The following is a guest post from Nicholas Mayes, senior vice president of finance and operations at Productiv. Opinions are the author’s own.
On SaaS alone, companies are spending as much as $7,500-10,000 per year, per employee. Despite the common adage that the biggest expense for any enterprise, after payroll, is real estate, IT costs are steadily rising — seeing the largest surge in SaaS spending during the pandemic. This has created a lasting impact on how and where we work, making software and IT expenses one of the largest to the business.
The adoption of modern tech stacks and growing expenses are forcing new conversations between IT and finance leaders. In a time when companies of all sizes are working to reduce costs, CFOs and chief information officers (CIOs) need to rethink how they work together to get intentional about technology spend strategy as a team. Here’s how a finance leader can support this evolution.
Get aligned on data and process
In the not-too-distant past, CIOs and CFOs were limited to retroactively understanding software value. There was often point-in-time analysis of software usage and value at the time of renewal. And that was that. Now, management teams want to better understand value, not just cost, on an ongoing basis in order to utilize these investments effectively and efficiently.
Finance understands the true expense of software purchases, while IT has the expertise in application administration. The power of collaboration between these teams helps us measure value. Traditionally, the CIO has access to utilization and engagement data, while the CFO is the gatekeeper to the expense data. Bringing that data together and applying collaboration and process is, first, necessary in this macroeconomic environment with still-growing software portfolios and, second, critical to business efficiency from IT, to Finance, to the end-user.
Data for employee effectiveness and value conversations
It can be difficult to measure the ROI of a single SaaS tool when there are so many variables moving within an organization. Rallying the team around use cases, usage targets and success metrics enables the CFO and CIO to have informed conversations about tool usefulness and performance. One of the most important conversations in that partnership is defining success for different tools within the portfolio from the get-go. Answering questions before making a purchase, like “What is the use case for this tool,” helps to define success metrics and includes answers to the questions: “Does the team expect daily usage? Is there feature-level usage they see as critical to the use case?”
For example, as part of a DocuSign contract, users are entitled to use a certain amount of envelopes; while the free model provides users with three signature requests, you can purchase a set amount of envelopes as part of your paid subscription. The finance team saw that users were logging in, but how many of these premium sends were actually used? Internal teams can align on this as a material value driver of the business case at the time of purchase and pay for these premium licenses as a result. This is where bringing usage data into play is essential for increasing employee effectiveness and measuring ROI at the same time.
When the CIO and CFO understand usage and adoption and are aligned on the use case and cost for value, it’s easier to have ongoing conversations around value and spend decisions. If you paid for 30,000 envelope sends through DocuSign, for example, but note that only 9,000 have been utilized, it’s clear that value is not being delivered against the original use case, as only a small percentage of users have adopted it. Having and understanding this data provides the opportunity to discuss how you want to negotiate any renewals to ensure you’re receiving the highest value from the product.
The latest trend in CIO and CFO process: Start a governance council
Monthly Software Governance councils are an emerging trend, bringing finance, IT and line of business leaders together to align on the above success criteria for new purchases to understand if teams are getting the value they expect and evaluate upcoming renewals. Consider it an internal tiger team that puts a process and strategy around how you procure, manage and renew your software portfolio.
1. Procuring. Bringing the line of business leaders together with finance and IT means you can lock in that use case and define the success metrics and data requirements needed before approving the purchase.
This sets clear guidelines around things like: “Should we pay a premium for DocuSign because we expect higher levels of efficiency to be achieved through envelope sends?” and, “If we pay more for this, can we measure this to prove value? Do we even have access to that data?”
2. Managing. Gone are the days of scrambling to understand value or usage at the time of renewal. In our example of the envelope sends, through data insights, we were able to see that this premium feature was actually not being used to the extent we were paying for. Because of the upfront alignment, visibility and ongoing process, we were able to negotiate an amount of sends better suited to our business needs.
We also put adoption and enablement programs into play to increase usage and ultimately deliver the business value intended. At many companies, you only realize this at the time of renewal — which means you’ve now lost as much as a year of value and are faced with the decision to roll the dice and try again or cut your losses.
3. Renewing. Alongside the ongoing management, renewals are a critical function of this integrated team. With sprawling tech stacks, renewals are where much of wasted spend happens. Understanding your top tier and other tools can help monitor, prioritize and make sure the tools are performing as expected. This allows you ample time to re-evaluate success criteria and avoid expensive true-ups — a huge benefit to finance and line of business leaders when trying to control expenses.
But, it’s also a huge time savings for IT teams on the administration, implementation and reporting needs for these tools. Time is money. Yes, it’s trite, but you are burning through real cash with time wasted here. Spending a little bit of effort on scaling a collaborative process helps tremendously with time (and spend) wasted down the road.
Will the CIO and CFO working together shift spending?
There is no doubt software spend will continue to grow. With better collaboration, teams will be using the same data to make smarter spend decisions. We’re seeing a trend in one-year deals, in part due to the current environment, but also due to CIOs and CFOs alike wanting to establish the true value of a product or service before committing for the long haul. If these teams can establish processes that promote collaboration and data insights, like governance councils, we will see better ROI.
Alongside these processes, I also expect we’ll see consolidation efforts grow. Even though there is a real cost associated with switching vendors, as CIOs and CFOs continue to take a more intentional, strategic lens on usage data, user experience and value, we’ll be able to make informed optimizations to the tech stack.
Digital transformation and tech spending aren’t a fleeting trend — it’s still the case that different departments need different tools, and what works for one team might not work for another. But hopefully, CIOs and CFOs will increasingly see one another as allies working to optimize software within their organization.
It’s table stakes to enact governance now. Software spend and models may be about to fundamentally change driven by the advent of GenerativeAI, so there has never been a more important time to understand the value of your software stack and collaborate with your finance, IT and line of business colleagues alike.
