As the current economic climate and the impact of COVID-19 mean we are facing an uncertain future, all investments (including tech investments) are under intense scrutiny and review. Organisations are attempting to identify and remove waste from their estate and cut all unnecessary costs. According to our recent survey, 29.2% of respondents are holistically examining all of their technology usage and looking for efficiencies. This might mean delaying or cancelling new projects and purchases, or reducing or cancelling subscriptions or maintenance and support contracts for existing investments. It is more important than ever to optimise costs, improve the return on investment of resources, and ensure that you select the right solution when making sourcing decisions.
What do we mean by cost optimisation? It means different things to different people, but too often when we talk about ‘cost optimisation’ people assume that it’s all about cutting costs, but that isn’t (or shouldn’t be) the case. A quick search returns Gartner’s definition as the top result:
“Cost optimization is a business-focused, continuous discipline to drive spending and cost reduction, while maximizing business value. It includes:
- Obtaining the best pricing and terms for all business purchases
- Standardizing, simplifying and rationalizing platforms, applications, processes and services
- Automating and digitalizing IT and business operations”
For Technology Guardians this means ensuring that technology investments generate the maximum value possible. This may mean cutting costs, but it also means considering how each technology investment drives business value. Although some technology may be expensive, that doesn’t mean that it isn’t providing value to the organization. Expensive technology may already be optimised because of the value it generates, whereas something inexpensive may be unused and wasted. This is why it is better to talk about ‘rightsizing’ when looking at the decisions we need to make on hardware purchases, software licences or cloud services contracts.
Once we have identified and mitigated any waste or ‘nice to haves,’ there are no more costs to cut. It is then time to look at how to optimise technology assets. Can we drive additional value out of them?
How to optimise existing investments
While software asset management best practices (and SAM vendors and consultants!) often talk about the money that can be saved on shelfware, this isn’t always as straightforward as it seems. While numerous sources state that around 30% of software and SaaS is unused, this doesn’t mean that there is potential to save 30% of software and SaaS spend. Contracts are generally far too complicated to make it that easy to find savings!
If we have perpetual licences, there are rarely savings to be made as the licences can’t be returned (although in certain cases within Europe, surplus licences can be sold on the secondary market). While there may be scope to cancel maintenance on unused licences, this isn’t always the case – and if it is, it will probably have to wait until the next contract anniversary. However, many contracts include a minimum commitment, and others require you to either maintain all licences or none. Some vendors recalculate maintenance on remaining licences meaning the loss of discount negates any potential savings. Likewise, SaaS products may well have minimum commitments for the full term of the (often multi-year) contract.
Having said that, anniversary dates are a good time to review utilization, potential rationalisation and consider the cost/value relationship. Some vendors are prepared to be flexible (particularly when organisations are under economic pressure) and take the long view that this is a way to retain customers who will hopefully return with larger orders when things improve.
If you can’t reduce costs by cancelling or suspending subscriptions or maintenance, and you’re unable to resell unwanted software, what other options are there? This is where technology intelligence can really pay dividends. By understanding how different products are used, you can work with enterprise architects, system and business owners to work out whether licences for unused products can be deployed to additional users or whether you can change the level of subscription you have purchased.
While most organisations have carried out some level of application rationalization, there are still likely to be a number of similar products in use for specific uses cases such as legacy systems, interoperability or niche functionality requirements. However, it isn’t unusual for legacy products to be left in place simply due to the volume of change. There may also be inertia due to the reluctance of users to adopt new technologies. This may be the opportunity to overcome barriers to adoption.
- Cancel and replace one or more alternative products if appropriate, and if the cost of doing so – including training, support and lost productivity – won’t exceed the savings made.
- Consider whether there are people who don’t currently use the software and services that are underutilized but might benefit from doing so. While this won’t reduce IT costs, it may improve productivity or employee satisfaction, increasing the value you drive from the investment.
Some users may be able to work with the non-standard product that has spare licences just as well as with the standard product they would normally receive. Even where waste had previously been cut, changes due to the current economic climate may have resulted in headcount reductions and associated reductions in consumption. Rightsizing the contracts to current numbers may not be the answer if you expect your business to recover in the longer term. Asking for short- or medium-term flexibility on maintenance, subscriptions and services may be more appropriate.
Organisations with mature IT, ITAM and SAM functions tell us that while they have generally cut the waste in terms of unused products, and have right-sized their contracts, they still see under-utilisation of products where only a limited feature set is being exploited. In these cases, you can:
- Work with IT and business stakeholders to see whether you can do more with your existing investments.
- Document what you’re doing at the moment, and then look at vendor websites and support portals to understand what other functionality you may benefit from.
- Talk to your account team about whether you can do more with what you’ve got.
- Consider providing ‘update’ or ‘revision’ training – or even coaching from more experienced users who are using more features.
Getting the most out of new investments
Despite the cutbacks, reviews and search for savings, many organisations are still investing in technology projects. Our recent survey found that 41% of organisations will continue to accelerate digital transformation initiatives. But the climate of uncertainty coupled with the economic downturn means that even organisations that have continued to do well during 2020, are looking to increase resilience by reducing risk – including vendor-related risk – and are demanding shorter ROI periods on investments. It is worth remembering that satisfaction levels among tech buyers are generally low, which suggests that the gap between customer expectations and vendor delivery is high.
Preparation is the key to maximizing ROI – knowing that you’ve selected the right solution and are ready for implementation. Investment in the implementation is equally important – numerous surveys over the years highlight that the software itself is rarely the reason for IT projects failing. Discussions with clients over the years have backed this up, revealing a lack of investment in preparation, project management and implementation. It is worth remembering that even the simplest of IT systems requires some level of work to install and configure – and the more complex your environment, the more careful you will need to be.
Key factors in selecting the right solution include:
- Getting C-level sponsorship and support for the investment by clearly illustrating how it supports current business priorities and objectives
- Providing clarity on the objectives, business outcomes and success criteria, as well as the mechanisms for measuring success and tracking benefits
- Involving all stakeholders in developing requirements and identifying benefits
- Creating a clear list of ‘must haves’ and shortlisting only those vendors who meet these criteria before issuing an RFP
- Understanding how this solution fits in with your short-, medium-, and long-term initiatives.
In order to get the most out of your new technology investment you should:
- Be properly prepared – with clear objectives and outcomes – clarify that your vision aligns with what the new technology vendor is going to provide.
- Have governance, people and processes in place ready to leverage the technology when it is deployed, reducing the time to value and ROI period.
- Identify your data sources and assess their quality in order to develop appropriate metrics for accuracy and completeness of data as well as identifying any improvements needed.
- Invest appropriately in the implementation to ensure that it is carried out properly, including any system or process integrations. If using a third-party service provider for the implementation, check that they are accredited and trained by the vendor.
- Identify the key stakeholders and users of the technology and invest in their time to maintain the system.
- Take a phased approach; to allow delivery of benefits from early in the project and demonstrate the value of initial investments. This will also ensure that the project itself is manageable. Phasing may be by business unit, by geography or by environment depending on organisational structure and business goals.
- Provide both initial and ongoing training, and phase this to ensure that end-users get a chance to familiarise themselves with the features and functionality they have learned about before doing further training. Ensure that new users are also properly trained.
- Check that any third-party consultants have completed vendor training or certification programmes before letting them loose on your tool, and check that it is current (both recent, and with the version of the tool you are using). If necessary, arrange the additional training for them.
Whether you’re looking to rightsize your existing investments, or make new investments, it is important to have the facts at your disposal before making decisions. Getting requirements right, investing in implementation and training your end-users are key.
Cutting costs too far can irreversibly damage your organisation’s ability to deliver, potentially making things worse. So instead, focus on finding opportunities to get more value out of the technology investments you currently have, reduce your risk and improve resilience. Whether you're exploring a possible migration to the cloud or already committed to on-premises or cloud investments, use our calculator to find potential cost-savings across your hybrid cloud environment.