Executing the IT Rule of 30 Through Invoice and Payment Processing
COVID-19 and the worldwide shift to remote work has, perhaps irrevocably, changed IT. Before the pandemic, the IT department may have let some costs and shadow technologies slide. But now, there just isn’t room for slack.
In this installment in our series on COVID IT, Amalgam Insights looks at payment and invoice processing issues. This is a key area for IT, finance and sourcing/procurement to clean up together. The more waste the organization eliminates, the more cash it can save and the more jobs it an bring back – two main goals for any business in a recessionary environment. With that in mind, read on for more best practices that will help IT and its line-of-business counterparts navigate rough waters and steer toward recovery.
‘Normal’ No Longer Cuts Muster
Even in “normal” times (remember those?), IT lost a lot of money through inaccurate and unchecked invoices. Now, though, the situation has worsened. Since March, when the coronavirus pandemic started affecting most of the United States, IT experts found themselves adding and removing accounts galore. Either people had been laid off and IT needed to make the resulting changes, or people required more technology to support productive work-from-home experiences (and some of these extras slipped past IT’s notice – i.e., shadow IT). Either way, the chaos intensified.
Speaking of remote work, Amalgam Insights estimates that 42% of employees (over 60 million workers) in the United States no longer go to an office. That’s compared to an estimated 8% at the end of 2019. Clearly, COVID-19 has changed the nature of work for months or years to come.
For IT, the trickle-down effect comes in the form of shifting technologies to accommodate secure remote access, while simultaneously devoting attention to stringent expense management. This blog focuses on the latter issue; go here to read about the former. So, the best way to start paring and streamlining costs? Act on the IT Rule of 30.
The IT Rule of 30
The IT Rule of 30, based on our experience and research, states that every unmanaged IT subscription spend category – mobility, telecom, cloud, SaaS, you name it – averages 30% in waste. If your organization spends, say, $1 million a year on technology subscriptions, odds are that $300,000 is unnecessarily going out the door. Across all IT spend categories, this waste typically makes up 1% of bookings or 6% of payroll. In other words, that money amounts to salaries and/or cash that could (should) have been conserved.
Consider this, too. Every time a new technology or configuration of a technology (Bring Your Own Device for mobility, for example) enters the organization, the IT Rule of 30 comes back into play – even if expense managers have addressed existing spend categories. The work is never really done.
A Refresher: Where Are You in the 6 Stages of COVID IT Management?
Let’s step back a little. Before you can make much more progress, it’s important to know where your organization stands in the 6 Stages of COVID IT Management. In theory, by mid-May, the business would have just finished up Step 1, or Survivor: Shadow IT Edition, as we like to call it. By mid-June, organizations really should have reached Stages 2 and 3 – securing the business and auditing the environment.
The bills IT received in May will reflect the first full month of COVID-based charges. And that’s where up to half of your savings may be hiding, in plain sight. If you’re conducting month-over-month invoice reviews (which most IT departments are unless they’re just super disciplined), follow the guidance below for uncovering a whole slew of savings opportunities.
- Compare February, March and April invoices. Spending amounts will have fluctuated. Some areas will show increases while others will have gone down. Take note of the spending variances across these three months.
- Check changes in accounts, features, and usage. Here, for instance, cloud resources dedicated to the headquarters office may show precipitous declines in usage because nearly everyone, is working off-premises. Conversely, as another example, you likely have a leap in mobility and SaaS accounts, features, and consumption that needs to be reconciled.
- Identify abandoned technologies. “Abandoned” often translates into what is commonly known as “zombie” services, features and devices. Look for zero-usage services and equipment and any associated features. Typical suspects include old projects that have long ago wrapped up or devices assigned to an employee no longer with the company.
On a granular level, zero usage is harder to detect when employees have more than one device. And from a cloud perspective, the sheer amount of invoice detail can stymie even the most attentive IT expense expert. Automation and other tools come in very handy – but more on that in a bit. In terms of technology substitutions, employees may have swapped out one SaaS platform for another, but the organization continues to pay for the old one. In fact, this situation helps create an environment of duplicate types of services.
For example, organizations are supporting more video conferencing platforms than they need. Survey your internal end-users to understand which services are most useful and functional and then narrow down options based on true employee need. Invest the most with the most useful platform and then use that as an opportunity to boost contract-term negotiations with the chosen vendor.
- Detect duplicate services: On a similar note, regarding duplicate services, explore what’s hiding in the IT shadows. During the scramble to remote work, a lot of staff brought their own apps to the corporate environment. Either security measures barred their accesses or they just couldn’t use the organization’s required counterpart for some reason, so they made sure they could perform their jobs by introducing their own technologies. The organization may be paying for some or all of these shadow IT resources. Determine what can be eliminated or condensed.
And use this time as a chance to build teamwork among expense-management colleagues as well as at-home employees. The idea is not to alienate anyone or make their jobs more difficult. IT must do what’s best for the organization all around. Pro tip: If you find a zero-usage service or device on April invoices, that’s a big sign the asset needs to go. If no one capitalized on it mid-quarantine, it’s unnecessary. Do not wait for three months of zero usage on invoices to get rid of these money drains. Make a difference in the organization’s cash position now. There is no place for complacency amid this pandemic.
- Assess usage issues in greater detail. With zero-usage considerations out of the way, next look for overages. These will mainly show up in the mobility, SaaS, and cloud categories. Check out categories of usage that are typically either capped at a low amount of usage or priced at an exorbitant rate compared to normal services. For instance, that $10 base monthly charge may sound like a great deal for a mobile phone plan, but if it only comes with two gigabytes of data and your employee is using 100, that deal is likely to hurt your budget. Also look for geographic usage costs associated with roaming, transfer, and multi-region service usage.
- Analyze Your Usage Data. If the IT department doesn’t already have a way to analyze data without overloading a person or a team, it’s past time to get one. This can be a system, a detailed algorithm, or a managed service provider with the requisite capabilities. There’s so much information to cull through and decipher – and then there’s the important follow-up work, including sharing results and strategies with procurement, finance, and other colleagues. Implement automation that scales alongside your needs because the amount of data to analyze will only keep growing.
- Don’t overlook taxes, surcharges, fees, and discounts. If cash becomes a real issue for the organization, these areas will prove crucial to evaluate. And even if your cash position is stable, there is no reason to pay for something you shouldn’t. First, check the accuracy, validity, and consistency of taxes and surcharges. Respond accordingly to clean up where necessary. A $5 charge 5,000 times adds up to a big deal. Then get with the account manager for each major vendor to find out what flexibility there may be for late fees.
Next, determine whether any minimum annual revenue commitments are at risk because corporate assets went underused in March and April. Chances are, shadow IT compromised these contractual obligations. When talking with the vendor, you may be able to invoice “acts of god” circumstances that will alleviate fines or fees. Finally, make sure discounts match agreements made with vendors. Discounts can show at the line item, service, or account level, and therefore be hard to pinpoint. Expense and sourcing/procurement should work together to make sure discounts are showing up as expected. If they are not, initiate the dispute process. Above all, be proactive, not reactive.
If Your IT Organization Is Mature, Do This
The previous recommendations mostly apply to departments that need to refine their operations or that spend most of their money in an ad hoc manner; as a result, they review invoices each month. If your organization does not fit into that profile, it’s probably pretty mature. This means all IT services, devices, and other assets already are cross-tagged across categories including geography, cost center, project, and so on. It further means you can then talk with the assigned owner about the necessity of the service or asset with the goal of helping to drive IT strategy and working with your finance team on zero-based budgeting exercises and continuous planning exercises.
If All Else Fails, Go to Extremes
Finally, IT may need to resort to some extreme tactics during this recessionary environment, especially if the financials for the second half of 2020 are looking more dire than the first. If matters get worse, IT may need to do some or all of the following:
- Reduce payments or pay late. This could go one of two ways. Say you reduce payments by $10,000 per month, but make a deal with the vendor that it will get that money at some point in the future. This may not be possible. However, if there is a way to balance the scale later, as it were, once revenue returns, the vendor could view this as a somewhat palatable option. If not, you may need to exert brute force by either reducing payments without vendor approval or stop paying altogether.
The caveat is that these approaches must first be set up with criteria that are provided to all of your vendors on the current state of the company’s finances and your organization’s needs. And this also requires the CFO’s support – and possibly the buy-in of other executives as well. These are draconian measures and top brass must know about and stand behind them. But this stance requires prior preparation: asking for reduced payments without transparency or executive backing is unlikely to work.
- Review contractual obligations to pay. Look at escape clauses, contractual duties, and service-level agreements. Assess whether each of these has been met or whether the contract has been breached in some form. If anything sticks out as a way to void the contract, proceed as it makes sense.
Amalgam Insights does not present these recommendations lightly or cavalierly. The vendor ecosystem is critical to the IT environment and the relationships are vital. Ideally, IT and vendors will collaborate to find outcomes that work for both parties. The last thing anyone needs or wants right now is more strife.
Conclusion: Key Takeaways for IT Invoice and Payment Management in 2020
There is no doubt about it: the IT environment has undergone sudden and perhaps permanent shifts to COVID-19. Because of that, IT must know how and where to cut costs to ensure responsibility throughout the rest of the year (and probably beyond). To do that, keep the following in mind:
- Remember the IT Rule of 30
- Understand that the IT organization should at least be in the second and third stages of COVID IT by now
- Identify new usage patterns, products, and vendors
- Optimize usage based on the “new normal”
- Be prepared to get tough with payment terms
And if you need any unbiased help with these actions, call on us. Click here to schedule a consultation.
Plus, join us at TEM Expo, available until August 13 at no cost to learn more about how to prepare for COVID IT and take immediate action to cut costs. In particular, Amalgam Insights advises sessions by Denise Munro on taxes, fees, and surcharges as well as David Schofield on contract negotiations for wired and wireless spend.
To learn more about invoice payment and processing and the tips and tricks that you may need in a pandemic recession, we’ve also recorded this recent webinar.