Cloud // Software as a Service
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2/23/2010
07:11 PM
Howard Anderson
Howard Anderson
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Global CIO: There's No Money Left

That sucking sound you hear is the sound of yearly software maintenance fees.

Time to check in with our old buddy Stu Laura, a CIO who always seems to be angry about something -- surprising for a guy pulling down $500K plus options.

Us:What is it today? Problems with your app consolidation? Demands of your mobile users? Security problems? Trouble keeping your best people? Fighting with your overseas offices about moving personal records across borders?

Laura: Your cynicism is duly noted. No, no more than the usual problems. I am still having internecine warfare with the lines of business, still trying to push platform strategies, but I have done all of this before and I expect that I will be doing all of that next year. And the year after. My real problem: There is no money left!

Us:What are you talking about? You have a budget bigger than the gross national product of some Third World countries. Did your budget get cut again? I thought that it was pretty much frozen to last year's number.

Laura: That is the problem! The budget has been frozen for about two years, and we have been on this efficiency kick for about the same amount of time. We have virtualized and we have consolidated our data centers. We have cut hiring and outsourced -- so we have harvested our low-hanging fruit. The real issue: maintenance expenses on our software!

Us:Explain.

Laura: Think about it: Every software product we buy carries a 15% to 22% maintenance charge. So do that for eight years and then there's nothing left in the budget. If we buy new software each year, and we do, the old stuff still has that expense and the new stuff also. And next year we buy more new software. Sooner or later, almost all of our budget is paying maintenance for what we bought in years past. It's kind of like the U.S. government: The majority of expenses are the entitlements -- like Social Security and military pensions. We're the same way. There is almost no money left to really doing something significant. Sure, we can sometimes buy the requisite big iron and bunches of new servers, but when you take out the capex, there's nothing left. It's kind of like a rock star who has a cocaine habit; it may look like he's bringing in the big bucks, but after he pays for his habit there ain't much left.

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Us:So go cold turkey -- consolidate your apps, get rid of old software that you aren't using, and free up some of that budget.

Laura: Don't think I haven't tried! It used to be that, excluding internal programming and people costs, hardware was 50% of our budget and software 50%. Now it's 20% hardware and 80% software ... and maintenance expenses on that software are 80% to 90% of that budget. In short, there's nothing left.

Us:Sounds like you have a management problem. Isn't this what you get paid for ... or overpaid for?

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