IT spending is on the rise - and that's not a bad thing. While compliance has dominated financial institutions' IT budgets for the last several years, this year paints a rosier picture with credit unions making larger investments in online banking and mobility - thereby enhancing the customer experience and increasing competitiveness.
That's the good news. The not-so-good news is that current IT vendor behaviors are increasing the cost of these initiatives. "Spend more, achieve less" appears to be the new reality.
One way to mitigate this effect and stretch IT budgets farther is to put more intense focus on eliminating overspending. More than half of all IT purchases made today exhibit overspending as compared to benchmarks of similar best-in-class purchases.
Software Licensing Cost Increases
A radical transformation is underfoot in one of the largest areas of CU IT spending: software. Thanks to the proliferation of mobile devices - the linchpin in the consumerization of IT and bring your own device (BYOD) trends - software vendor revenues have been under attack. And, they're not taking it sitting down.
Take Microsoft, for example, which has switched from a per-desktop to a per-device licensing model for some of its offerings. In the past, a CU purchased a license for every desktop. Now, they will have to purchase a license for every device or pay per-user, a much costlier alternative.
Of course, Microsoft is just one example. A host of other vendors, including Oracle and SAP, have started to demand that customers buy additional licenses for third-party applications that access information housed in their software.
With more licensing changes expected to take effect in 2013 and 2014, CUs have a new risk management task at hand. To mitigate the risks of increased software licensing complexity, and to get maximum value for every IT dollar spent, here are some IT sourcing best practices:
Remember that price isn't everything. This is rule No. 1 in today's software purchasing environment. The vendor battlefield for revenue isn't limited to price. Vendors are competing just as fiercely on contract language and terms. In fact, many are using "competitive" pricing as a way to distract buyers from the spending pitfalls buried deep in the fine print.
Stay up to date on dynamic support and licensing definitions and policies. There is nothing static about support and licensing definitions. Changes in licensing models and product features can drive up costs, and customers aren't always on top of these changes. Remember, it's the customer's responsibility to stay fully up to date on interpretation and impact.
Beware of the scoping down of licensing rights. Software vendors are constantly looking for new ways to extract revenues from customers, and the slow erosion of licensing rights is a sure way for institutions to pay more for less. It's crucial that customers gain absolute clarity on not only basic licensing definitions and policies, but questions such as: Can the license be deployed on different platforms? What constitutes third-party access/indirect access? Does the license cover global deployment? Bear in mind that "subtle" licensing constraints that may seem innocuous at first often position the customer for increased spending over the term of their contract.
Avoid mid-term cost penalties by planning ahead. Companies should evaluate their short and long-term IT strategy to avoid the cost penalties associated with mid-term contract changes. This requires an understanding of what licensing and pricing changes are coming down the pipeline from key software vendors, and timing renewals and/or renegotiations before these changes take effect.
Think Twice
Think twice before executing an unlimited or enterprise licensing agreement (ULA, ELA, etc.). Enterprise and unlimited licensing agreements are not for everyone. Often, they're an effective vehicle for overbuying and paying for more licenses and products than actually needed. CUs should carefully weigh costs against the contract flexibility that their business requires.
Be wary of "soft audits." Soft audits, often conducted by vendors under the guise of software asset management, are fear-based selling tactics that can lead to overbuying. CUs should consider utilizing unbiased third-party licensing experts to conduct their own mid-term health checks to determine if they are in compliance with vendor contracts and to identify any roadblocks that lie ahead.
The changes afoot in software licensing can spell higher IT costs for credit unionsbut they don't have to. Those institutions that go the extra mile to mitigate the short and long-term impacts of these changes will be able to control costs in an otherwise volatile category of technology spend, and deliver more bang for every IT budget buck.
Jeff Muscarella is EVP of IT and Telecom at NPI, a spend management consultancy.
