The Changing Marketplace for IT Spend Management Solutions

A quarter century ago, management of IT Spend was vastly different than it is today. Traditional Telecom Services and Hardware represented nearly 60% of Non-Labor IT spend and it was dominated by traditional carriers and PTT’s. There was no internet to speak of, but local voice services and data transport dominated what Telecom Managers were asked to manage and they were doing a lousy job of it.

Back in the day, telecom shops with most enterprises were “demand and response” organizations. Process centralization was just coming into vogue, but there was a century of invoices and inventory being managed at the local office in Steubenville. Ohio, rather than the corporate office in Chicago or New York. IT managers saw the value in centralization. Big Five Accounting firms were advocating for process change: arguing that expertise and control at the corporate office was the only way to control “rogue” spend. Telecom managers, who primarily and historically had responsibility for network ordering and uptime, found themselves wrestling with managing local service installations across the enterprise, responding to outages and attempting to pay hundreds of invoices they had never seen before.

It was the wild west. There were no rules, there was no staff expertise. Provisioning was being managed by saved voice mails and yellow Post-it notes. Even if centralized inventories were being built, the telecom manager did not have the resources to do traffic studies let alone the expertise to ensure invoicing could be reconciled with what went for inventory.

These gaps and challenges led first to small contingency audit companies, Service Bureaus and eventually outsource ventures like TelData Control and Profitline who brought subject matter expertise and spreadsheets to bear on what was becoming a monumental challenge: Managing and correctly allocating Telecom cost. Never mind that the cost of the service providers completely eclipsed any of the savings that were generated from their efforts: costs were now being rationalized and understood for the first time.

But then came the Internet.

On the one hand, IT costs began to explode other categories not being managed by the Telecom manager. New IT Departments and new cost and inventory silos had to be created. But on the other hand, the internet created a new capacity in the spend management arena the ability to get data (Invoicing and inventory) faster from both the carrier and the enterprise gave rise to automation and a changing business model that quickly transformed the labor—centric cost management space into what we now call Telecom Expense Management or TEM.

To its credit, the TEM industry has largely solved the challenges telecom manager had two decades ago. It has allowed tremendous visibility and automation around “traditional” Telecom Spend. This in turn has allowed for process automation, inventory management and reporting across the enterprise. It is those elements, among others, that have made what is still the largest category of IT spend, far more manageable and understood

The problem is that the applications and the services surrounding TEM have not really changed all that much in the last 20 years. Today, traditional telecom, has shrunk to less than 40% of IT spend. Part of that is due to massive convergence and lower cost of communicating with the customer and within the enterprise; But the dynamic in play is really the explosion in other areas of Information Technology powered by the internet and smart phone technology. To be honest. The TEM industry has chosen to focus far more on adding market share through industry consolidation and competitive acquisition rather than product innovation that matches up with the shift in IT Category spend.

It is not as though TEM companies could not take on a more expansive role within IT, but the Tangoes and MDSLs of the world have in important ways becomes victims of their own success. They have built their own pigeonholes with their bloodthirst for market share among a vastly dwindled list of competitors doing pretty much the same thing they have been doing. This has only served to tie them to the Telecom managers they typically support even more tightly.

 What TEM provider do, they do very well. To move into other silos, to support other IT Directors, has proven to be a significant challenge, partly because taking on all of IT spend would require that the function move from the Telecom group to the CIO Office and that is actually a tremendous challenge in terms of existing financial acumen from an application perspective but also from the stand point of resources both for the purveyor and from the customer perspective.

The TEM Industries reluctance or capacity to breakdown those silos and provide a similar suite of capabilities to other IT directors has been a market void for the past decade. Sensing the opening and having a keener idea of what keeps CIOs up at night, has now led to an emergent set of disruptive players that offer a variety of solutions for the other 60% of IT spend.

How these players navigate through their own silos to create solutions across Software, Licensing/Subscriptions, Hardware, Cloud, Contracts and project will be fascinating to watch of the next 18 months or so. More to follow

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Steve Perkins has been in the the Traditional Telecom Expense Management space for a quarter of a century as a consultant, contractor and client. He believes that the industry must move towards a broader definition of it should encompass and that both evolution and disruption are necessary to break down organizational and spend silos in order to get CIOs the spend analytics necessary to effectively manage corporate-wide IT Budgets.

He is always looking to connect with IT spend professionals. Let's figure this out together.