Searching for IT Cost Savings Amidst Rising Technology Demands
In today’s competitive economy, everyone is looking for opportunities to drive out costs. It has been all over the news, in a 2023 article published by PWC they stated that 42% of senior executives were making cost-cutting a priority in 2023, a number which will surely rise in 2024. One question I have been asked several times over the past few weeks is how to cut costs in IT while meeting the increasing demand to transform and do more. According to a recent webinar by Gartner, there are some very interesting market dynamics in play with both increasing spending and cost pressures happening simultaneously:
Security Spending is expected to increase by 11% in 2024
Global AI spending is expected to increase by $3 Trillion by 2027
Canada and the US are projected to see declines in GDP growth in 2024, adding cost pressures to already tight technology budgets
With rising demands to reduce risk through security and enabling Generative AI, organizations must find a way to drive costs down in their existing spending and relationships to accommodate these required investments. Without having to shake the couch cushions too much, there are several practical ways to find key efficiencies and cost savings across the board without impacting the pace of innovation across your organizations.
Look to High-Margin Legacy Agreements.
Traditional technology vendors have been able to operate in a high-margin environment for a long time. When you ask ChatGPT for the average margin for IT Services companies, you get a range of 20% — 60%, and traditional technical staffing agencies can easily rack up a $100k bill over 4 or 5 hires. Although these services can be critical for the effective operation and scaling of a company, understanding new market options, or alternative financial models that are less one-sided can lead to impactful renegotiations, or surrounding yourself with partners more aligned with your company’s goals and trajectory.
Understand the Use Case and Utilization of Recurring Licencing and Subscriptions
The subscription economy has taken the world by storm and corporate licensing is no different. Gone are the days of buying and sweating licencing as a long term asset, and welcome to a world of everything as a service. Although fantastic for feature updates, investments in ongoing security and ensuring your team has the newest platforms, there is also a harsh reality that many organizations lack the asset management to properly keep track of licensing purchasing and allocation. When you consider that (with the addition of the CoPilot Add-On) a common Microsoft business licence can run around $60/month/user, one improperly managed account can eat up over $700 a year in wasted spend.
After removing unused licences, understanding that your employees have the right licences for their roles, and mapping the utility of everything from their Canva, Adobe and Grammarly subscriptions can lead to massive savings.
Beware the Ungoverned Autoscaling Contracts
I was recently speaking with a business leader who told a story of a $1,000 annual subscription for a marketing tool that his team needed that converted into a $1,000 per month subscription after the initial one-year term. Although (thankfully) cancellable, this demonstrates the risk of auto-billing and autoscaling contracts. Many contracts have escalators over time as hardware ages, and services become more expensive, and agreements need to be fair to service providers as much as the companies consuming them. However, unchecked or ungoverned agreements can easily scale out of control and become the norm, adding to massive impacts on your budget. Having a mapped out and clear sense of contract renewal dates, scaling provisions and a clear governance model is imperative, and closely evaluating subscriptions or agreements that fall outside of that schedule will likely deliver some significant cost wins!
Having a clear sense of how and where to look for cost savings gets easier over time and with practice, but is not a moment-in-time exercise, but rather an ongoing discipline. There is a tremendous opportunity for business and technology leaders that capitalize on the incoming wave of technology enablement, but balancing innovation with the economic realities of having to reallocate spending will be the real superpower.