Amalgam Insights frequently references the IT Rule of 30: the assumption that every unmanaged IT spend category averages 30% in wasted spend. And although this Rule is generally true, the details on how to execute are vitally important. To effectively reclaim the IT department’s rightful share of spend across telecom, network, mobility, software, and public cloud, companies must look at the following seven areas to ensure that they are being good stewards and business managers of their technology estate.
1. Rate plan and usage optimization
Rate plan and usage optimization is a popular starting point for cost reduction across various spend categories. IT departments can easily embrace this strategy by identifying duplicate resources, zero-usage resources, overprovisioned resources, or services that have been inefficiently pooled or categorized. Auditing, double-checking, categorization, monitoring, and technical optimization can often be performed individually, leveraging mathematical or analytical skills. This process can result in quick savings and make the discoverer a hero for the day. Thus, it is an attractive starting point for individuals in IT trying to cut IT costs.
However, organizations should recognize that this exercise typically yields only one-third of the total savings opportunities within a poorly managed IT spend category. Stopping after an initial optimization exercise significantly limits the potential savings. Additionally, if optimization is treated as a one-time activity, these gains are likely to be lost over two to three years as the original mistakes and unmanaged sourcing activities that led to excess spending recur. Holistic spend management requires addressing the root causes of inefficient IT spending, not just reactively fixing and optimizing bills.
2. Invoice and payment processing improvements
Invoice and payment processing improvements are basic in nature but must be implemented across all bills to secure payment accuracy. As simple as it sounds, paying bills on time and reviewing the costs beforehand are a significant opportunity to remove unnecessary costs. The combination of checking for billing errors, ensuring that all bills are going to the right email address or physical address, and supporting a consistent billing format across all bills within a spend category are all helpful tactical steps for avoiding late fees and being able to check for vendor billing errors. Although those in the telecom expense world are well aware of the errors that carriers can make, there is a mistaken assumption that newer vendors such as public cloud hyperscalers do not make significant errors. For instance, Amazon Web Services customers have found bills where they are being charged over 900 hours per month for specific EC2 instances, which is either an amazing feat of time travel or a significant error that should be credited back to the customer.
3. Service order management
Service order management can be a tricky challenge, especially for newer services such as Software as a Service and public cloud services that can often be purchased “under the table” via a credit card or expense account. Centralizing service orders under a primary account and through governed corporate portals and methods is helpful in building a consistent inventory and in being able to quickly fix mistakes that may occur either due to user error or vendor error in the initial setup of services. Employees must be taught that the service order is not as trivial as they may think, as centralized service order management and governance provides IT departments with an important data point for origination, procurement departments with a starting point to enforce corporate contractual obligations such as discounts, and relevant team members with a starting point for payment and vendor management. Ideally, IT departments should find a way to keep all relevant business spend under each vendor within the umbrella of a master or parent billing account to provide a starting point for visibility and review. In addition, service orders should ideally be as direct as possible, avoiding errors in swivel-chair or manual entry wherever possible. In most cases, the issue is not necessarily that the end user is placing the order, but rather that they need to place the order in the right portal with adequate oversight to ensure that they are getting what they ordered.
4. Global inventory
A global inventory that accurately shows all the services within an organization is a vital step for maintaining a clean cost environment. Each inventory item should be supported by a three-way match that verifies an invoice with the purchase order and order receipt. Each inventory item should also be associated with a physical inventory or a virtual location depending on the nature of the service involved. And each inventory item should be assigned to a person, department, project, or other relevant business entity via corporate ID or relevant tags. This combination of physical, digital, and billing inventory checks assures that a clean inventory that has been optimized can be trusted over time.
5. Procurement and contract negotiations
Procurement and contract negotiations can potentially be the biggest source of cost savings depending on the usage patterns within an organization. Simply shifting spend to a minimum annual revenue commitment or a three-year reserved instance, depending on the service, can lead to significant discounting opportunities. But it is also important to review whether obsolete and outdated services are being adequately discounted or if vendors are able to add favorable language regarding service level agreements, accessing custom price lists or tariffed costs, and ensuring that the contract is favorable to the expected spend patterns that the company projects over the upcoming year. Ideally, contract renewals and renegotiations should be a team process where relevant IT architects and business leaders provide feedback on the expected demand for technology services over the upcoming year before procurement negotiates and ensures that contracts are meeting corporate standards.
6. Vendor Selection and Sourcing
Vendor Selection and Sourcing should be considered an ongoing process as IT departments evaluate their portfolio of vendors and identify which vendors are partners, supplementary providers, or niche providers. In addition to their functional role, Amalgam Insights recommends having a backup vendor in every category wherever possible to provide a credible threat to existing incumbent vendors and to legitimately look for both financial and technological improvements. For instance, Microsoft shops may look at Azure as a primary cloud provider but should still have some sort of footprint with Amazon Web Services or Google Cloud if only to be able to compare contractual terms and look for opportunities to optimize contractual terms.
7. Customized reporting and analytics
Across all of these areas, Amalgam Insights recommends customized reporting and analytics to monitor all of these areas. Technology expense management is a team sport, and, over time, there will be many departments asking for reports to support everything from tax audits to security reviews to operational facility improvements. It is impossible to fully predict whether tax, finance, accounting, security, governance, procurement, facilities, operations, or other departments will ask for reports across inventory, contracts, usage optimization, service demand, and payments. But it is important to have access to this data and to provide reports either on a self-service or a rapid-response managed service as needed. Even at the mid-market level, IT spend quickly rises into the millions of dollars. In today’s digital and AI eras, the structure of IT spend is more strategically important than ever. In light of the increased attention that tech spend receives as an enabler of digital business, it is vital that technology expense pros be data-savvy not just on high level expense trends, but the deeper inventory, usage, and service requests that also must be monitored to optimize technology spend.
Contributed by Hyoun Park, Amalgam Insights
