Experts explain the three simple steps that every company can use to cut cloud software costs as economic turbulence leads to shrinking IT budgets

  • Companies looking to save money during the pandemic and economic uncertainty should take a closer look at their cloud software spending, experts told Business Insider.
  • As the software as a service model has taken hold, cloud software tools have become critical to running a business, but it can be difficult to know what employees actually use and need, experts said. 
  • Companies should be data-driven in assessing what tools they should keep, make sure they’re getting the most out of what they’re paying for, and be willing to renegotiate contracts with their vendors. 
  • Visit Business Insider’s homepage for more stories.

As the coronavirus-related economic crisis forces many companies to look for ways to cut costs, finance and IT leaders should closely examine their cloud software spending, experts say. 

The subscription model pioneered by early cloud companies including Salesforce and NetSuite (now a part of Oracle) is meant to help companies be more productive, innovate faster, and adjust quicker.

Over the last two decades, the software-as-a-service subscription model  — where companies pay monthly or sign one-to-three year contracts — has helped companies get updates more easily and avoid paying a high sticker price up front. However, with so many tools available, bills can rack up and it can also be difficult to know which ones employees actually rely on. As the coronavirus crisis tightens budgets, those potential negatives are amplified, experts tells Business Insider. 

“I think what’s happened is that the CFO has taken control of budgets, rather than the CIO, and is saying ‘You will not spend money,'” said Ian Gotts, CEO at Elements.Cloud, a company that helps implement cloud software like Salesforce.

“There’s a very strong cost-cutting agenda at play,” agreed Jody Shapiro, the CEO of Productiv, a startup to help manage software spending. Companies tend to spend the most on employees, real estate, and cloud software, he said, and while cloud software is essential and can’t be completely cut, there are ways companies can reduce their costs and get the most out of what they’re paying for. 

Here are the three steps for managing cloud software costs, according to Gotts, Shapiro, and two other experts:

Analyze what software your employees are using to figure out what’s most essential

Because cloud software is generally easy to download and start using (think: Slack and Zoom), it allows companies to be more nimble. However, that ease of integration can mean that IT departments may have a hard time keeping track of everything employees are paying for. While it’s unrealistic for companies to cut off their cloud software spending completely, using data to identify what is actually necessary to run the business is key.

Companies should take a long view when deciding what “essential” looks like though, Gotts said, because companies that use cloud tools for efficiency or long-term savings will ultimately come out of the pandemic stronger.

“The effort should not be on saying, ‘How do I make some short term decisions about saving a little bit of money here or there,'” Gotts said. “The effort should be spent on saying, ‘How do I become more agile?'”

It’s also important to make sure employees know that the company has their best interests in mind, said Ryan Westwood, CEO of Salesforce partner Simplus. Companies should “put employees first, then customers, and then shareholders,” he said, and think about cost cutting in that order. 

To do this well, every company should track statistics about how its employees use software, Shapiro said, like which apps they’re using the most, how much time they’re spending in each, which features are the most important for people to get their jobs done. Once the data is laid out, the cost-benefit analysis for each individual tool will be a lot clearer, he said: Every decision can be data-driven.

Cut duplicate tools and make your current software as effective as possible 

Once companies get an idea of what they’re paying for, CIOs should focus on cutting out duplicate tools that do similar things

After companies run their analysis, they’ll often find that they have multiple tools for things like project management, cloud storage, and data visualization, Shapiro said: IT departments should ask, “What actually makes sense for us?” 

For example a company paying for both GSuite, which includes video chat tool Google Meet, and Zoom, they should reevaluate if Zoom is a worthwhile investment since they can get similar functionality from their existing Google subscription. If a company decides to keep spending on Zoom, it should be because they have a data-driven reason to believe that it actually makes people more productive, Shapiro added. The same analysis can be applied to a company paying for Slack and Office 365 licenses, which includes Microsoft Teams.

Part of this process is educating employees about how they can get the most out of the tools that they will continue to have access to. For example, if a company has Salesforce licenses, it should be using them to their fullest extent. 

“Because Salesforce is so easy to customize and add new functionality, we should be looking at other places where we can build on the platform so that same license gives me more capability,” said Gotts.

Although it may require some extra education and development work, the end goal will be more efficient usage and cost savings, Gotts said. 

Renegotiate contracts and reallocate licenses to fit current needs

Once unnecessary tools are cut, companies can also work with vendors to reduce or reallocate licenses can help save costs in a pinch. While that may require having a good relationship with the software makers, vendors have shown themselves to be more accommodating than ever in this unprecedented time. Case in point: Slack, Salesforce, and Dropbox all said in their most recent quarterly earnings reports that they gave customers who needed it flexibility on costs and contracts.  

“If a company believes that you’re a good customer and they think that you’re suffering, they will work with you during the time that you’re suffering to help you preserve your business,” said Ted Elliott, CEO at Copado, which helps companies deploy Salesforce software. 

If a company has held layoffs, it should check to make sure it’s not still paying for software licenses for absent employees, he said. 

Similarly, Shapiro added that CIOs should figure out if they can cut down the number of licenses for a tool by restricting it to only the employees who absolutely need it the absolute most. It may not always mean cutting licenses either. For example, with Salesforce, if a company expects to sell less product but keep existing customers, they could shift licenses from Sales Cloud to Service Cloud, Shapiro said. 

Ultimately, the software vendors don’t want their customers to feel taken advantage of, Shapiro said, so if a company comes into a conversation having done internal research, and with good reasons, that will set the tone: “It’s a data-driven conversation where we’re sitting on the same side of the table, trying to figure this out together, versus an old school, arm wrestle, tug of war, kind of thing.”

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