Key Stakeholders: Chief Information Officers, Chief Financial Officers, IT Finance Directors and Managers, IT Procurement Directors and Managers, Accounting Directors and Managers, Telecom Expense Directors and Managers, IT Operations, IT Strategy, FinOps Directors and Managers
Why It Matters: IT will bleed cash through incomplete inventory management. Organizations need liquidity to save jobs and to survive a recessionary environment.
Top Takeaway: IT has the tools, capabilities, and obligation to create a solid inventory practice that eliminates wasteful spending while providing employees with the right resources and preparing companies for a future of digital transformation
This blog marks the final installment in our series on managing IT in the Time of Corona with an intense focus on inventory, the foundational piece of a strong IT management practice. If IT does not have complete insight into the assets and services for which it is responsible, then everything – expenses, optimization activity, equipment assignments, etc. – is inaccurate and creates waste across the board.
Right now, halfway through a year fraught with the impacts of COVID-19 and quarantine on a hobbled economy, cash flow is king. All organizations and departments are living or dying by this metric. As I’ve repeated in every blog and webinar since mid-April, IT holds the keys to freeing up cash for the rest of the business, but CIOs and CFOs ignoring the potential savings in IT are doing their organizations a disservice. IT has the ethical obligation to conduct the analyses that expose and correct financial waste, especially in light of the first stage of COVID IT, Survival, where corporate controls took a back seat to basic operations.
The IT Rule of 30 shows that every unmanaged IT spend category (network, cloud, telecom, mobility, SaaS, etc.) contains, on average, 30% in waste. March, April, and May were a perfect example of uncontrolled and unmanaged spend environments. Thirty percent of hundreds of thousands or even millions of dollars is a lot of money, more than enough to bolster cash flow and fund salaries.
And while the pandemic has created the impetus for finding cash, it’s also bringing to light any aspects of IT that have gone unmanaged. Here’s why it matters.
Amalgam Insights estimates that three-quarters of organizations in the United States have frozen their IT budgets because of COVID.
At the same time, employees who started working from home with little notice and few resources bought applications and other tools, often consumer-grade, without IT’s knowledge – and charged the company. This shadow purchasing means IT has a lot of new inventory to account for and track, and even rein in wherever possible. Cleaning up known and shadow inventory will undoubtedly uncover significant amounts of unnecessary spending the organization can end or repurpose. With that in mind, let’s look at inventory through the lens of telecom, mobility, IaaS and SaaS.
The Nitty-Gritty of Managing IT Inventory
Remember, inventory is the bedrock of expense management. It supplies all the information that feeds into invoices, contracts, and services. Without thorough, transparent, and constantly maintained inventory, the rest of an expense management practice becomes an unreliable source of data and a money-squanderer. IT experts want to avoid this and want to be good stewards of the business, but they need to gain operational and financial control of their technology portfolios. Here’s how to get started:
- Centralize all service orders. There’s no way for IT to know what it owns unless it knows what has been ordered. The problem is, mobility, cloud, and bring-your-own everything has led to one-off, hidden, obscured, decentralized service ordering. It’s not just about the volume of orders – it’s the number of people who can submit orders using credit cards and corporate email addresses. IT must implement a single source of truth where employees place service requests or document orders so IT can track every inventory component.
- Align service orders to inventory. First, IT needs to figure out whether a service order actually got completed. That sounds basic but it is a shockingly common occurrence. Amalgam Insights finds that IT orders do not get completed for a variety of reasons including problems with billing systems, information getting lost in translation, and human mistakes. Before proceeding to step 3, make sure service orders and inventory match.
- Categorize and/or tag inventory. Assign what has been ordered to the appropriate business department and make sure that information lives in various systems throughout the organization. That way, all databases contain the same details. Repositories Amalgam Insights recommends linking to IT inventory include: HR systems, Active Directory, general ledger, single sign-on, IT asset and service management, project management, cloud management, and governance.
IT can communicate with these systems either directly or through tagging. The overarching idea is that integration aligns inventory change and tags to employee and project changes – and nothing gets lost in the shuffle. We’re all aware of the example of an employee who leaves the organization and whose mobile phone ends up unused in a drawer, even while the cell phone carrier charges for data and service, or who sets up a processor-intensive job with five duplicate instances that never get turned off.
- Discover what is missing. To truly understand inventory, IT must understand who is creating the inventory. This is a constant challenge. Anyone with a credit card and an employee ID can place orders. To combat this, think not just about what you’re supporting but the roles that would order the technology you’re supporting. Inventory is a team effort. Knowing that, identify and speak with your key technology orderers to learn why they are ordering phones, SaaS, and other technology services. Find out why they are adding to the IT budget when IT is trying to control costs and how they are governing the services that are ordered. By doing so, IT will learn what tools it hasn’t been supplying to help employees with their productivity. Managing IT is not about stripping staff of resources – it’s about empowering them with the right platforms and equipment, while getting the most for the money spent.
- Track, track and track again. Breaking this down, this first means tracking all aspects of inventory features. It is not enough to know that IT has ordered a phone line or a cloud service or an application – you need to know the associated features.
Second, IT must track logins and usage for all assets and services. Cloud invoicing is like call accounting on steroids for those with a telecom background. Eliminate any and all zombie services that drain resources long after the owner has left the company or project has been completed. In the time of COVID-19, organizations especially cannot afford to pay for something they do not use.
- Cross-check invoices with inventory. This one is pretty basic: Invoices and inventory must match. No exceptions. When it comes to telecom, Amalgam Insights sees 80% of bills with at least one error. There is a lot of room for mismatches between invoices and inventory with telecom. Technology vendor marketing and sales departments like to change service names, tiers, and features frequently to provide better deals. But these frequent customizations pave the way for wrong charges.
IT needs to vet all of its large bills (all bills, really, but especially those most prone to problems) hawkishly each month. For its part, public cloud invoicing and inventory generally have few inventory errors. But the inventory problem for cloud comes into play with shadow IT, or employees placing orders outside of IT’s knowledge (but whose costs still end up on IT’s shoulders). SaaS products, like cloud, feature so much agility that tracking who is buying what and when is hard. At the same time, SaaS companies, like telecom suppliers, change pricing, features, and tiers often. A $10 plan can become a $50 plan, or vice versa, overnight.
- Prioritize contracts based on inventory portfolio. This essentially boils down to bringing together two worlds – that of inventory and that of sourcing/procurement. In an ideal scenario, the people in these departments will have a strong working relationship and pool their strengths for the good of the organization.
Frankly, inventory folks do not care to negotiate contracts and sourcing/procurement managers do not want to track inventory. Melding certain aspects of each unit into the same set of priorities will create benefits including:
- Replacing obsolete services with new ones
- Showing where to prioritize negotiations and price discussions
- Using monthly and quarterly inventory trends to negotiate better rates and services
The biggest takeaway from each of these steps is that inventory is not a standalone effort within IT. It is a team undertaking. Representatives from legal and finance might even need to get involved. So, maintain strong cross-departmental relationships. Keep tabs on who has been ordering, and whether or how ordering has fundamentally changed. Learn each spend subcategory to understand who IT may need to be talking with to pivot or put the kibosh on spending.
Conclusion: Clean Up Inventories One Category at at Time
Do not tackle every inventory category at once. You’ll quickly become overwhelmed and miss critical details. Start with one bucket and figure out which stage it’s in: Prepare, Herd Cats, or Optimize.
“Prepare” means getting the inventory across your IT subscriptions up to speed. This includes centralizing service order data, aligning the service orders to inventory, and then categorizing the inventory.
“Herd Cats,” the intermediate stage, requires doing discovery to understand how IT has changed since March, when most organizations in the United States started shifting to remote work. Knowing how resources have been reallocated, added or removed will contribute to contract renewal talks and/or any difficult discussions with vendors. Checking expense management, Single Sign-On, and invoice management solutions will provide guidance on what is missing from the IT view of inventory.
“Optimize” takes place after the first two phases, and ties back to the aforementioned notion of prioritizing contracts, vendors, and spend categories based on inventory portfolio.
This process needs to be conducted methodically, one IT category at a time. There’s a lot of cleanup to do as a result of all the changes caused by COVID. Give the IT department one to three months to accomplish this. I recommended starting this process back in early April to our advisory clients and in late April to our webinar attendees. If you haven’t started yet, clean up the inventory now to take advantage of COVID-related amnesty and goodwill that currently exists across IT vendors.
Get your inventory clean and you’ll save yourself, your colleagues, and the organization a lot of heartache as we all face some hard times. And cheers to you, IT, for doing so much to free up cash, and save and bring back jobs. In many ways, you are unsung heroes.
***If you are seeking outside guidance on finding solutions to help manage your IT environment, Amalgam Insights is here to help. Click here to schedule a consultation.
***To continue your trek as an IT hero, join us at TEM Expo, which is still available at no cost until August 12 to learn more about how to prepare for COVID IT and take immediate action to cut costs. I especially recommend watching Andi Pringle’s session on The Art of Inventories, Robert Bracco and Dana Risley’s session on IT Financial Management, Shane Hansen’s session on Cash Management, Robert Lee Harris’ session on Cloud Savings Cost Management, and our Executive Panel on the Future of the Technology Expense Management Market.
***And if you’d like to learn more about this topic now, please watch our Amalgam Insights’ webinar on Inventory.