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THE CIO'S GUIDE TO SAVING $4000 PER EMPLOYEE ANNUALLY

27 August 2019
10 minute read
AJ Witt
Best practice

THE CIO'S GUIDE TO SAVING $4000 PER EMPLOYEE ANNUALLY

27 August 2019
10 minute read
AJ Witt

This article has been co-authored with Dusan Omercevic, CEO & Founder of
Cleanshelf

--------------------------------------------------------------------------------

EXECUTIVE SUMMARY

New research4 indicates that SaaS spending is topping $13k per employee per
year. Of that spend, around $4k is wasted. This article outlines how strong
stakeholder relationships and leveraging insights provided by SaaS Subscription
Management tools can cut wastage through optimising SaaS usage, functional
standardisation, and data-driven vendor management.

INTRODUCTION

Software-as-a-Service (SaaS) growth continues apace. The numbers speak for
themselves:

* Microsoft adds 3 million active Office 365 users every month.1
* Adobe net income doubled in the six years following the switch to the
Creative Cloud subscription model.2
* Salesforce revenue & revenue growth looks like this:3

Salesforce Revenue 2006 – 2018

For me, the question these figures pose is, who is driving it? The answer is
that our organisations are, and in part due to the complexities of managing SaaS
spending.

It is estimated that, in the US at least, SaaS spending is topping $13k per
employee per annum.4 Over one thousand dollars a month? Did we ever spend that
on “traditional” IT? Of that $13k per employee the broad consensus is that
30-35% is wasted – around $4000 per user per year.

WHAT THE RISE OF SAAS MEANS FOR CIOS

The growth in SaaS usage fundamentally impacts the role IT plays. There are two
dimensions to this. Firstly, there is an erosion of control over technology
budgets. Secondly, there is also an erosion of control over the technology
stack. Traditional, often monolithic, IT departments sought to define the
technology stack for their organisations and were usually the custodian of the
budget. This alignment between delivery and cost enabled multi-year deals to be
struck for provision of a predictable, reliable technology landscape. Ideally,
we knew what we owned, we knew who used it, and we knew how much it cost –
particularly if we had a strong ITAM function.

For their internal customers though, IT departments were often seen as being
slow to respond to business needs. This drove those business departments to
source their own IT. Salesforce, 2nd only to Microsoft in SaaS revenues,5 have
always primarily sold direct to their product’s end-users, not IT. Many
Salesforce relationships started via a Sales Manager’s expense account or credit
card.

So, departments acquire SaaS solutions without IT involvement, pay for them on
departmental budgets, or via expenses, and yet still expect IT to step in and
provide support when things go wrong. They may also expect IT to provide the
budget, once those solutions become part of the fabric of the organisation’s IT,
because that was how it was done in the good old days of central IT.

THE CHALLENGE

This presents a problem for modern IT functions. Departments increasingly assume
the role of defining, deploying, and operating technology for their own benefit.
IT is still expected to continue to govern and sometimes pay for the technology
the departments select. Governance without control is problematic, particularly
for an IT department that might also be seeing its budget and headcount reduced
by the rise of Departmental IT.

Increasing regulatory and legal pressures, in the form of PCI-DSS, the GDPR, and
industry-specific requirements such as HIPAA require technical solutions,
delivered by central IT. The problem with this is that IT has very limited
control over a SaaS application. If a security flaw exists which results in a
personal data breach, it will be your organisation that gets hit with the fine,
not the SaaS provider.

Furthermore, regulatory risk might not just arise due to a security flaw. SaaS
applications enable employees to stitch together essential business processes
without the usual oversight from IT, Legal, & Security. For example, a Customer
Service team might improve efficiency by using a SaaS workflow tool to handle
customer queries, storing sensitive personal information in cloud services,
without considering the impact.

THE SOLUTION

With IT’s emerging role as a technology governor comes the need for new tools
and processes. Attempting to get to grips with Shadow IT by bringing it back
under central control isn’t going to work. That’s how we got here in the first
place. You don’t need to own the technology to manage it, you just need to be
able to see it.

Do this by gathering metrics on usage and cost and looking for opportunities to
optimise on the dimensions of spend, functionality, and usage. Build an
estate-wide view, enabled by technology and strong stakeholder relationships.

Start with the stakeholders. Work with departments to identify their technology
needs and what they’re currently doing to address those needs. Build a picture
of the technologies used across the organisation.

Your teams may find that a tool is required to help manage this, and more
importantly take action on the insights they discover. Existing IT Asset
Management and IT Service Management toolsets won’t necessarily provide the
detailed information needed to fully manage SaaS. Uncovering SaaS usage without
dedicated tools is challenging. Often nothing is installed, and the contract
hasn’t gone through existing IT Procurement processes. Dedicated SaaS
Subscription Management tools use new techniques to address this discovery
challenge by, for example, connecting to expense and accounting systems, or
integrating directly into SaaS application management portals.

Use of such tools, in conjunction with strong stakeholder relationships, will
provide the opportunity to deliver the $4000 per user annual cost saving
highlighted at the start of this article. The three cost-saving pillars are
Subscription Utilisation Optimisation, Standardisation, and Data-Driven Vendor
Management.

SUBSCRIPTION UTILISATION OPTIMISATION

Of the 30% annual wastage of SaaS spend, around half – that’s $2000 per user per
annum – can be attributed to unused subscriptions.

If Marketing have a Salesforce contract, do they have spare subscriptions that
could fulfil demand created by an increase in Customer Service staff? If there
are multiple Salesforce contracts running alongside each other, is there an
opportunity to consolidate those into a longer-term deal? Traditional IT sought
to co-term contracts for perpetually-licensed software and strike long-term
deals over 3 or even 5 years. This is still possible in a SaaS-first technology
strategy. If we are committed to Salesforce for the foreseeable future, why are
we still buying it annually?

FUNCTIONAL/SERVICE STANDARDISATION

Next in line is elimination of redundant or overlapping services. For every
functional requirement there are invariably multiple SaaS providers providing a
solution. You may find that your organisation is using Webex, GoToMeeting, and
Zoom for web-conferencing. How much could you save by standardising on one
solution company-wide? The frictionless nature of SaaS means users are not
wedded to their technology stack – it’s easy to switch. So easy that you can
expect application turnover of over 30% per year – unheard of even 5 years ago
6.

Addressing duplication through standardisation will trim a further 25% – $1000
per user per annum – off your SaaS Wastage.4

DATA-DRIVEN VENDOR MANAGEMENT

So far, reallocating unused accounts and de-duplicating services has clawed back
around 75% of your SaaS wastage. That’s around $3000 per employee per year. The
final 25% comes from driving a hard bargain with SaaS providers.

There are two approaches here. The first is straightforward – look at the usage
of an application and make an accurate annual commitment, just as you would do
for perpetually-licensed software. A typical saving will be in the range of
15-20% – that’s automatic, no negotiation required.7

But, just as with a traditional publisher, there is still room for Procurement
to drive cost savings. Leverage strong stakeholder relationships along with the
rich data gathered by a SaaS Subscription Optimisation tool. Combining full
visibility of subscription usage, which of a provider’s competitors are also in
use, and your employees’ view of their service, provides a strong base for
negotiation. Price benchmarking also has a role to play.

CONCLUSION

This article has explored how CIOs can optimise technology spend and utilisation
taking place outside their direct control. IT could deliver savings of $4000 per
user per year by working with stakeholders and utilising new technologies to
shine a light on SaaS Subscription spending across their organisation. This is
accomplished through usage optimisation, standardisation, and data-driven
negotiation.

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