costs upon themselves.
Origina and Thinkers50’s report found that large enterprises are spending almost 30pc of their software budget on upgrades, migrations and licensing changes that they would otherwise not have actively chosen.
Shockingly, over the course of the last three years, a further 95pc of contributing IT leaders explained that their organisation has funded a vendor-driven upgrade, which they believed at the time, would negatively impact performance, reliability or business value. More than half (53pc) have done so on more than one occasion.
Commenting on the report, Tomás O’Leary, the CEO and Founder of Origina and a co-author of the research, said, “When the alternative to an unwanted upgrade is losing support on systems the business runs on, saying yes is often a rational response.
“That’s exactly the problem. The market has left some of the most experienced technology leaders in the world with little room to refuse and that cost shows up in budgets, in engineering time and in innovation that never gets funded. We want to make that cost visible so customers can start to take back control of it.”
Loss versus gains
Some companies may be feeling the pressure to ‘give in’ to repeated upgrade requests, as a means of maintaining newer systems and the impact is most often felt by the people using those systems most often.
The report found that 84pc of respondents believe senior engineering professionals spend a significant amount of time on vendor-driven updates, rather than committing their time to “creating new value”.
More than 90pc have gotten rid of functional hardware in the past three years, to meet a software vendor’s support deadline, losing an average of 1.65 years of useful hardware life.
“Economists have studied this problem for decades. Once a customer makes relationship-specific investments, the vendor gains leverage that no contract can fully anticipate.
“For CIOs, the lesson is simple; negotiate the exit before the entry. You don’t have to leave a vendor to benefit from being able to,” said Marshall Van Alstyne, a prof at Boston University and a co-author of the report.
Old versus new
The report highlighted a number of strategies that will be integral to reestablishing an ecosystem in which there is greater choice for enterprise leaders. Firstly, it is important to understand that the greatest leverage you have exists prior to the signing of a contract.
Before committing to anything in a legal sense, address future problems and settle the terms.
This can include confirming migration assistance at a predetermined price, the right to use independent software maintenance, sufficient notice of end-of-support decisions and the right to remain on the current version, caps on renewal and expansion prices, minimum support periods and continued, documented API access.
Secondly, be prepared to spend more earlier on to establish a system that is easier to navigate over time, or even leave behind later on, on your own terms.
The report said, “Investments in abstraction layers, data portability, standardised APIs, containerisation, open source, open standards and modularity can make future switching easier.”
Also, maintain alternatives, a system does not have to be used all of the time to hold its value and having independent third-party support and ensuring technical teams have an awareness of competing technologies can be helpful in the long run.
On reinstating a sense of balance, the report stated that the topic “rests on a fundamental principle of competition; the customer’s ability to say no. Exercising that choice starts with one question, asked of every vendor-driven change before sign-off. Who benefits?”
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