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A Terrible Thing to Waste

Unused software may be costing you millions of dollars. Here's how we got here -- and what some leading companies are doing about it.

While it may be true that each of us uses only a small fraction of our brain (and slightly less on Mondays), does the same hold true for corporations, and is there anything to be done about it? Several computer-industry experts say U.S. companies have purchased billions of dollars worth of software that they don’t use — “shelfware,” in IT parlance — and that this overbuying is now contributing to the current slowdown in IT spending. At the same time, it’s also inspiring some forward-looking CFOs and CIOs to change the way they plan, purchase, implement, and monitor computer software.

While it’s impossible to put an exact dollar figure on the problem, several industry watchers have come close by conducting surveys of CIOs. When, for example, Charles E. Phillips, managing director of enterprise software at Morgan Stanley, asked 300 CIOs earlier this year whether they had unused software licenses, fully one-third said they had unused database licenses, 12 percent said they had unused CRM (customer relationship management) licenses, nearly 20 percent reported unused ERP (enterprise resource planning) licenses, and just over 10 percent reported unused SCM (supply-chain management) licenses.

Similarly, in a poll conducted recently by AMR Research, of 42 companies that use SCM software, a whopping 85 percent reported using only one or two modules (SCM suites typically contain a dozen or more). Of 60 companies using procurement software, only a third told AMR they would use it for direct procurement, the software’s raison d’être. And of 100 companies using CRM software, AMR found that most had implemented less than half their licenses.

Those figures may surprise CFOs, who seem far less aware of the problem. In a survey of more than 250 CFOs conducted by this magazine and Morgan Stanley this past summer, three-quarters said their organizations had not purchased technology in excess of current needs; only 10 percent responded that they definitely had. (For full results from the survey, see “Numbers, Please.”)

But license fees are only the tip of the iceberg: maintenance and support fees pile on the wasted dollars, too. Typically these fees equal about 20 percent of the license fee. But unlike license fees, which are paid just once, maintenance and support fees are paid on an ongoing, annual basis. Basic arithmetic shows that when annual maintenance and support fees equal 20 percent of the underlying license fee, a company with an unused software license will have wasted as much in support costs as it has on the original software license in just five years.

Many forces have combined to turn the esoteric world of enterprise software into a waste-management situation worthy of Tony Soprano. The licensing models and reporting requirements of software companies, the acquisition and deployment strategies of customers, the Y2K problem, and the dot-com boom and bust have all played parts.

It was all well and good for Thoreau to urge us to “simplify, simplify.” Had he been forced to tame the myriad complexities of the IT world, he never would have left the banks of Walden Pond. Because enterprise software suites are enormous, it’s difficult for companies to know exactly what they have, let alone use it all. “No one uses Excel, Word, and PowerPoint all the time,” says Jacqueline Woods, Oracle’s vice president of global pricing and licensing strategy, alluding to Microsoft’s Office desktop suite by way of analogy. “There’s just not enough time in the day for everyone to use everything all the time.”

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