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Translation of an article from Børsen posted on 27. september 2017.

The industry giant threw half a million kr. after a start-up company with an analysis tool that can track unnecessary licenses for software. The result: 12 million kr. saved.

At the engineering giant FLSmidth, the director of IT Mads Madsbjerg Hansen is very pleased.

When he was faced with a new three-year deal with Microsoft on software licenses for the company’s servers all over the world he was talked into letting a young, Danish company check if he could avoid some of the expenses. To say that he could, would be an understatement.

Kostner, as the company is called, asked for about half a million kr. to let its self-developed technology scour through FLSmidth’s IT systems globally. The savings on the new three-year contract were noticeable.

“About 12 million kr. over three years. But others have different numbers. So the really interesting part for me is that the investment was earned back in three months,” said Madsbjerg Hansen, who is in charge of IT and IT security at FLSmidth who are far from alone on being able to save quite a bit of money.

According to chief analyst, Anders Elbak from IDC, companies pay too much for software. This thought is shared by Kostner.

“We have analyzed 21 top-25 companies in Denmark. We have never found savings less than 2 million kr., says co-founder of Kostner, Helle Naesager.

When FLSmidth can avoid expenses of 12 million kr. in the next three years it has a simple explanation according to the IT director.

“if the licensing structure was simple, we could have figured this out ourselves. But it just is not. If I am being a little rude, that is what many software companies make their money on, that the people doing the work don’t understand it,” he says and uses an example.

“We have data on servers in over 50 countries. When a colleague asks my guy in Chile if he can set up a server to help an engineer he says yes. Then after a couple months, they found out they don’t actually need it anymore but they never turn it off again, so it just stands there pulling licenses,” says Madsbjerg Hansen, who does not put the blame on his colleagues.

Not a chance

“The guy who set the server up does not think commercially, he only wants to help his colleague with a server. Even if he does think commercially, he would not have any chance to understand when a license counts and when it does not,” he says and does not believe there is a possibility for more manual control.

“I don’t have someone I can set aside to use half a year on understanding all the different aspects, it has to be online. Change happens constantly in all companies. You move around, and open and close systems. It can be hard to keep track of.

The solution from Kostner came from running data from FLSmidth’s systems across the world. It quickly became apparent there was a lot to save.

“The frustrating thing is that the money does not go to our bottom line. It would have been money that was taken out of our budget if we had not done this. So I would call it cost avoidance over money saved,” says Madsbjerg Hansen, who from the start chose to pay Kostner a set price instead of letting them have a percentage of any potential savings.

More aha-moments.

“It quickly ends in people discussing what was savings and what was not. My life is too short to argue with people,” says the IT director, who gained some additional aha-moments during the process.

“I had thought that I would have to close a lot of small data centers for security purposes around the world. But the report made it clear that this was a clear cost element and that it is cheaper to centralize because you can use the licenses better when they are run centrally. I had not expected that. So if it cheaper and more secure, then I am twice as happy,” says Madsbjerg Hansen.

Rack or Blade? 8-core or 28-core processor? Enterprise or Standard license? 3-years or 5-years support contract? Cloud or On-Premises? These questions do not sound like board-level decisions but they do carry a million-dollar price tag.

When we think about decision making in enterprises, we tend to think that decisions driving millions of dollars of costs are made at a high level by executives weighing long-term effectiveness and cost efficiency. Within IT, the reality is often quite different.

Here, decisions driving millions of dollars of costs are made every day, by employees who are looking to solve problems in the short term and who have little or no information about the cost impact of their choices of software and hardware.

As a result, the decisions, while often effective at solving the technical problems, are very rarely made with a broad cost view or longer-term perspective. Not because they do not want to make good decisions but because the information is rarely available to them.

Employees at this level typically do not have the budget or inclination to seek outside help, even though many decisions about licensing choices or amortization periods should carry the warning: “Do Not Try This at Home”. The complexity can be daunting, and there is no shame in giving your employees the best possibility for making a good economic decision, not just a technically effective one.

Shameless plug:

At KOSTNER we enable these employees to make good decisions by giving them concrete information about their current configuration and costs, and an easy way to choose among the multitude of options available to them today. Simulating existing workloads running in new types of hardware and cloud offerings, we are able to present the best long-term, broad-view solution.

Luckily, even for decisions made in the past, we are able to reclaim millions of dollars in unnecessary costs for licenses, cloud services, and hardware support fees. Even after the hardware is purchased, support fees account for 60-80% of total costs. There is nothing wrong with revisiting old decisions and applying long-term and broad-view perspective to them. The result is often large-scale savings with minimal effort.

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