Contributed by Hyoun Park, Amalgam Insights
What benefits can businesses and tech-enabled organizations expect to get from Technology Expense Management? We’ve established that companies tend to save about 30% on their technology spend through a comprehensive Technology Expense Management program. However, companies often fail to pursue all of the relevant aspects of TEM and then are surprised when they fail to get Best-in-Class results. To better understand where TEM provides value and where businesses fail to implement TEM correctly, let’s look at the Six Stages of TEM.
1. Cost Optimization
TEM efforts understandably often start with the direct optimization of services and assets. This usually includes finding zero-use services, identifying duplicate services and accounts, optimizing usage to existing rate plans and usage buckets, and identifying opportunities for discounts through annual commitments and reserved instances.
Positives: These tend to be quick hits that allow companies to quickly cut costs by 10-15% and they involve a lot of math, anomaly detection, and management at scale, which IT personnel tend to understand.
Negatives: These one-time hits tend to lead to big savings in Year 1 and then little-to-no savings in Year 2 as the optimization efforts are all discovered. The tricky part is that, unless longer-term management strategies, such as the next five stages, are implemented, it is likely that this optimization will have to be done again from scratch as early as Year 4 to maintain an optimized environment. And this audit and optimization-heavy approach tends to be expensive, as these audits are typically one of the most expensive stand-alone efforts. For individual contributors, this means looking like a hero every few years as you save millions of dollars every few years. But for CIOs, these hero-making swings are actually a sign that the company is accepting large inefficiencies that only get fixed every few years. Surely, there must be a better way…
2. Governance, Risk, Compliance
Ideally, technology expense management programs should include management or carrier and service provider service orders, as well as visibility associated with relevant data and endpoints associated with all of the technology services being managed. The end results here are both helpful from a financial perspective in controlling the inputs and outputs associated with services as well as providing help for audits, governance, and security efforts.
Positives: Governance provides minor benefits to cost, typically between 1-3% of total costs as companies control device and service purchases more carefully and avoid fraud or excessive orders. But the true value comes from being able to support legal, security, and process governance and gaining connections in working with the CISO, General Counsel, and strategic process automation offices. It is always helpful to have open channels with these offices to understand corporate strategy and to have like-minded allies.
Negatives: Controlling service orders, endpoints, and data can often be seen as constricting employee productivity. Governance should ideally be embedded into regular processes through software that can collect data as orders are placed rather than be forced as an additional layer of process and management on top of existing business processes. Also, governance can sometimes be a cudgel or one-way burden rather than a two-way discussion. Make sure to understand not just which reports and processes require governance, but the business logic and drivers behind the requests.
3. Optimize Work & Processes
By centralizing technology expense management, companies have the opportunity to pursue process automation and business process outsourcing activities associated with TEM. This can include invoice processing, payment processing, device and service support, onboarding and offboarding employees, reports for inventory and cross-charging across business units, usage tracking, and other related activities. Many of these activities are thankless activities, such as reviewing the amounts and surcharges in a centralized corporate telecom bill that can easily be tens of thousands of pages in length.
Strengths: Automating and outsourcing unwanted expense-related activities can provide consistency and often greater accuracy to mundane activities. This process optimization can go hand-in-hand with developing more frequent data reviews and analytic reports for relevant financial and governance personnel as well as provide IT with more opportunities to manage compute, storage, network, collaboration, contingent labor, and other related utilities at a more detailed level.
Weaknesses: Process optimization can sometimes be a challenge as TEM is seen as a potentially unnecessary addition to existing Robotic Process Automation, process mining, or process outsourcing efforts. Also, optimization versus outsourcing can end up being a challenging decision, as each path potentially leads to different decisions regarding ongoing investment in machine learning, AI, process mapping, technology purchasing processes, digital transformation, accounting, and financial management capabilities.
4. Resource Allocation
Accurate asset and service allocation across projects, locations, departments, profit centers, and other business categories can be enlightening both from a cost allocation and technology deployment perspective. As these costs are allocated and reported, it is important for resource allocation to be scalable and transferrable between TEM and other systems ranging from IT asset, service and finance management to enterprise stalwarts such as Enterprise Resource Planning.
Strengths: Deep resource allocation and reporting visibility is vital to the efforts of running IT as a business. Businesses keep track of their best and worst customers from a financial perspective. And in thinking of IT as a business, it is important to not fall into the simplistic trap of assuming that lower spend is always better. The goal of IT is to optimize employee productivity, not just to provide mediocre resources at the lowest possible cost. Allocations and cross-charging can be a powerful tool for elevating the role of IT.
Weaknesses: Resource allocation can get out of control when IT decides to use non-standard tags, categories, and descriptions to support resource allocation. The metadata associated with resource allocation should be aligned to project management, general ledger, and relevant finance and asset management software. One of the biggest challenges Amalgam Insights currently sees is how to clean up Cloud FinOps tagging efforts that were led astray by well-meaning engineers who did not first check with finance, network engineers, and other relevant teams first.
5. Financial Transparency
TEM can provide financial and accounting visibility as well. With recent accounting changes associated with software development, leases, intangible assets, and subscription-based revenue recognition, it is more important than ever for companies to know what IT spend is assigned to Capital Expenditures (CapEx) or Operational Expenditures (OpEx) as well as understanding when IT spend associated with specific projects is actually being charged or paid.
Strengths: Financial and accounting visibility can help companies close the books faster every month, quarter, and year. Visibility can also help with budgeting and forecasting, which are increasingly seen as strategic activities that must be reviewed regularly in light of the massive challenges that came up in the COVID shutdown era. Nobody ever wants to be caught flat-footed again with poor financial visibility.
Weaknesses: Many TEM-related personnel do not have enough visibility to accounting and financial planning activities to fully understand how to categorize assets and services. This leads to unnecessary email chains and meetings in trying to identify and define specific services when they are invoiced for the first time. TEM personnel seeking to provide financial transparency must first understand what their finance and accounting counterparts are measuring or assuming. The complexity of technology bills often mean that extremely ephemeral data and usage charges may be on the same bill as multi-year commitments that may be amortized or recategorized for tax purposes.
6. Agile Work Environments
If all goes well, TEM can actually help make work environments more agile, overall. By providing guidance to which departments use the most data or are able to translate technology usage or automation into greater value, TEM can be a valuable resource to help companies find opportunities to invest in better technologies, decommission outdated resources, and align technology with employee experience and employee performance.
Strengths: This use case allows IT to be very consultative in identifying demand-based IT usage and to align IT very closely to the business, which means being comfortable with presenting at a cross-functional level and providing recommendations. At this stage, IT is seen as an ongoing asset and difference-maker in managing the business.
Weaknesses: This use case requires fairly complete visibility to employee usage and allocations of corporate technologies. If positioned incorrectly, this use case can be mistaken for the resource allocation stage previously mentioned. Supporting agile work requires more than simply calculating the total cost of ownership associated with technology spend. Ideally, this work would allow IT to look at employee anomalies or shining examples and see how if there are linkages between high performance, technology access, and technology usage.
The value of Technology Expense Management ranges far beyond basic usage and rate optimization and can provide massive and business-altering benefits when done correctly. As with any successful business endeavor, Technology Expense Management is ultimately only as powerful as the people, processes, technology, and vendor support associated with TEM. But the business value of TEM provides a lot of room for personnel across telecom expense, wireless management, software asset and cost management, and Cloud FinOps departments to be ambitious and to be seen as strategic partners to the business as a whole.
