Procurement, IT, and Vendor Management leaders are becoming increasingly important as they represent the critical link between organizations' internal capabilities and the external digital business ecosystem- providing a strategic edge- and they’ve never been under so much pressure. A CIOs basic function is to ensure systems and information is available and accessible to whomever needs it. However, the technological landscape is rapidly changing, and systems and information are multiplying.
So, in a world with hundreds of technologies under the company-hood, how can a CIO possibly manage all of these relationships?
The 80/20 Rule
Using the ‘Pareto principle’ has become common practice amongst CIOs, namely, focusing 80% of organizational spend and time, with 20% of vendors. With the rapid pace of technology driving incredible organizational change, finance leaders and CIOs are taking the time to invest in strategic relationships, such as setting up quarterly business reviews with their highest spend vendors.
There's not enough time in the day to manage relationships equally when you own 100+ SaaS products. And you shouldn't prioritize equally. That's why CIO's and their IT teams spend the vast majority of their "partnership time" with the vendors like AWS, Salesforce, and the other vendors that provide critical infrastructure to the organization. IT's executive time is spent on the areas where the largest impact can be realized.
But what about the 80%?
Procurement, IT and Finance leaders weigh up the cost and benefit of managing tail spend with data silos, misaligned teams and ‘maverick purchasing’ to contend with. At a high-growth company, this likely represents 100-200+ vendors, and millions of dollars of spend.
Historically the 20% was perceived as too much effort for too little reward. However, tail spend represents a significant cost for high growth companies. While comprising a relatively small portion of total cost, the drip-drop accumulation of spend with the rest of your software vendors represents a sizable sum. For hyper-growth companies, it’s a challenge to keep up as the company scales, and what was once a small amount of spend outside of the skill of procurement can now amount to millions of dollars.
Garnter surveyed 3000 CIOs last year to find that growth was their No.1 priority for 2018, explaining that use of digitized products and services is expected to drive new forms of revenue, business value and engagement of customers and citizens. But the biggest challenge for those CIOs was how to grow it to deliver economies of scope and scale.
Or put another way: how can we continue to use more technology to power our business, while not paralyzing our teams?
More SaaS = More Time
With the influx of software into the organization, IT teams are facing more complexity in their day-to-day responsibilities. IT vendor governance is increasingly becoming more complex as more services and vendors are added to the software stack. Stakeholders are spending more and more time trying to get their 3rd party SaaS contracts in front of the legal and security teams. IT Directors are spending a good chunk of their day figuring out what software products are renewing, and when.
So what does this mean? The IT department is now required to take on additional work to manage the software stack, which takes them away from their core responsibilities. And, a big portion of these new responsibilities include working directly with the dozens (or, hundreds) of software vendors. Many of today’s internal vendor management functions have not been designed or equipped to handle this sort of change or complexity.
CIOs are beginning to innovate.
In any improvement to the bottom line, it is first critical to realize the scale of the problem. A full review of vendors provides insight into your stack and total spend. Spend management tools, such as Intello.io, Cleanshelf or Zylo enable organizations to gain full visibility, and can reveal hidden and wasted tail spend. Companies can conduct this review and then search for underutilized tools, compliance issues, and spot duplicates. While this helps IT teams better organize the software stack, it doesn't solve the challenge of vendor engagement. Remember, every software product in the stack comes with a relationship. Vendors expect to receive time and attention from IT. When operating at scale, this leads to countless hours spent on the phone with software salespeople.
The collective tail spend is glaring, and now CIOs are challenged to build relationships with the 80%. CIO’s at high-growth companies are now strengthening these relationships by outsourcing the software tail spend management (Vendr's services were built to do just that). By working with a 3rd party partner to manage the buying process, this frees up internal resources to do what they do best, and be removed from a task that’s not worth their time, or too irregular for them to gain expertise or efficiency.
Your time is too valuable for software buying.
The average time spent on a contract renewal is 5 hours. If you have 100 products in your stack, 500 hours of your calendar will be allocated to software salespeople. Most companies don't realize that outsourcing SaaS vendor relationships can provide material savings. First, outsourcing this function will give your IT team a significant portion of time back in their day. Secondly, by having an extra set of eyes on the vendor relationship amongst your tail spend, cost efficiencies will emerge. Outsourcing vendor management to a third party is also more likely to drive the process standardization and consistency required to enable the transparency essential to effective governance. Any single contract for IT or business process services is followed by a wide range of recurring commitments, deliverables, and obligations. By simply harnessing economies of scale, vendor management experts can streamline and improve these processes.
Giving away control is difficult. But, the results are worth it. Leveraging buying experts will not only pay for itself--it gives the IT department much needed time back in the day.
Look to the future
The IT department is gaining more strategic importance within organizations. With that, the expectations from this function are also increasing. To keep up the the growing responsibilities, it is time to figure out what can be delegated. The common place to start is software buying and renewal management. To gauge if your company is ready for this, here are a few questions to self-qualify:
- Is my business spending 1mm+ on tail spend on 100+ SaaS products?
- Am I operating in a hyper-growth environment with many different stakeholders involved in managing renewals and new purchases?
- Are our software costs growing linearly with our headcount growth?
- Do you feel your time, or your team's time, could be better spent?
If your answer to these questions is ‘yes’, then it may be appropriate to work with a professional software buyer.
Your relationships are your competitive advantage.
We all agree that relationships matter. And within your IT stack, it is critical to constantly find opportunities to improve your partnerships. Intuitively, in-house vendor management has certain merits, as it can enable consistent oversight to multiple agreements. Increasingly, however, mature and hyper-growth enterprises are engaging third-party specialists to manage the day-to-day oversight of transactional activity and collection of operational data related to vendor management. By outsourcing the management of their suppliers, companies are able to reduce costs, improve service delivery, and focus their internal resources on developing richer relationships and strategic value--making those relationships richer.
Vendr provides software buying and renewal management services to companies with 250+ employees. If that's you, check out the ROI report below.