A total cost of ownership (TCO) paradox exists. Intentional spare capacity helps to optimise spend and technology management.
There are countless examples and statistics about waste in technology purchasing. “Buy what you need and use what you have” has been a solid, if hard to practice, mantra I have exhorted for years. This article explores the nuances to apply in seeking efficiency; how some overcapacity and less attention can be effective.
Extra noise has always helped technology
Early morse code communications struggled with noise limiting quality and speed over long distance telegram systems. More powerful cables and transmitters had some effect but with significant cost. Too much even caused expensive breakages.
Significant advancement in commerce came when redundancy was added. We’ll look at how this applies to software asset management (‘SAM’), but check out the references below for more detail on this anecdote.
How can matching be suboptimal?
Systems that align entitlement and consumption sound ideal, and they do bring many benefits. However, they can be difficult to achieve and expensive to maintain, with side effects that include:
- Extra effort in making many small adjustments;
- Missing out on arbitrage of bundles;
- Opportunity cost of provisioning;
- Lost productivity, including from the impact of attention; and
- Reduced ability to handle change.
The conundrum for continuous matching and optimisation is balancing effort against potential rewards. Governance functions with ‘enough’ resource are rare. Adding to the burden has to be worth it. SAM / FinOps teams with capacity to make constant adjustments are probably doing something wrong. For example:
- The cost of applying changes can outweigh savings;
- Mundane activity lowers motivation and productivity over time; and
- Inattention sets in, raising the potential for costly errors.
Automation is a partial cure. If complex processes are needed it can be a false economy. With SAM / FinOps there are commercial intricacies as well as constant change. This complexity makes issues, anomalies and ultimately failures somewhat inevitable. Small blockages can lead to massive repercussions; look at how single ship in the Suez canal affected world trade. The cost of design, monitoring, keeping up and applying remedies can outweigh the positives.
Imagining these considerations are all overcome, behavioural impacts can also create inefficiencies. For example, buying in batches, at different prices, with limited coordination and probable growth of shadow IT. This creates further downstream work for finance, SAM and support teams. With cloud services, assessing rescaling and migration requires a significant FinOps maturity that can be overkill for all but the largest consumers.
Meal deals can benefit everyone
With governance related bloating likely, the inherent ‘waste’ in bundles can be beneficial. Consider upselling in daily life: upsizing popcorn at a cinema that doesn’t get eaten and lunch deals including a snack and drink are ubiquitous smaller examples. Larger purchases like cars often have comfort, safety or convenience packages and travel has add-ons with transfers, lounge access, upgrades and luggage offers. In technology procurement, these models commonly cause waste, but they can bring major benefits.
We can explore the specifics of many vendors in great detail – that’s likely to be in future articles. For now, let’s look at a simple user productivity suite, ignoring add-on options and master agreements. It will be cheaper to buy the individual products and allocate and harvest them when needed. This will require quality, timely data and robust processes. Using standard bundles and accepting a float of spare capacity can reduce administration and tracking, as well as enhancing user experiences.
As ITAM maturity grows, focus can then be applied to utilisation and tuning licensing. Profiling can identify opportunities for:
- Enablement about bundled functionality to increase user productivity;
- Displacement of overlapping technologies;
- Unit economics for licensing and allocations;
- Balancing bundles versus individual deployments;
- Adjusting capacity levels, harvesting and right-sizing; and
- Insights to shape vendor strategy.
Can systems be too good?
The law of unintended consequences suggests so. An obvious example exists in licensing requisition. Imagine a user needs a piece of non-standard software. Productivity is restricted until it is approved and the technology is utilised. Just in time (‘JIT’) may not be the best.
Projects may be delayed, revenue could be lost, frustration will certainly exist. This may cause another route being sought, such as buying through expenses. Aside from the shadow IT created, it will probably cost more, create later reconciliation work and possibly a conflicting licensing situation. Worse still is the possibility to use an alternative solution such as an unapproved tool with security and compliance risks. Whatever the case, the remedy is more painful than envisaged in the otherwise efficient process.
Systems can also beget issues resulting in reduced output. People perform better when perceiving they are steering their destiny. When controls are viewed as overseeing or the metaphorical sledgehammer to crack a technology nut, they are less likely to be respected. This supports suboptimal behaviours and lowered job satisfaction. A better path might be to make pertinent information and guidance readily available, with guardrails for areas of huge cost. Allowing informed decisions results in greater individual due diligence and self-course correction, and therefore helps avoid costly or risky action being taken.
A further challenge is the certainty of change. Systems are typically designed for repeated activity. As technology products and services are not static, you can expect exceptions. Designing for tomorrow is admirable, but that might be different next month, week or year. This makes unsurprising that many SAM and FinOps functions fall victims to well-intentioned grand plans or suffer when handling shifting circumstances.
Where to strike the right balance?
Situational awareness is the key. To stay fit for purpose SAM and FinOps need to constantly challenge whether they are delivering effectively. Certainly, they should aspire to:
- Be proactive on big ticket costs such as mega-vendor renewals;
- Intervene at the right time in major project decision making (or issue mitigation);
- Deliver insights and scenario modelling on demand;
- Provide easily accessible guidance, warnings and controls;
- Continually seek out and qualify cost saving and risk reduction opportunities; and
- Facilitate innovation across the many business functions that ITAM touches.
These aims should always be balanced against organisational objectives. Typically, this can be paraphrased as ‘save us money without creating a fuss or any difficulties’. In the right situations, supporting wastage can help achieve just that. Plan on a float of redundancy to increase value. Targets should be single digit percentage wise, significantly lower than industry norms of 20% to 35%. There will be variability between specific technologies based on unit costs and ease of adaptation.
Would you like to explore further?
Contact us for a deeper discussion around intentional overcapacity, using systems and technologies for optimising technology spending
Notes:
Credit to Tim Harford, whose Cautionary Tales podcast on Claude Shannon helped inspire this post. His other publications and are worth consuming in their own right.
Intent: This article is designed to provoke thought in an attempt to help advance debate around technology FinOps, including cloud, software asset management (‘SAM’) and procurement. The practicalities of commercially related due diligence have situational dependencies. There are statements that can be argued for and against. CurioValue welcomes discussion and critiques.
