Evolution and Disruption in IT Spend Management

About the author. Steve Perkins has been a consultant, contractor, and client. in the traditional Telecom Expense Management space for a quarter of a century. This series of articles is intended to start an important conversation, both public and private, among both IT spend management practitioners and their clients. He is always seeking to connect and dialog with those supporting CIO visibility into how the IT dollar is being spent. https://www.dhirubhai.net/in/temexpert/

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Today’s CIOs confronts constantly evolving technology, substantial cybersecurity threats, deep operational silos with very thick walls and a challenging labor pipeline. But perhaps the biggest challenge he or she faces is in explaining IT costs and cost structure to the CFO and lines of business who generally speak a different language and may not understand half of what is in most PowerPoints.  Costs need to be explained by solution, programs, and projects rather than Cost Centers and GLs. That’s never easy.  Slicing, dicing, trending, and forecasting cost has always been a challenge but the last few years have seen those challenges grow exponentially.

It used to be easier. Two and a half decades ago, more than 65% of IT Spend was in Telecom services and hardware. It was not being managed particularly well. There was rogue spending. Bills were being paid locally and there was no inventory control to speak of. Even so. Everyone understood   dial tone, long distance, Toll free and pagers. Everyone understood private networks connected the corporate dots on the map.  The late 90s introduced in rapid succession the Internet, the cell phone and the personal computer and for that matter the Chief Information Officer to try and get their hands around all that new cost.

Total traditional Telecom spending as expressed in per employee cost really has not changed much in the last 20 years. In fact, if you exclude wireless cost, per employee cost has likely decreased, owing both improving and more affordable technologies being available to provide enterprises voice communications but also due to better control of telco inventories. It’s the rest of IT spend that has to be explain and understood.  How did get so broken so fast? Why is Telecom managed so well and everything else so messy?

Well to start with the “Rest of IT” has no equivalent to what has been in place for 15 years on the Telecom side of IT. Telecom Expense Management (TEM) solutions are far from perfect. Order and Contract management elements are not as strong as they could be, and adoption of these specific subsystems is viewed as cumbersome and rigid when emails and Post-it notes, and contract binders work simply fine. The data management requirements are daunting and have never been required to pay the invoices.

Even with those languishing functions, TEM solutions are being used effectively by practically every organization with the endpoint base to justify it. Universal, ubiquitous, and it gets the job done.

The TEM industry has become what it is, not merely because of the technology, automation, and process centralization they afford. Success is really being driven by the ecosystem that develops around implementing the solution. The automation demands data quality which in turn requires standard practices, if not Best Practices. Telecom engineering team who quickly adopt to what the TEM solution requires even if they do not used the application themselves. Even so, the core of TEM success, is mostly tied to the small core team managing the daily functions on both the client and provider side.

TEM works because the solution sets, deep knowledge and institutional memory that surround the application have become very mature and self-reenforcing. They have also become quite insular.  And that is the main reason these solutions are not being reengineered or repurposed for a greater role in managing most of what CIOs contend with budget-wise.

The same elements that have contributed to TEM’s success have also hamstrung it from the horizonal growth in capabilities that CIOs and CFOs are really clamoring for.

Today, Traditional Telecom only accounts for about a third of global IT spend. It is the rest of the cost that CIOs have such a challenge with.

I’ve noted with some amusement, attempts to rebrand these solutions as “Technology Expense Management” companies. We saw it first about ten years ago when the major TEM players started gobbling up Wireless Expense Management firms. It was a practical next step in moving beyond reconciling, allocating and paying mobility bills. TEM applications could already do that and to be honest, on the surface, wireless seems no more difficult than allocating and paying a large POTs invoice.

What the TEM providers lacked was the ability to do High Churn Inventory Management, Auto-Discovery, Utilization Management, Optimization Analytics and Execution, and Policy Enforcement. These capabilities are distinct from processing invoices This has also been where most of IT overspending is and how it is identified and dealt with.

What the TEM community (and the VCs backing up these acquisitions) quickly learned was that there was a bit of smoke and mirrors in the WEM space with regards to automation, but the other thing they discovered was that WEM solutions were actually being sold and deployed into a different IT silo who had no real use for an invoice-centric approach.  Wireless managers were consumed with the challenges of inventory churn, end user activations, corporate application deployment, Data Pools and figuring out a coherent BYOD strategy. They cared about cost and budgets to be sure, but they were not concerned with the invoice payment piece. This separate paradigm made application integration challenging and a “Single Pane of Glass” nearly impossible. The capabilities that reduced outlays for wireless expense wound up being consigned to “Professional Services” offerings rather than being leveraged to kickstart developing the automation needed to reduce cost “auto-magically”.  

What these efforts ultimately revealed was that smashing IT silos is not as simple as it might seem, but it also revealed how insular and isolated TEM actually was and continues to be within the IT Organization. The reality is that the WEM space seems to be flourishing as is Managed Mobility Service space. One would think there would be substantial lessons learned here but we have seen new TEM pioneering in Cloud Cost Management and SaaS expense.  To these TEMs credit they have built these elements from scratch rather than gobbling up another company up and attempting a shoehorning of the technology into their existing applications.    Time will tell, but market capture and opportunities in these other IT categories  will likely face significant headwinds for even the strongest traditional TEM providers. Not simply because of how impenetrable other IT silos are but because the market has been saturated with alternate niche solutions providers.

By my count, there are no less than 150 providers in the Technology Spend Management space with SaaS-based applications that discover and provide actionable cost analytics across the rest of IT spend and at least a hundred more that claim auto-discovery and Inventory management capabilities which is step one in controlling spend and auditing invoices.  Garner and Forrester are tracking these solutions sets for Software License Management (SAM), SaaS Management (SaaSm) used by the enterprise and Cloud Cost Management and Optimization (CCMO), recognizing their value. legitimizing their capabilities and certainly supporting market penetration.

These new solutions are all claiming they can reduce cost by 30%. That is obviously a huge amount when those cost, they want to touch represent 65% of IT invoicing. But there are gaps. Primarily these tools look at inventory utilization and make recommendations on what can be shed or optimized. There is a contract component, but they do not process or audit the invoice and only a handful of these providers offer any kind of outsource service. 

By comparison, TEM applications bash inventory against invoice to reconcile, allocate and ultimately process the payment of the invoice. These applications (and I include WEM in this category as well) may well represent a new class of applications that is fundamentally distinct from “Technology Expense Management”. It is the invoice after all that shows up on the P&L and not the opportunity to save budget dollars.

These new solutions may well prove to be indispensable elements in a CIO’s spend management tool belt.  But without the capacity to process the invoice against current inventory and without a BPO function to support optimization efforts, in the near to midterm, the IT directors who buy these tools will be largely responsible for cost management outcome and showing the ROI.

Absent building fully mature spend management practices and ecosystems around  Cloud and Wireless, Software and SaaS and let’s not forget outside labor and expertise, the harried CIO still faces surprises every month end close. Yet that is the moment we are in right now. The emerging issue is what an who drives that next step.

So, a series of questions emerges:

·       Did the TEM industry miss the opportunity to expand their market presence because the maturity of TEM Ecosystem created a barrier to horizontal growth?

·       Can the TEM Ecosystem be transformed and leveraged?

·       Is there a growth path forward for TEM when “control” of IT spend (particularly Mobility and Cloud expense) is being challenged by competitive elements?

·       Will these niche players buttress their own ecosystems in other spend categories and make them just as relevant and effective as TEM was 20 years ago?

·       Do these new niches find their own path to consolidation across the other IT silos and stand next to TEM in support of the “rest” of IT? Or are we headed towards distinct spend management solutions for each silo?

·       Are we really saying that CIOs are going to need four, five or even six different logins to understand their costs and plan their budgets?

For clarity, nothing in this analysis should be viewed as criticism. The IT spend management marketplace has never been monolithic; its challenges are substantial; and its solutions will continue to evolve at their own pace.  I think legacy TEM solutions and the new solutions are great.  I think there is huge opportunity for managing and reducing cost across the board. My concern is where this all lands and whether we are headed toward thicker walls in all IT silos or some sort of convergence and interoperability and a “Single Pain of Glass” for either inventory or invoicing and what will drive that forward.

To be continued.