Asset Management Controlled
- 31 May, 2000 12:01
BOSTON (05/31/2000) - For many years, American Home Products Corp. managed its IT assets in a helter-skelter fashion, like many other large organizations at the end of the 20th century. Each of the sites in the Madison, New Jersey-based company's pharmaceutical division managed its own hardware and software using a different spreadsheet or database, or manual list of assets.
Derek Bluestone, the division's senior manager for global IT sourcing and acquisitions, admits the process was inconsistent and company executives had little idea what assets the division had, what they cost, how those assets were being used and even why they had been purchased in the first place. What's more, the division was beset by duplication of effort in PC procurement and management, multiple software and hardware surveys undertaken by different departments, and incomplete and inconsistent information across the board.
And that's not the half of it. Company analysts weren't able to adequately track whether vendors were submitting invoices for software maintenance that adhered to contractual caps. And financial analysts found it impossible to match up the return of leased equipment to schedules or compare quarterly invoices with the proper cost formulations.
"We finally realized that not knowing what we had was costing us a lot of money," says Bluestone. For example, desktop and notebook inventories were gathered several times each year but were stored in inconsistent formats ranging from spreadsheets to Microsoft Access databases. Sometimes the division paid outside vendors to take inventory; other times it had to allocate internal resources. And because most of the division's notebook computers are leased, Bluestone adds, "we were actively looking to reduce the payment of interim rents for older equipment after the leases expired."
After surveying the situation, the division estimated it was spending US$250,000 annually in hard costs-much of which Bluestone and his team believed could be eliminated by adopting a formal asset management approach.
The $14 billion global pharmaceutical and consumer health-care products company has since embarked on a multiyear campaign to gain control of its sprawling IT assets, which include as many as 30,000 PCs and a slew of other IT equipment and software scattered around the world. Besides saving considerably in hard costs, the new approach should substantially cut network infrastructure maintenance expenses. In Bluestone's division, for example, his team can now use asset management reconciliation processes and tools to identify and retire equipment no longer in use. On one annual contract alone, that saved $150,000.
Formal asset management will be a tough job for American Home Products-but Bluestone is convinced it will pay off big.
CONTROLLING YOUR ENVIRONMENT More and more companies are finding that their IT environments are getting out of control and are opting for a formal, comprehensive asset management strategy that not only tracks hardware and software assets, but also manages software licenses, equipment contracts and leases, and networks from cradle to grave. The goal for many companies is to start managing an asset even before it is purchased, keep tabs on it during procurement and follow it through the loading dock, installation, loading and managing software on the asset, and right through to recycling.
Although it is common for companies to implement certain asset management practices on their own-such as centralized procurement and standardization on a number of supported configurations-it would be quite difficult for them to implement a strategy encompassing IT, finance, facilities and suppliers without using packaged applications, says Kevin Burden, a senior analyst in the asset management services division at IDC, a Framingham, Massachusetts-based IT consultancy and sister company to CIO.
If it is done right, implementing a formal asset management strategy can really cause savings to mount, especially when measuring total cost of ownership (TCO), Burden says. For example, at a 1,000-user site, the average annual staffing cost per PC is $5,236. When IDC looked at data from sites that don't practice asset management, that number jumped to $5,593. Sites that practiced asset management were able to cut their costs to an average of $4,880-15 percent lower than the nonpractitioners.
Cutting costs is exactly what Sears, Roebuck and Co. of Hoffman Estates, Illinois, had in mind when it decided in late 1997 to install an asset management system. The company manages more than 300,000 pieces of hardware used by more than 320,000 employees in the United States. The move away from green-screen terminals in the 1990s and then the need to account for each and every piece of software and hardware in preparation for Y2K precipitated Sears' development of a comprehensive asset management strategy.
Once the company began switching employees from the green-screen environment, its PC inventory snowballed-Sears has deployed about 45,000 PCs within the past few years. The company also began shifting from mainframe systems to client/ server-based systems, and the number of IT assets skyrocketed. But above all, the impetus was time. "Y2K was a real eye-opener because it was the first time we had to determine what we had and what it was capable of," says Sue Ben, former director of distributed technology and now Sears' business-to-business IT director. "It forced us to have to know the longevity of each asset, whether the asset was currently in use, if it could be reused, if we could protect the asset and how we could manage the asset."
It was in 1997, too, that American Home Products executives had finally had enough and resolved that out-of-control inventories and wasted money didn't have to be a fact of life. Slowly, they began to realize that enterprise asset management was a core IT discipline-alongside problem management, change management, service request management and service-level management. What the pharmaceutical division needed, they decided, was a comprehensive system to track hardware and software assets, as well as software licensing agreements and equipment leases. Its 12-member Global IT Sourcing group chose a comprehensive approach because of the complexity of the cost trail and relationship trail of IT assets, which included the initial purchase cost, the department or project budget that paid for it, recurring maintenance costs, related costs from software and service, the cost of administering and maintaining the asset, and upgrade and add-on costs.
Bluestone explains, "I may have a mainframe with 50 or more software licenses on it, and each one of those licenses has a maintenance stream. And for the mainframe hardware, there's a maintenance contract and cost stream. There are contracts for each one of those licenses with specific terms and conditions that need to be managed and adhered to." By early 1998, the team had chosen Argis, from Pittsburgh-based Janus Technologies, which it uses in conjunction with Lebanon, New Hampshire-based Tally Systems' NetCensus to manage its IT assets. Argis allows the division to link software asset records to legal document and hardware asset records. "Effectively, we are able to look up a server to see what software is running, maintenance renewal dates and maintenance caps, and the specific grant of use of the license," Bluestone says.
A different situation inspired Williams Communications Group to implement an asset management system. The Tulsa, Oklahoma-based provider of carrier network products and services was launched by its parent, The Williams Companies, about two years ago and has 9,000 employees in 150 offices around the world. "We've seen our assets grow incredibly quickly and dynamically," says Randy Tucker, the company's vice president of infrastructure. "An asset might be on one desktop today and another one tomorrow, and configured one way today and another way tomorrow." After consulting with Gartner Group on the most appropriate system for its needs and conducting its own evaluation, the company chose AssetCenter from Peregrine Systems of San Diego because it met its primary criteria of ease of use and robust functionality.
"We have about one-third of our PCs coming off lease this year, and one of our business units has added about 2,000 PCs. That constitutes a pretty big chunk of our asset base," Tucker says. "That, combined with the expected growth we have going forward, made us recognize that using Excel spreadsheets to manage our assets just wasn't going to cut it anymore."
STEP-BY-STEP Before an organization looks for an asset management package, experts recommend taking several steps. The first, Burden says, is understanding the businesses that the IT department serves, along with those business units' goals and objectives.
The next step is identifying current technologies serving the business. By using the type of system management tools most organizations already have in place-such as Microsoft's Systems Management Server (SMS), Hewlett-Packard's HP OpenView, Computer Associates' CA-Unicenter, Tally Systems' NetCensus or one of several tools from Tivoli Systems-companies can accurately count physical IT assets, including the version of each software package installed on a hardware asset.
Like any other big project, it is critical to obtain buy-in from upper management and the rest of the organization before proceeding to a more comprehensive undertaking, or the project is likely to fail. "We've been actively involved in asset management now for almost two years, and one of the biggest lessons we've learned is that support from senior management to implement and monitor the program is a must," says Carl Wilson, CIO of Bethesda, Maryland-based Marriott International. "Individual users have peripheral vision on what they want to accomplish, but somebody with overall accountability for long-term costs and strategy can really understand the value of having effective management of IT assets. For us, it's been a top-down directive to proceed with asset management; without that, we wouldn't be as successful as we are."
Given the go-ahead, the team should then determine criteria for choosing a system based on the function it wants the system to provide to the company or the business unit. Sometimes, managing software licenses is the prime mover; other times, it's a dire need to track leases. Sears took about six months to develop a strategy and another three months to search for appropriate products.
During that time, the asset management group systematically looked at what it would take to bring together financial management with recording and procurement of assets, lease terms and software licensing terms. Complicating the selection process, the chosen tool would have to interface with the company's custom-developed accounting system, a PeopleSoft HR system, a facilities management system and a contractor badge management system. Sears finally chose a system from MainControl of McLean, Virginia, that also works in concert with Tally Systems' NetCensus, which Sears was already using, as well as with Microsoft's SMS, a component added later.
At Marriott, executives watched for years as property owners and franchisees bought hardware from no-name manufacturers with depreciation or amortization cycles of up to five years, when two or three years might have been more appropriate. "We found that individual owners wanted to depreciate PCs over a longer period of time than their effective use, but doing that with the relative cost of technology coming down, they may end up having an asset on their books that has a higher book value than its true market usage value," Wilson says. Using asset management and establishing relationships with major PC providers around the world, "we can remove that problem from our franchisees and owners, because they can now get the technology when they need it by doing an operational lease and leveraging Marriott's total procurement power. That way, our owners and franchisees could project a consistent cost, and total cost of ownership would decrease."
Another strategic concern shaping Marriott's criteria for selecting a vendor was the treatment of software licenses. "You want to protect against pirated copies and make sure you have the most current version. Our people out in remote locations may not be aware that software they are picking up may be pirated. We needed a central way to control that so we can make sure Marriott honors its commitments to all of its suppliers," Wilson notes. "And by being able to explore what is on the network, we can see what equipment and capacity everyone has, which can help us get ready to do a major software upgrade, while also helping us better control our capital expenditures." Marriott now uses Asset Insight from Cary, North Carolina-based Tangram Enterprise Solutions in concert with tools from Tivoli Systems to manage its IT assets.
By employing an asset management strategy, a company can avoid letting vendors dictate what to upgrade. "Without asset management, companies might end up buying the products and technologies that are showing the best profit for the vendor instead of the technologies they really need. And there is a real savings in knowing exactly what software licenses you have," IDC's Burden notes.
START SLOWLY Once a company chooses an asset management strategy and package, the temptation is to install everything as quickly as possible. That can be a big mistake. "If you try to do it all at once, you are going to run into a lot of organizational boundaries. Start in one area, like help desk, where you only have to deal with gathering inventory data so that you can distribute software more rapidly or provide technical support resources more readily," advises Christopher Germann, MainControl's vice president of corporate strategy. "Or you could start on the finance side, focusing on keeping track of all of the different machines under lease."
Burden agrees. "To show success, start by attacking a problem you know you can solve," he says. "Turning on all the modules at once is overwhelming, and you are dooming yourself to failure."
That incremental approach is the one American Home Products took. The company began by implementing its asset management system only in the pharmaceutical division's 20 U.S. sites but plans to extend it worldwide within the next year or so. Bluestone believes the project would have failed otherwise. "You are inviting yourself into each functional group's work stream, and each one entails a completely different process. You have to understand how people use their assets and leverage the resources within those groups to get the data in the form you need it. That takes time. The only way to do it is by implementing a phased approach," he says.
PAYBACK Implementing an asset management system is far from cheap, but experts and users alike believe the rewards can be enormous. For example, Peregrine Systems' asset management applications cost anywhere from $80,000 to $150,000 for the software alone, and another $90,000 to $180,000 for training, installation and customization. Both Marriott's Wilson and Williams' Tucker say those prices are typical but stress that the costs are small when compared with the savings these kind of systems can generate.
For example, on the hardware side, it can cost anywhere from $300 to $1,800 per machine to have a computer moved or reconfigured. Sometimes it's actually cheaper to dispose of that piece of equipment and bring in a new one, and asset management systems can help determine that. Bluestone estimates that his company can conservatively save about $1 million over a three-year period-and those are just the hard costs. Reducing soft costs like managing IT leasing transactions, invoice reconciliation and time spent gathering ad hoc asset inventories, which are hard to measure but add up quickly, will yield considerable additional savings, he says. Sears' Ben says her company estimates a six-month payback through better management of leases, technology redeployment and reuse, and lower TCO for workstations. "Our goals are to reduce TCO on an ongoing basis of 3 percent to 5 percent per year with significant onetime reductions as each asset is brought under better control," she adds.
Many companies' chief concern is decreasing TCO and increasing return on investment, and soft cost savings are vital to accomplishing those goals. It's common for some CIOs to overlook the power of reducing soft costs-something a formal asset management strategy can help correct. "CIOs know these soft costs exist, but they don't know how to measure them or control them. Indirect costs often don't get written into the balance sheet, so they are often overlooked," Burden says.
Another soft cost savings strategy involves help desk support. By having information on all the company's computers on one system, a help desk employee can see a profile of all equipment and training an employee has within a few seconds of typing in that employee's name and ID. That reduces call time because help desk staffers don't have to ask as many questions.
THE FUTURE OF ASSET MANAGEMENT Many organizations still manage their assets in a haphazard way, but because of the proliferation of PCs in the business environment, the pressures of internet time and the structure imposed by Y2K remediation, that is changing. Two or three years ago, you'd have been hard-pressed to find an asset management department or even an employee with the title of Asset Manager, but it is no longer such a rarity.
Asset management practices are no more static than a company's technology infrastructure. The popularity of the internet for delivering software and licensing models means new delivery mechanisms and contracts. Asset management systems will change to support trends toward outsourcing software applications and management through the application service provider (ASP) model. It may be a confusing time for companies as they try to manage software bought under old-style agreements along with software rented through an ASP. Even so, asset management will probably shift away from being a "power user" application to a self-service application.
The ASP model will undoubtedly affect the way American Home Products licenses software, pays maintenance fees and deploys technology capabilities, Bluestone says. "From an overall process perspective, asset management will become even more critical for enterprises considering ASP hosting," he says.
American Home Products has come a long way since it began implementing asset management in 1998. As of this spring, the pharmaceutical division has accomplished its enterprise asset management objectives from an architectural, program and process management perspective. The division has a single corporate system for recording IT assets and contracts and consistent asset management processes across the board. Still, Bluestone and his team continue to push the envelope with a carefully planned, phased approach that includes making enhancements both to Argis and NetCensus. Currently, Bluestone's team is working on an initiative to provide "dashboard" enterprise asset management information and online reporting tailored to senior IT management and IT clients via its Global IT Sourcing intranet site, and it is also planning links to the company's problem management system from Santa Clara, California-based Vantive Corp. (now part of PeopleSoft) and to its SAP Fixed Assets implementation.
Choosing the right asset management system is complex, and managing the system is an ongoing effort, but taking the plunge is well worth it, Burden says.
"Many companies look at the whole thing as a huge expense. But chances are, most large companies have more IT equipment than their managers think they do.
They think everything is fine, but they have more PCs than they have employees, duplicate software licenses and shelves full of old, decommissioned systems," he says. "And until companies operating like that get a thorough understanding of their IT assets, it's impossible for them to effectively control their costs, efficiently install new technologies or even maximize the use of the technologies already in place."
Karen D. Schwartz is a freelance writer specializing in business and technology. She can be reached at email@example.com.
Managing wireless devices often consists of simply knowing they're falling through the cracks Businesspeople rarely leave their desks without some variety of wireless equipment-notebook computers, cell phones, personal digital assistants and pagers are the accessories du jour. The increasing use of these devices presents a nettlesome challenge for companies looking to track assets. By their very nature, these devices don't stay in one place for long and are off the corporate intranet much of the time, making them difficult-if not impossible-to track.
Centralized administration is the heart of asset management, and "wireless devices spend a lot of time sitting in someone's back pocket," says Kevin Burden, a senior analyst in the asset management services division of IDC in Framingham, Massachusetts. "There is simply no way to poll the network and find out how many handheld devices you have out there."
Wireless devices are also difficult to manage because they are so portable.
"Joe might leave the company on the same day that Mary joined, so somebody has the great idea to give Joe's laptop to Mary. All of a sudden, a unit manager realizes she is being charged for Joe's laptop when Mary is in a different division," explains Sue Ben, formerly director of distributed technology and now business-to-business IT director at Sears, Roebuck and Co. in Hoffman Estates, Illinois.
But IT managers don't seem particularly worried about tracking these devices.
First thing's first, they reason-and that means having good, centralized control of expensive IT assets before even considering tracking mobile devices.
"We plan to eventually manage wireless devices with the same tools we are using for other IT assets, but it's last on the list," Ben says. Ideally, the company would like to implement a web-based system that will allow employees to manage and track mobile devices in a self-service manner.
Derek Bluestone, senior manager for global IT sourcing and acquisitions at Madison, New Jersey-based American Home Products Corp., says quick usage cycles-as fast as six to eight months-make the units particularly frustrating to track. So the company has decided to focus its new asset management system on the bigger ticket items first. "As our strategy around nonstandard devices becomes more mature and as the market becomes more mature, we'll see whether it makes sense to track those devices," he says. "But for now, we're not using the system to track them at all."
Although it's at the bottom of corporate to-do lists now, tracking wireless units will become more important over time. "Even though the majority of IT departments haven't yet committed a formalized support program for them, you know help desks are getting calls," Burden says. "What will probably happen is that companies will realize how much time users are spending supporting themselves and their neighbors. Eventually, they will direct the IT department to develop support policies."
The only way IT departments will be able to deliver support efficiently, Burden says, is to mandate the procurement of a small subset of handheld devices so they can be as familiar as possible with the devices they are supporting. -K.
DO'S AND DON'TS OF ASSET MANAGEMENT
Do focus on soft cost savings.
Do get buy-in from upper management.
Do determine your "pain points"-the areas that would benefit the most from asset management-before you begin.
Do go for the biggest return on investment first; that way, you reward your executive sponsors.
Don't neglect the hard work of setting practices and policies within your company to make the system truly effective.
Don't think of asset management as an accounting system; it is a way to manage the accounting of an asset.
Don't try to do everything at once; start slowly and expand as it makes sense.
Don't expect results overnight; asset management is a long-term process. -K.