When Marc Andreessen made the bold statement in 2011 that software is eating the world, he uncovered a trend that would haunt businesses across virtually every industry. With most companies overpaying for their software by up to 30%, software spending continues to eat away at the bottom line.
And that’s not even the worst part. In a world that runs on software, companies that take a DIY approach to software procurement can feel the impact on nearly every aspect of their business. From employee productivity and burn rate to profitability and security risk, a misguided procurement process can lead to lost time, money and opportunity – all unsustainable losses for any organization.
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Buying software well can be incredibly difficult – some may even say excruciating. But when key decision makers follow a coordinated playbook for success, they can help ensure that procurement becomes a strength, not a liability. Consider these important elements to help streamline the procurement process.
How to streamline the software procurement process
Start by determining the tools you are using and how much you’re spending on them. To do so requires careful organization and collection of all the contracts you have within your organization. This means reviewing email chains, credit card statements, Google docs, invoices and any other documents that address your software contracts. With the average company juggling more than 100 software contracts and larger enterprises managing upwards of 500 contracts, having a single source of truth for your contracts is more important than ever.
Next, it’s time to gather and organize the data you need to determine whether your tech stack is being harnessed to its fullest potential, and in turn, make more informed decisions about your future software spend. Many companies are spending 50% more on cloud technologies than they did just two years ago, so pinpointing the actual costs of your contracts is essential. In addition, compiling data on when your contracts are up for renewal can help your company better anticipate future costs and allocate budgets accordingly.
Once you’ve collected and organized contracts and associated spend, companies must invest time in proper analysis of usage and spending. After all, nearly one-third of SaaS software spending is underutilized or wasted, making it even more critical for companies to get a handle on their SaaS sprawl – and the inefficiencies that come with it. Are you paying for three different tools that fulfill a similar need? Do you have an upcoming renewal for a tool that you’re not really using? What contracts are “must-have” versus “nice-to-have”? Engaging in a thorough analysis of usage, costs and effectiveness will help paint a clearer picture of your tech stack and any issues that need to be addressed.
Then, ask yourself what actions you can take to get a better handle on your software spend. Depending on your data analysis, you may decide that you need to downsize the number of contracts your organization has in place and cancel the ones that are no longer serving your needs. Or you may decide that you need to explore new contract terms or reduce the number of licenses, thereby rightsizing the number of contracts that your team needs to be productive. You may also look at underutilized tools that still provide value to your business, choosing to monitor usage rates leading up to contract renewal versus outright cancellation.
Purchasing process and automation
How is your company’s contract and purchasing process set up? What protocols are in place to protect software buyers from compliance, commercial and security risks? It’s not uncommon for companies to spend thousands of hours of manpower on contract approvals, negotiations, renewals and preparations.
Instead, companies should think about investing in insight-driven technology that builds workflows that automatically loop in legal, finance or IT approvers so that teams can move faster and ensure compliance. Automated workflows and approvals serve as guardrails for companies to ensure any new purchase request meets the criteria explicitly set forth by the company to mitigate risks. In addition, automated systems give employees more time to focus on higher value work rather than tedious, manual activities which can significantly stymie business growth.
Negotiating software contracts effectively is all about setting clear expectations and minimizing your risk. It’s important to have a strong understanding of the business terms, including usage rights and restrictions as well as indemnification rights, so that you can avoid paying more than you need to and get the appropriate number of licenses. In addition, it’s essential to know what happens if you cancel your contract so that you can avoid unnecessary penalties.
The process of negotiation can be complicated and not all companies have the right level of expertise or manpower to do so efficiently and effectively. For these companies, it may be wise to explore available technology that can empower the buyer in the negotiation process from start to finish to ensure you get the best possible pricing and terms.
The bottom line is that procurement doesn’t have to be painful. Quite the opposite – when it’s handled well, it can be a strategic and competitive differentiator. By putting every aspect of the procurement process under the microscope, from collection to negotiation, companies can discover hidden value at every step of the journey and have the freedom to focus on their most pressing business priorities.
Dave Campbell is the CEO and co-founder of Tropic, the company that turns procurement into a strategic opportunity and growth driver. Prior to founding Tropic, Campbell held positions at Microsoft and Wunderkid. He’s a graduate of the University of California at Berkeley.