Technology sprawled with spiralling costs are keeping CFOs up at night
Apex BI Neil Buckley explains that CFOs are trying to navigate a veritable minefield of hidden costs.
Today’s CFOs face a myriad of issues that have the potential of ruining a good night’s sleep. However, it is increasingly reported that technology sprawl with concurrent cost management challenges, are probably uppermost on the minds of CFOs as they try to navigate a veritable minefield of hidden costs as they attempt to roll out increasingly complex digital strategies.
Gartner reports that CFOs are operating in a challenging environment where costs have outpaced revenue since 2013. On the positive side they note that CFOs may have greater control of the situation than they realise through the employment of positive cost management practices. The latter is said to be where the best CFOs will distinguish themselves and will also have a significant impact on the bottom line.
Analysts predict that in the European market alone spending on the Internet of Things (IoT) will reach $202 billion in 2021 and it is predicted to continue to reflect double-digit growth through 2025.
The Covid-19 pandemic has proven to be an accelerator of the uptake and extension of cloud services which have been accompanied by drives to achieve cloud-centric IT operations. According to the International Data Corporation (IDC), total worldwide spending on cloud services, the hardware and software components underpinning cloud services, and the professional and managed services opportunities around cloud services, will surpass $1 trillion in 2024 while sustaining a double-digit compound annual growth rate (CAGR) of 15.7 percent.
Deloitte, in reporting on the evolution of technology spending, reflects on the importance of technology and its role in value creation, with many companies surveyed consistently experiencing budget increases over the past four years.
As technology and business strategies merge, Deloitte highlights the emphasis on service delivery – which is giving way to a focus on value delivery. Maintaining business operations is obviously critical, but it’s equally important for technology teams to work together with business functions to co-create value.
They go on to note that projects that are most appealing to the executive leadership of businesses are those that generate revenue or focus on innovation and emerging technology. In this regard it is reported that massive lines of credit are emerging as enterprises and individual business units embrace the convenience offered by everything-as-a-service, with cloud spend set to triple over the next decade, and Software as a Service (SaaS) and Infrastructure as a Service (IaaS) among the fastest-growing investment areas.
Daunting tasks face CFOs in the age of remote or hybrid working models
Covid-19 sparked an unprecedented economic crisis that utterly disrupted short- and long-term business strategies, and continues to have serious implications for all commercial sectors, with some being hit harder than others.
Prior to the pandemic, enterprises had planned to increase technology spending on average to 4.25 percent of revenue. Factors such as remote working have played a dramatic role as companies drive to support rapid transition to a distributed workforce.
At the outset, most businesses faced a sudden and urgent need for the deployment of massive quantities of mobile, voice and data connectivity in order to support the new remote working model – critical to business continuity. This also had immediate and direct cost implications at a time when excessive spending was simply not an option.
At our company alone we onboarded 15,000 SIMs between April and June 2020, and in one instance, we onboarded 5,000 SIMs in a single day – something that typically has a seven- to 14-day turnaround. These statistics serve to endorse the extraordinary disruptive force of the pandemic with the potential for catastrophic cost implications for anyone trying to manage the financial fallout.
This is where technology expense management (TEM) has played, and continues to play, a crucial role as it provides the ability to centralise decentralised teams in a world of remote – or hybrid – working models.
CFOs compelled to do a second take on digital investment timelines
The pandemic has forced CFOs to abruptly reassess their digital capabilities with predictions that next year will be about accelerating digital investment timelines from the pace of a multi-year marathon to a 12-month sprint.
Hyoun Park, CEO and principal analyst at Amalgam Insights, reports that SaaS is expected to grow from a $70 billion market to a $115 billion market by 2025, and the IaaS market will grow from $50 billion to $150 billion in the same period.
The internet of everything has complicated the issue even further with virtually every employee using a range of communications tools, hardware, software, and cloud-based services. Technology is already among the leading five organisational expenses and is fast heading toward the top of the list.
Moreover, technology expenditure has moved away from long term capex projects with massive capital outlay to short term operational expenses, monthly contracts – switching services ‘on’ and ‘off’ at will, which requires a management platform that keeps close tabs on IT expenses.
Great growth accompanied by sleepless nights
The potential for growth is obviously fantastic but can also end up being the CFO’s worst nightmare as they struggle to take charge of the expenses related to technology sprawl. It is a familiar scenario in a world of digital transformation of businesses: these costs can easily get out-of-control with a multi-million-rand price tag attached.
Many organisations are losing control of expenses when confronted with increasing technology sprawl. Management of a growing range of services, vendors, platforms, and contracts supporting the digital enterprise has become a complex and time-consuming task, especially in the enterprise space. Many CFOs are still attempting to reconcile and allocate technology expenditure using archaic spreadsheets and a range of disparate management solutions, and are, therefore, putting their businesses at risk by excluding vital information and overlooking unnecessary spending.
Often financial reporting relating to technology spend is performed at a very high level – with just a one liner per general ledger (GL) code, for example – which makes it almost impossible to identify the root cause and/or source of expenditure spikes.
All of this is compounded by enterprises discovering that they are paying for mobile contracts for employees who have long since left; running software nobody uses; overlooking vendor service fees that were not agreed to or neglecting to scale down on dollar-billed cloud services used for a long-since completed campaign. Many are discovering communications overspend at the end of the month – far too late to prevent the costs from being incurred, and yet others are finding that their IoT SIMs are proving far more costly to operate than they expected. These are just some simple examples and as incredible as it sounds – these unnecessary expenses can amount to millions per annum.
CFOs need to put TEM software front and centre of their cost management radars
A more sophisticated approach to managing technology expenditure is required with purpose-built TEM software really being the only way for enterprises to effectively monitor, manage and accurately allocate expenditure across their entire ICT environment.
A Gartner survey reports that 82 percent of CFOs surveyed indicate that the adoption of advanced data analytics technologies and tools is a top priority. TEM platforms support analytics, strategic planning, and financial forecasting, and enable organisations to benchmark performance versus expenses across all business units.
They can also support an inventory component that serves as a single point of reference for all hardware, software, and licences, with alerts in place to notify the enterprise of contracts nearing expiry. This helps inform future procurement, and even supports business continuity by providing the CFO with an ‘at-a-glance’ overview of the entire technology environment.
TEM enables organisations to gain control of complex technology categories, where discounts, credits, service level agreements and hidden optional fees can cloud expense management .
TEM takes a formal and state-of-the-art approach to technology service, infrastructure, and expense management. It introduces a robust open platform that seamlessly integrates multiple systems and sources of data to deliver a single, meaningful view of the environment. With this single view, enterprises are empowered to create policies, rules, and alerts to manage and control the environment proactively, as well as gaining highly accurate and granular BI and reporting capability.