Watch Your $aa$: The Future of Spend Management

These discussions often go down a rabbit hole circling around how there is a lack of SaaS spend visibility and how employees use five project management tools that seem to do the same thing. In this article, you’ll learn a new framework on how you can govern SaaS spend more effectively that is used by dozens of IT Leaders at companies like MongoDB and SiriusXM.

Capital efficiency versus growth at all costs

Companies aren't just cutting software budgets. IT and Finance have the mandate to transform the company’s growth-oriented SaaS stack to a capital-efficient one. With immense growth in previous years, we have brought on any tool possible to make us work faster. This has led to a proliferation of corporate apps and licenses. Many of our customers used Jira, Asana, Trello and Monday at the same time. Plus, they purchase more licenses than necessary. Our data shows that 25% of all licenses are unused. Now, we see how IT leaders have a mandate to consolidate their software stack and reduce licenses.

In times like these, the easiest thing to do is to quickly fix what we see on the surface, such as deprecating duplicate tools or decreasing license counts in a one-off exercise. But a wise CIO once said: “It's not about putting out fires—it's about preventing them in the first place.” We need to find out why we are spending too much on software and make rules to stop this from happening again. It's an opportunity for IT leaders to manage software spending in a way that lasts, turning a repeating problem into a stepping stone to being better and more efficient. But before we can do this well, we need to really understand the problem first.

The four reasons for software overspending

1. Redundant Apps

In large or fast-growing organizations, vendor purchase decisions happen quickly and without a lot of context around what options already exist. Intentional or not, business owners can introduce functionality that is redundant, leading to overspending on apps and modules within them.

2. Inefficient License and Utilization Management

Corporate apps often charge per license. Employees might get access to a license but stop using it after some period of time. So, companies end up paying for unused licenses on their next renewal…and not even realize it. On the other hand, Developer apps often charge based on utilization. For example, AWS is based on compute and Segment is based on analytics volume. So, cutting down on unnecessary usage becomes key for those apps.

3. Unprepared Renewals

App owners are often responsible for handling renewals and negotiation. Fun fact: on average, only 25% of apps are directly owned by IT. Let’s face it, managing app renewals is not a daily focus for most that happen to be app admins. It’s a footnote to their actual day job. As such, they often remember renewals too late in the game or don’t have data around what price they can negotiate. This causes them to run out of time to properly prep for a solid negotiation, or to even audit and clean-up unused licenses.

4. Lack of Accountability

At the end of the day, those managing apps need to hold themselves accountable. To do that you need to know the number of apps, licenses, and spend in use across the organization. If you don’t, you won’t be aware of the most impactful areas of improvement or be able to track whether progress is being made.

True, sustainable spend management achieved through governance

Now that we know those four challenges, how can we address them? Most importantly, we need to realize that this is a scale problem! Think about it. 500 apps. Two renewals each business day – often auto-renewed. Managing hundreds of apps is not scalable with a centralized approach.

Let’s use this analogy - managing 50 ingredients is doable for one chef. But now we’re moving up in the restaurant world and we’ve got 600 ingredients roaming around the kitchen. One chef can’t do it all alone. You need many cooks to make a Michelin Star 5-course meal work.

SaaS spend management is a coordinated effort where the company needs to be empowered to do the right thing. The last thing the CFO and CIO want is to be seen as a bottleneck or judge when procuring or renewing tools. Rather, they want to ensure the right people are empowered with the right data to make the best decision. To do that, we want to prevent implementing unreasonable rules and restrictions around spend management weighing the company down.

Think of seat belts! If seat belts were painful, you wouldn’t wear them. When a process hurts productivity, users bypass it – almost always to everyone’s detriment. Like a good seatbelt, great processes give us peace of mind so we can safely drive fast. When faced with a choice between decreasing costs and productivity, the only viable answer is both. To do that, IT and Finance need to focus on encoding the system in the right way.

Maximizing ROI with a Framework for Capital-Efficient Software Governance

So, the big question is: how can we handle software management that is not only budget-friendly, but also empowers our company? You start with cleaning up the mess with the current system and then designing a scalable one.

The journey starts by getting a firm handle on your vendors and licenses. Understanding these elements will allow you to pinpoint quick wins, such as eliminating duplicate vendors or removing licenses attached to former employees. These small steps can translate to significant savings and improved efficiency.

However, just like a tidy room can descend into chaos if not consistently maintained, so can your software environment. It's not enough to simply tidy up; you need to ensure that the shine remains and even improves. The trick to maintaining this 'shine' is implementing a governance system that can scale with your needs. The real beauty of governance is that it incrementally nudges your software spend towards complete optimization. In contrast, a solution that only provides visibility won't bring you long-term success.

But what exactly does 'governance' mean in the realm of software spend management? Think of it as an automated pilot system that efficiently handles app renewals and consistently weeds out unused licenses. Good governance kicks in automatically upon a specific trigger, steering the user onto the correct path. For example, prompting them to decide the duration they'll need a license for right from the start instead of needing to clean it up after the fact.

In doing this, you are practicing capital-efficiency software governance. You're not just cleaning up – you're setting up a method to keep your software spend management streamlined and efficient for the long haul. And that is the secret to smart and effective SaaS management.
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Lumos Case Study

Let's get down to the nitty-gritty. When examining platforms to help optimize your software spend, it's crucial to consider all five elements of the Capital-Efficient Software Governance Framework. As we delve into the next few sections, you'll get to see firsthand how Lumos is striving to incorporate this framework into their product.

Vendor Database

As a first step, you want to pool your vendor data into a single, comprehensive list. Lumos keeps tabs on all your vendor information (shadow IT included), renewal dates, vendor costs, and compliance and contract docs. To pull this off effectively, Lumos auto-imports vendor data from ERP systems (think Coupa, NetSuite), CLMs (like Ironclad) or you can simply engineer automation to zip all your contracts to Lumos via email. After doing this, you’ll have an understanding of which vendors were purchased and which ones can be potentially rationalized.

License Database

Creating a single view of all licenses needs good app integrations. For example, Lumos pulls last activity data from Zoom and Salesforce. Some apps, like Lucidchart and Adobe, don't offer an API for usage data. This is a problem for any SaaS management tool. Lumos solves this by including free API access as part of our base package. So, you can use an RPA bot to collect user and activity data from the admin panel and sync it into Lumos through our API.

Removing licenses can be a multi-step process. Downgrading a user from Zoom Enterprise to Zoom Base means transferring cloud recordings, adjusting user groups in Okta, and sending a message to the user. Lumos makes these steps easy to set up with a flexible workflow system.

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Scalable Renewal Management

You typically only get to trim costs on yearly Enterprise contracts when it's time to renew. This is where Lumos comes in handy. It sends automatic alerts for upcoming renewals or when you're running low on licenses, giving app admins a heads-up on app usage and future requirements. With Lumos, app admins can conduct license reviews and identify savings proactively. With a simple interface, it's a breeze for each app owner to decide who should keep or lose access. And the best part? It encourages collaboration across all departments, acting as a bridge between IT, finance, and each app owner.

Scalable License Management

To continuously save on licenses, you need to grant access when necessary and withdraw it when it's not. Lumos makes this easy in two ways. First, it auto-revokes licenses inactive for 60 or 90 days, like a Zoom Enterprise license not used for a long meeting in over three months, and sends Slack alerts for approval. But what if reliable activity data is missing for certain apps? That's where you need to offer time-based access. For example, for a pricier Tableau Creator license, employees can then choose how long they need access when they make a request. With these two methods in play, you eliminate the need to balance out licenses throughout the year and can reduce your license pool by up to 50%.

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Reporting

Lastly, it's crucial to consistently report on savings and spend per app, department, and employee to keep everyone accountable. Lumos provides a spend reporting feature that offers two key insights: a clear view of the progress and success of cost-saving initiatives, and data on which apps or departments have the greatest potential for cost reduction. IT and Finance leaders often use this dashboard by reflecting on software spend and savings, and share these insights during executive and board meetings.

A Holistic Approach to SaaS Spend Management

Balancing software costs calls for a thoughtful, holistic strategy, not a slash-and-burn strategy. The goal is to ensure efficiency while keeping crucial access intact. Imagine having an 'airbag'. If a license is mistakenly removed, this safety mechanism guarantees swift and straightforward access recovery. After all, IT and finance teams aren't police officers. Their mission is to equip employees with the right tools when they're needed, which is where a self-service AppStore becomes pivotal. It simplifies access by providing a one-stop-shop for all software needs.

Meanwhile, to craft a fully efficient system, a multi-faceted approach is essential. Lumos excels at this, harnessing the power of multiple methods, while counterbalancing their limitations. If the app is not owned by IT, Lumos enables these admins with user-friendly license reviews. When IT owns the app but lacks activity data, time-based access is the go-to solution. If there is activity data, regardless of the app owner, inactivity workflows are triggered. This multi-pronged strategy doesn't compromise necessary access and ensures your license management remains efficient and attuned to your company's needs.

Capital efficiency at scale through visibility and governance

To pull this off, IT and finance teams often find themselves needing to bring together a variety of tools to meet their objectives: a SaaS Vendor Management Tool, a Just-In-Time Access Tool, an Access Review Tool, a Shadow IT Discovery Tool. It’s quite the paradox - you're using multiple SaaS apps to manage your SaaS...how meta!

Yet, the mission of IT teams is to consolidate their software stack, discover efficiencies, and cut down on licenses – not to onboard a multitude of tools to streamline inefficiencies. Here at Lumos, our mission is to build a single platform that can address software administration challenges in a holistic and ongoing manner, offering both visibility and governance functionality.

Whether your interest in Lumos has been piqued (we should definitely chat, if so!) or not, we hope our Framework for Capital-Efficient Software Governance serves as a source of inspiration for you. 2023 is brimming with potential for meaningful, lasting change! Let's seize 2023 as a golden opportunity to construct an outstanding system that empowers employees and teams, while safeguarding the company's bottom line.