Back to the Future

The workplace of the future is all about collaboration, agility, real-time sensing and visualization of resulting data, working virtually with a higher level of engagement. Software contracts are just the thing to throw a spanner in the works, as contracting practices have generally not kept up with the state of technology.

Workplace technology increasingly is made up of software – whether it is an organization’s core workplace productivity and collaboration suite, an in-memory database-enriched enterprise resource planning (ERP), electronic health record (EHR) system or inventory management system (IMS). Acquiring technology increasingly is focused on buying software. The work that happens in today’s enterprises is enabled largely by software as a service (SaaS), software-defined networks (SD-WAN), software-defined storage and, of course, the cybersecurity software that protects your data. Yesterday’s IT hardware providers quickly are becoming software companies (with EMC and Cisco as prominent examples), and the typical enterprise’s physical IT hardware is becoming a thinner, more-mobile layer of sensors, displays and interfaces at the end-user side.

The challenge is that software licenses are written as if the buyer will have a high degree of certainty about exactly who in its organization (and its network of customers and suppliers) will use the software and how it will be used. Contracts are written as if the buyer knows from the outset with which systems the software will interface and share data.

But transformation requires flexibility – and flexibility requires getting the basics right. An organization needs to be unencumbered by agreements designed for a static business environment. If your objective is using your software to its fullest potential to transform your business, tactically sourced agreements may cost you more in the long run. And simply buying more flexibility usually means you are spending more than you need to in the short term. In other words, both ends of the spectrum present unnecessary costs and risks.  

Licensing strategically requires a knowledge of the details (and business objectives) of the target operating model as well as a deep understanding of the unique licensing frameworks, usage rights, pricing structures and sales strategies specific to each software publisher. In other words, how will the products be used and why? What changes to that planned usage might occur (and under what circumstances?) How do various licensing options align to potential usage scenarios?

Software license models are designed to be more complex and less transparent than buyers would like, and this is by design. Software publishers understand buyers’ confusion resulting from this complexity and opacity – and know how to capitalize upon it. Their motivation is to sell additional products to enterprises every year. Some do this with traditional sales methods. Others do this by conducting a compliance audit in which they "discover" you may be using their software in ways that exceed their interpretation of your rights under the licenses. Most publishers do it by a combination of both methods.

Sure, the sales organization must try to maximize its revenue. However, the imbalance of information caused by opaque software licensing models causes friction and reduces trust. Our opinion is that greater transparency in licensing agreements would foster more transformative collaboration, faster growth and lead to better long-term outcomes for all parties.

Irrespective of any sweeping future change in how publishers approach transparency, implementing the workplace of the future still means revisiting the fundamentals of entering into software contracts with a new “transformational” lens. Next time you prepare for software licensing negotiations, ask yourself the following questions:

1. What is the scope of what you are buying? How will the software be used by the business? How will its use transform over time as your workplace transforms? Will your ability to use it in a flexible way rely on accessing or sharing information not expressly allowed by the license agreement?
2. How will the digital strategy of your business shape how you use the software with your business partners, including your customers and suppliers? This "indirect access" can be an important issue with certain ERP contracts. How will you track and monitor your APIs?
3. How will you manage your growing portfolio of SaaS subscriptions as new technologies are implemented? How will you handle the ever-higher frequency and velocity of SaaS updates to foster an environment that embraces innovation and experimentation in a "fail fast" mode?
4. What restrictions do you need to resolve now while you have leverage and options, rather than later when you discover a potential limitation in your licensing rights?
5. How can you maintain control and protection of your flexibility and licensing options over time?

Traditional contracting strategies for software will constrain an enterprise’s ability to implement the workplace of the future. Organizations must take a sophisticated approach to the way they license and manage software, so they can create a workplace that will allow them to reach their transformed and optimal potential.

Join me at ISG’s SourceIT where we will how sourcing needs to adapt to prepare the workplace of the future.

About the author

Bill is a sourcing industry leader and active proponent of helping to create professional standards and best practices. His areas of expertise include sourcing strategies, shared services and contract negotiations. Throughout his career he has been responsible for both business development and delivery of strategic advisory services in procurement, vendor management and operational transformation.