When it comes to software licensing, companies are struggling to come to grips with what are often high and unnecessary expenses.

Experts say it’s actually possible for an IT department to get licensing costs under control. But the issue has to be tackled decisively and courageously.

Daimler is one of the companies offering a model for this. Michael Gorriz, the premium car group's IT chief, decided to realign license management within the company after he assumed overall responsibility for IT in 2008.

He has since reached his first interim goal.

Operating systems, office programs and other applications for roughly 180,000 seats have been registered and a centrally controlled license management process has been established for clients.

That wasn't as easy as it sounds. One of the project team’s tasks was to comb through all its invoices over the past 10 years.

Now in the second stage, Daimler is focusing on its servers before ultimately addressing business applications such as enterprise resource planning (ERP) and customer relationship management (CRM).

Daimler’s example shows that a company has to commit resources to the reduction of its licensing costs if it is really determined to make changes.

IT's stepchild

But license management is not as high on the agenda of every IT executive as you would expect, given the potential savings that could be achieved.

"It’s IT’s stepchild," said Axel Oppermann, senior advisor at Experton Group, a consultancy group that has been dealing with the issue for years in its own operations and on customer projects.

He drew a comparison with the production process as it is managed in most modern companies. "Imagine a manufacturing company that could not put a number on the quantity of components it needed or the per-unit costs of a main assembly," he said. "Prices could not be reliably calculated. It would not be possible to capture expenditures and requirements."

This may seem inconceivable in manufacturing. But it is far too often the case in software, said Rüdiger Spies, an analyst with IT market researchers IDC.

License management simply runs "counter to the nature of inventive IT creators who focus on new systems and technologies," he said. Managing existing sytems is still a relatively unpopular task in IT, he added.

No control

Last spring, the Experton Group asked corporate decision-makers about the state of license management in their companies.

Nearly 60 percent of the respondents at firms with 500 to 1000 employees said they hardly had any control over license management, or no control at all. The percentage was still nearly a third for companies with 1,000 or more employees.

"There’s frequently no key staff member handling this issue within the company, in neither IT nor purchasing," Experton's Oppermann said.

Management is unaware of the need for an integrated approach and experts say organizational ”“ and human ”“ shortcomings are most often to blame.

First of all, IT fiefdoms at the business-unit level want to be free of corporate IT’s control.

daimler gorriz.automotiveIT

Daimler CIO Gorriz has aggressively tackled licensing management issues (Photo: automotiveIT)

Second, consulting staffs on asset management projects are often bloated because every executive puts one of "his" confidants on board. And third, IT managers worry that an in-depth review could reveal skeletons in the closet.

"Blanket contracts with multi-year terms also lead the company not to conduct license management," said Olaf Diehl, sales manager at Aspera, a specialist firm dealing with license issues.

These contracts put things squarely in the service provider’s hands: Without a history of use, there is no basis whatsoever for negotiation when the user needs to extend a contract.

Technical factors

Licensing costs are also inflated by technical factors. A number of services are not set up with the licensee in mind: They include metrics for multi-core processors, virtualization, capacity-on-demand functions and provisioning tools.

For example, the sellers only envision certain types of partitioning for many virtualizations. The dynamic assignment of processor capacity can get expensive quickly.

Rather than merely focusing on the best technology, "the consequences of changes or new solutions in the hardware or software architecture should be considered in detail when the costs of a decision are assessed," said Aspera's deal.

This is proposed in the Information Technology Infrastructure Library (ITIL), a set of best-practice guidelins for IT services. They resulted from a British government initiative.

The potential savings are obvious. Volker Schweier, manager of product management and marketing at the license management firm Amando Software, said that, again and again, the same applications are being installed unnecessarily. These include project management software, applications for image processing, creation and handling of documents and numerical simulation applications.

Ironically, numerical-simulations software can often be used on other PCs without an installation package simply by copying the index.

Said Schweier: "IT departments often only notice this when the invoicing is looming and the copies have left their entry behind in the central user database."

Fixing licensing costs is clearly a huge task. But Daimler's example shows that the sizeable potential benefits far outweigh the cost and effort required to improve the internal processes.

-By Michael Vogel