Global CIO: There's No Money Left

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

Howard Anderson, Senior Lecturer, Harvard Business School

February 23, 2010

3 Min Read

Laura: You still don't understand. Imagine that you're still paying rent on every house you ever lived in. Imagine your relatives are now living in those houses: How could you throw them out? That's what we are faced with. Our divisions are still using that software, so we have to keep up our maintenance expenses -- what might seem "tactical" to us is "strategic" to them. Sometimes there even may be a better software solution, but then it's a Big Number to buy ... and that division may not want to pay for it. They would rather keep what we have.

Us:So what can you do about this? Can you push this budget back on the divisions?

Laura: I'm not sure. Imagine you own a house where you have water pipes leaking because they're obsolete and it's costing you so much for plumbers that you really can't seem to afford to rip out the pipes and build a new infrastructure. What I would like to do is to buy software with no maintenance. And putting the budget back on the divisions is no answer either, because they will always take the short-term solution. No, I really would like to be able to buy our enterprise software with no maintenance expenses.

Us:That's called The Cloud ... isn't it?

Laura: I know what it's called! It's just not ready for Prime Time yet. It's OK for the sales guys to use for their 400 salespeople, but it's not rugged enough for us to build on for the rest of the company. For security reasons, for business reasons, and maybe for emotional reasons we aren't ready to go there -- and the vendors aren't ready for us either.

Us:So you're telling me you're caught between a rock and a hard place? You can't go forward because you're bleeding from all this software maintenance?

Laura: I've been cost cutting for five years, but this is one area that I haven't been able to cut effectively. I feel I'm starving my company for innovation because this ongoing maintenance expense is eating 90% of my disposable budget.

Us:So get a bigger budget!

Laura: You really do have your head up your rear, don't you. This is NOT the year for bigger budgets. I have to show that we are "team players," and team players suck it up. You see, the other line officers have this thing called "depreciation," which means they can take a factory, assume a certain useful life, depreciate it, and then show an asset that has almost zero value. Then they can go build a new one. We do not depreciate our software, but maybe we should -- then we could show that we're paying 18% maintenance on something that has next to no value -- and move on.

Us:So, in reality, you ARE buying software as a service?

Laura: Yep -- if we buy a license for $1 million, we will end up paying probably $2.5 million by the time we finally throw the software out. Some of the stuff we're still paying maintenance on is so old that I think the Romans used it, but it's so integrated into our systems that it stays.

Us:So what's the probability that you can convince your CFO to do what you suggest?

Laura: Zero.

About the Author(s)

Howard Anderson

Senior Lecturer, Harvard Business School

Howard Anderson is on the faculty of the Harvard Business School. He was the founder of the Yankee Group and co-founder of Battery Ventures. He attempts to keep his rampant skepticism from morphing into galloping cynicism, a battle he seems to be losing.

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