It's time to close the gaps in the IT Financial Management Market

Author's Note: Based on the feedback of followers we just created a new LinkedIn group to pull the various niches together. The Global IT Financial Management Solutions: Leadership Forum.

---------------------------------------------------------------------------------------------------There are huge costs involved in providing the modern enterprise with the technology necessary to support customers, employees, and suppliers. Every single customer transaction and every single employee activity relies on the technology that the IT department manages or is ultimately responsible for.

The reality is that while technology and automation do achieve their promises adeptly, each transaction aided by that technology has a cost. There is a huge financial burden involved in supporting a technology stack that is as wide as it is deep and that is all designed to improve the customer experience and make business operations run with agility and efficiency. And yet the modern CIO walks blindfolded through minefields practically every day when it comes to managing IT expense. And it is getting more complex by the day.

What is Technology Cost Management

Technology Cost Management as both as a practice and as an industry has been around for about 35 years. It’s gone through an extraordinary evolution and growth that largely parallels the explosion in IT operations. Broadly speaking there are two approaches these solutions utilize to drive savings for the enterprise. There are expense management applications which are focused on tying technology inventory to technology invoices (IEM) and there are Inventory applications which focus utilization and optimization of technology services (IUM). There is another group on solutions that focus on inventory lifecycle (ILM) from either a contract or aging/versioning perspective, but this approach tends to offer the ability to manage asset assignment that push costs actual cost away from the IT Department on a monthly basis. Some ILM solutions support discovery of new inventories, entitlements, and renewal obligations rather than directly reduce costs. 

• Inventory Expense Management applications -- those that focus on technology invoices -- validate and allocate billed charges. But these platforms do not provide auto-discovery or measure utilization, contract expiration or offer optimization alerts. These solutions have been around for nearly a quarter century and have focused primarily on legacy telecom services.
• Inventory Utilization Management platforms, on the other hand, ignore the invoice altogether and focus solely on identifying opportunities to reduce unnecessary spend. This space is much newer. Most players in this space have only been around for about five years and have focused on non-Telecom spend categories.
• Inventory Lifecycle Management platforms capture inventory and can support the distribution of either invoiced cost or chargebacks but lack any insight into utilization or drive optimization. These applications are largely focused on hosting inventories in support of Help Desk functions rather than those that manage costs.

I am presently tracking nearly 500 Technology Cost Management solutions (TCM) in this broad category and have become passionate, if not somewhat obsessed, with how this industry has evolved and how agile it has been in adapting to an IT landscape that gets reinvented every five years or so. But I am also fascinated by the enterprise’s embrace and adoption of these solutions: What’s working and what’s not.

These solutions, taken as a whole, support visibility into spending patterns and cadences when used as intended. They offer CIOs and the senior managers reporting to them substantial visibility into how the IT Dollar is spent and where the waste is. The pitch from both the IEM and IUM sales folks is that their applications can reduce unnecessary spend by 30%. I don’t doubt those numbers, but it’s my belief that enterprises continue to struggle with adoption of some of these solutions either in embracing best practices or in developing the subject matter expertise necessary to see and capture those promised savings.

The Evolution of Technology Cost Management

To understand the disconnect between these tools and the enterprises who purchase them we need only to look at how the industry has developed over the last 35 years.

TCM’s evolution as an identifiable industry finds its roots in the period immediately follow the breakup of AT&T in 1984. The enterprise’s love-hate relationship with “Ma Bell” suddenly found itself with a multitude of viable vendor options. But without a centralized service inventory and no real sense of what anything cost it was difficult to measure the impact of migrating to less expensive solutions. Suddenly, it all mattered… a lot. That challenge, getting control of inventory and cost, sparked the rapid growth of Mom-and-Pop audit companies, which was both expensive and ineffective in capturing global service inventories which were changing rapidly.

Eventually, Telecom managers became tired of paying contingency audit firms through the nose and began to focus more on invoice processing as a way of getting a handle on spend and trend. Invoice accuracy took a backseat to timely payments. The Invoice BPO industry emerged quickly but it also quickly ran into headwinds. The solutions promised audit and efficient invoice processing, but neither was particularly scalable. AP Departments were seeing delays in processing and telecom managers still had substantial challenges with managing inventories that were being ordered and disconnected remotely. But it was the race to the bottom on price in a cutthroat effort to capture market share and chase investors as well as the advent of the internet that ultimately doomed the BPO market.

The Internet was essential to creating the ability to bring both the current Invoice and near real time Inventory together for the first time. But it was really Dot.com investors and the analyst community (Gartner, Forrester, Aberdeen) conspiring to create the first SaaS platforms that the market was crying out for.

TEM and WEM have successfully gained wide scale market penetration and adoption by enterprises because their solutions required hosting inventory and invoicing on a single SaaS-based platform. That capability was not possible prior to the Internet and it was the primary reason both the audit and BPO solution were never going to be long-term plays and eventually failed. Without inventory, enterprises were going to continue to hemorrhage budget. But without the invoice management piece there was no way to know there were abandoned/under-utilized services.

Creating Technology Cost Management Ecosystems.

The salient point here is that these new-fangled IEM platforms drove a new operational model of shared responsibility. The bargain was the TEM would be responsible for invoice capture and loading and the customer would be responsible for inventory management. Automation would provide for cost allocation, payment processing, and inventory audit. But it was the client’s responsibility to approve the invoice once the cost could be assigned.

That shared responsibility model drove both process centralization and the rapid development of an entire ecosystem between the enterprise’s telecom provisioners, the AP department and the TEM providers and it was run by staff that was sufficiently fluent in all three vocabularies. The Internet made all this possible and it only took about 18 months for the TEM industry to emerge in the form it has.

The expense management solutions still have challenges. They have failed to embrace the kind of Utilization Management and Optimization techniques in wireline and wireless services that the IUM space has embraced. When their pricing model is built on a percentage of managed spend, it is not difficult to understand what is going on there.

The business reorientation that expense management platforms required from the start of these solutions must be lauded. It created subject matter expertise and process ownership. It also created centralized ordering, contracting, and vendor management. It eliminated rogue telecom spend and helped define the various telecom cost buckets for IT leadership, the CFO, and Operating Unit Management. These are huge achievements that ought to create something of a roadmap for other IT categories even though most purveyors in these spaces are still wet behind the ears.

The IEM space has been successful because it demanded a Shared Responsibility Model and quickly created an ecosystem and expertise to manage it. This is precisely the gap that remains in other IT silos. It’s why shadow IT Spend continues to be such a significant challenge for most enterprises. It is also why CIOs continue to get blindsided by surprise cost every month.

What’s striking about the TCM industry is the degree to which these two approaches have operated independently from each other. Expense Management [IEM] vendors have largely ignored the explosion of costs in non-telecom spend categories and the opportunity to manage more types of IT service inventories and payments. And at the same time, Utilization Management [IUM] solution providers have made a conscious decision to avoid processing any payments or validating the savings they have identified through their applications.

Now there are a lot of reasons why these companies have decided not to play in each other’s backyards. One significant barrier to encroachment for the IEMs is certainly a highly competitive environment with too many players to contend with. Part of the problem is certainly the additional development and labor cost that attends encroaching on each other’s domains.

Applications that measure utilization and recommend optimization can certainly reduce unnecessary spending and are welcome additions to the TCM universe. But in my view the vendor invoice remains an indispensable element to the development of a shared responsibility model and a precursor to the kind of effective ecosystem that TEM/WEM enjoys. These four categories of cost (Mobility, Cloud, SaaS Applications and Software Licenses) will come to dominate IT spending within the next two years. I worry that actual optimization work will be overwhelmed by the daily workload of these various IT groups. TEM's success has depended upon highly developed Subject Matter Experts sitting in the middle of the process and owning cost control.

A Challenging Future.

Twenty years ago, Telecom, as we know it, represented 70% of IT spending. Five years from now it, may only represent 15% of IT spend. We are going to see a substantial increase in non-telecom spend. IOT spending alone is expected to explode in the next four years by $1.25 Trillion and 5G is going to profoundly challenge traditional voice traffic which has always been the bread and butter of the TEM industry. What that means is far fewer invoices to process and a significant challenge to the one viable cost management ecosystem CIOs can depend upon.

Invoice volume and frequency along with the segmentation of the IUM space are presently hindrances to adding an Invoice Management piece to these solutions. That’s obvious. My general assessment is that while the technology that has been developed to manage IT cost is substantial and scalable and does much of what it promises, it has largely failed to deliver, thus far, the kind of visibility CIOs need to manage non-labor IT Spend and insure they are squeezing every penny they can out of the IT Dollar. That only comes with the kind of ecosystem promulgated through integrating invoice capture and processing with solid management of highly volatile inventories. You can expect substantial growth in cost but that doesn't necessarily translate into growth in invoice quantity. What it does present is some significant challenges to the distribution of that cost to the rest of the enterprise. And that is why developing domain expertise is so important to the CIO.

Perhaps convergence is the TCM’s future state. Perhaps the marketplace needs to pick some winners and losers. Perhaps the investment community needs to drive some consolidation and cross-pollination. Perhaps the analyst community can begin to recognize that Utilization Management is a single category rather than five or six or seven. Perhaps CIOs and IT directors are just going to get tired of accessing multiple platforms to understand and try to explain why they went over budget again.

Today, there are over 150 niche players in the Utilization Management space, most of them seem content to provide the application and let others provide the labor and expertise to make those recommendations reality. They are marketing to the Managed Service Provider space as much as they are to the IT Director. Pulling the MSP into a Shared Responsibility model would provide some long-term stability to cost management and certainly additional breadth and depth of expertise that is lacking internally for most enterprises.

It's Time For A Different Discussion.

Ultimately, CIOs and their IT Directors need a Single Pane of Glass to manage their environments, inventories, invoices, and their budgets. Goodness knows there is a market opportunity there. Whether that market can emerge in these other IT spend categories without the development of spend management ecosystems first is an open question. As is the question of where the necessary subject matter expertise sits.

What’s clear to me is that many discussions among these providers, the VCs that back them, and the analyst community need to begin as soon as possible. Lest we wind up reverting to where we were a quarter century ago with highly volatile inventories in one world and highly complex invoices in another.

About the author. Steve Perkins has been a consultant, contractor, and client in the IT Spend Management space for a quarter of a century. He is presently tracking nearly 500 firms in this category. He's an ardent evangelist for the capabilities of these solutions, but has come to believe that adoption is being hamstrung by market forces and a lack of energy around convergence and interoperability. This series of articles is intended to start an important conversation, both public and private, among both IT spend management practitioners, their investors and the analyst community. 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/