How Finance can help reverse the spread of shadow IT and shelfware.
If you survey any group of CFOs about which company expenditures currently keep them up at night, many would point to out-of-control SaaS spending. According to a report published by SaaS spend optimization company Cleanshelf, SaaS spend per employee increased 164% between 2016 and 2019.
What’s more, a significant portion of this growth has gone to shadow IT and shelfware, with Cleanshelf estimating that 30% of SaaS spending is wasted. And this problem is widespread; a survey from Cloudability found that 80% of large enterprises “believe poor cloud financial management has a negative impact on their business.”
The problem is especially acute now that finance departments are currently attempting to rein in such spending. A new report from Gartner found that the pandemic-induced recession is forcing companies to focus on “mission critical” IT services. “CIOs have moved into emergency cost optimization which means that investments will be minimized and prioritized on operations that keep the business running,” said Gartner researcher John-David Lovelock
Most finance departments will find it nearly impossible to cut their software costs when they don’t have a firm handle on which services their companies are subscribed to and whether those products are even being used. Before CFOs can implement cancellations and renegotiations, they first must wrangle together their company’s software stack so they have a 360 degree view of every ongoing contract.
This is harder to do than it sounds. Why? Because it requires the participation of every stakeholder in your company who may have signed up for a service or inherited it from a predecessor. These are employees who might not understand or prioritize your budgeting goals. So it’s up to finance to educate them on why they should care and devise a simple solution to hand over all the relevant information needed to take control of the SaaS buying process. There are four steps to this process.
The best way for employees to hand over the necessary information is through an easy-to-use form. The easiest solution is probably a cloud-based spreadsheet that’s viewable by everyone and can allow inputs from multiple people at a time.
The spreadsheet should have several fields that range from must-have information to nice-to-have. The must-have fields comprise the bare minimum details you need to claim ownership of a software contract. They include things like the name of the supplier, the total contract value, the renewal/due date, and the internal business owner. Armed with this bare minimum information, the finance department can chase down all the other details it needs.
The nice-to-have fields include information that makes the finance team’s job just a little easier -- things like a copy of the contract, budgets, any purchases to be scoped out in the future, and the existing vendor sales rep’s name and email address. For an example of a spreadsheet template you can use to conduct this survey, go here.
Before you distribute this spreadsheet to the company at large, the finance team should populate it to the greatest extent possible. There are two reasons for this. The first involves leading by example. A stakeholder is more likely to add to the spreadsheet if they see that others have already done so. This also eliminates any confusion for the stakeholders in terms of which details are required for each field.
Filling out the spreadsheet ahead of time also gives outside departments insight into which software contracts you’re already tracking. In some cases, you may have just the name of a vendor, and they might be able to enter in additional details. They can also correct information that’s wrong.
The finance department can consult a number of sources when filling out the spreadsheet. The company’s ERP is an obvious starting point, but there are also accounts payable, purchase orders, corporate card expenses, and ticketing systems from the legal department. All will offer at least partial information that can be added to the form and later fleshed out by your employees.
If you simply send out a company wide email linking to the form, chances are you’ll see very low participation. Finance should instead make an announcement to the company explaining why they're undergoing this mission to collect this information, how it's going to assist in cost savings, and how everybody else's lives will be made easier moving forward.
You need the employees to take this project seriously; otherwise they’ll continue purchasing shadow IT without oversight. For instance, you can explain to stakeholders how a more formal buying process will help them avoid last minute renewal decisions and onerous negotiations.
You could also show them an example of a particularly large purchase, one that’s grown unwieldy over time and is eating into the company’s margins. If you can demonstrate how this software product was poorly negotiated, you’ll secure more buy-in from employees.
Once this step is complete, you can then send the form. Hopefully by this point the finance department has generated some company-wide enthusiasm for participation, but some persistent prodding will still be required to spur stragglers into action.
Wrangling together the company’s software stack is only the first step. Now that you have a comprehensive view of all contracts, you’ll then need to install a formal buying and renewal process that’s applied to every software purchase moving forward. Without these strictly-enforced protocols, shadow IT will just begin to sprout up like weeds, and before you know it your spending has once again spiraled out of control. Compliance to this process won’t be easy to enforce and will require constant diligence, but a codified set of rules will empower the finance department with the authority it needs to steer all software buying and control costs.