On October 15, JPMorgan Chase CEO Jamie Dimon warned that a recession is coming. He was quoted as saying “Of course there is a recession ahead – what we don’t know is if it’s going to happen soon.”
What do you do with your IT spend if you agree with Dimon?
Regardless of when the recession hits, companies that are prepared are the ones most likely to weather the storm.
A recent Bain analysis of S&P Capital IQ data showed that businesses that take “companywide measures to prepare for a downturn” grow significantly during and following downturns. This is in stark contrast to businesses that don’t take measures to prepare, and whose earnings before interest and taxes (EBIT) don’t grow.
Preparation yields growth. Preparation strengthens companies so that they don’t just survive a downturn but come out ahead. Preparation pays off—literally.
What’s preventing preparation?
Preparation is such a simple, essential business element that it can easily get overlooked in day-to-day operations or even in strategic planning. What are the tactics that can help a company be prepared? The study cited in HBR identified a few, including: “automating account management,” getting rid of negligible accounts, and “streamlining back-office functions.”
The recent Flexera 2020 State of Tech Spend Report shows that IT waste is still prevalent, complexity is growing, and manual processes are a top challenge of managing IT spend.
- Overall, survey respondents’ average IT spend was 8.2 percent of revenue, with organisations in technology, financial services, retail, consumer products, transportation and healthcare industries all reporting IT spend considerably higher than the benchmark of four percent.
- While respondents estimate that 12 percent of IT spend is wasted, industry experts put the number at 30 percent or higher.
- Top challenges in managing IT spend are: too many manual processes (86 percent) and ensuring spend efficiency/eliminating waste (89 percent).
- Cloud spend has now surpassed on-premises software spend, with 22 percent going for on-premises software and 25 percent for cloud, including software as a service (SaaS), infrastructure as a service (IaaS) and platform as a service (PaaS)
- More respondents expect to increase their use of cloud-focused vendors, with AWS and Microsoft topping the list.
I propose an essential, though not frequently discussed, element of preparation for businesses of all sizes: understanding and streamlining your software assets and the infrastructure required to run your enterprise. Whether your organisation needs to spend on software or whether you may be able to actually find savings in your software depends on what you already have. Technology spend optimisation can identify what’s already on hand, helping your business prepare both for digital transformation and for challenges the economy throws at you.
Consider these questions:
- Are you proactively managing your cloud spend?
- Do you have a good understanding of all of your IT resources on-prem and in the cloud? (As an analyst recently told Flexera, good enough is no longer enough.)
- What is your business entitled to with the software licenses you’ve already paid for (and how does this map to cloud and on-prem)?
- What redundant applications do you have?
- Are you retiring unused applications?
- Are you taking full advantage of the resources on-prem and in the cloud?
- Are your assets catalogued in real time?
- Do you know where staff is using unsanctioned software?
- Who, including former staff or contractors, has access to your licenses?
- Do you have an effective software asset management (SAM) program in place
Growing challenges to software asset management
Flexera’s own research has shown that software audits by major software vendors can cost enterprises millions of dollars annually. In a downturn, it is possible that the major software vendors will look to minimise leakage and maximise revenues by increasing the number of license audits. Although 80 percent of enterprises perform self-audits at least once a year, we’ve moved beyond the age where “good enough” is sufficient.
A comprehensive approach to SAM includes management and optimisation of on-premises, perpetual, Software-as-a-Service (SaaS), and cloud costs. In the rapidly expanding world of SaaS, an estimated third of SaaS applications at most businesses aren’t being used. The mis-estimated consumption is comparable in the cloud, where users aren’t optimising costs, but wasting 35 percent, as reported in the RightScale 2019 State of the Cloud Report by Flexera.
The cloud-based component is perhaps the area worth the most scrutiny right now, especially as more and more companies are moving workloads to the cloud. On one hand, cloud cost optimisation is a top goal among cloud users and 84 percent of enterprises cite optimising cloud costs as a top challenge, according to the 2019 State of the Cloud Report. On the other hand, doing so is becoming more complicated. When Microsoft changed its Bring Your Own License Policy that took effect on October 1, 2019, it limited users’ ability to transfer licenses to the public cloud. With license mobility rights removed, users will need to purchase hosts, instance, or virtual machines. The modified licensing policy will increase costs, compliance considerations, and asset management complexities. Concurrently, IBM, Oracle, SAP, and others are altering their cost structures, based on specific cloud environments. To this end, software asset management needs to include not just a firm grasp of enterprise on-prem software, but a complete picture of usage in cloud environments, too.
Once you’re optimising your technology spend, you’ll strengthen your organisation through more than just the cost savings from shedding unnecessary software assets. An automated process can save time and staff resources that can be invested more productively elsewhere. You’ll simplify your catalogue, enhance your understanding of your licenses, increase security, and provide greater transparency into your program. While I can’t guarantee that this preparation will help you come out of an economic downturn stronger than you went into it, I’m confident that this element is an important component of robust digital transformation.
Bailey Caldwell, vice president, cloud solutions engineering, Flexera