Oversubscription, underutilization, and shadow IT both bloat SaaS budgets and weaken results. It’s crucial for CIOs to survey their SaaS estates and right size implementations to bring financial relief to their enterprises.
Software-as-a-service (SaaS) has witnessed explosive growth over the past few years, as vendors, thought leaders, and CIOs have hailed the enhanced efficiency, lower costs, and reduced time to benefit the model can deliver. However, in their zeal to make good on the promise of SaaS, IT leaders often lose full visibility into the technology stack across their enterprises, leading to underutilized or even unutilized applications.
According to analyst firm Gartner, organizations will overspend $750 million dollars on unused features of IT software this year alone.
Bloated SaaS and add-ons adoption is an inevitability borne of organizations’ greater focus on technology rather than digital business capabilities, says Dr. Pankaj Setia, professor of information systems and strategy at the Indian Institute of Management — Ahmedabad.
“Any IT leader has to think about developing advanced digital capabilities that make the organization better off. A business is interested in performance. And, enhanced performance manifests through these capabilities. So, CIOs need to rethink how they are going to build valuable business capabilities, and not just acquire technologies with more features,” Dr. Setia says, referring to a central challenge that is redefining the CIO role today.
Enterprise software vendors often emphasize the sharp reduction in marginal cost of additional features and the compounding impact of these modules on outcomes, to convince the buying office and procurement teams on the ROI of buying a bundled offering versus adding features on a need basis later.
“Enterprises typically attempt to ensure adoption by democratizing access and mandating or encouraging use of self-learning modules to ensure that the software is adopted,” says Sudhir Kesavan, Partner at PwC India. “Sometimes they also ‘govern’ usage through dashboards around frequency of use within the target employee base. While these steps ensure that the target employee base uses the software, they do not ensure that the full feature set for which the enterprise is paying for is being leveraged.”
Whatever may be the reasons for SaaS bloat, addressing the challenge is crucial for optimizing costs and improving overall efficiency within the organization. Here are the most important strategies to avoid SaaS bloat.
Rigid governance, regular audits, and usage analysis
IT leaders must conduct regular software audits to identify and assess the usage of all SaaS applications across the organization.
Kamal Goel, senior VP of IT at Hitachi Systems India, says, “Gather data on software adoption, utilization, and user feedback to determine which tools are genuinely adding value to the organization and which ones are underutilized or redundant. This analysis will help you make informed decisions about which subscriptions to keep, downgrade, or terminate.”
At a previous employer, Goel’s IT department conducted a comprehensive audit of all SaaS applications and found that multiple teams were subscribed to a project management tool but most only used a fraction of its features. “By switching to a more focused and cost-effective project management tool and discontinuing the old one, the organization saved significant expenses without compromising productivity,” he says.
Oftentimes, teams continue to rely on existing systems and processes while the quality of data and intelligence in the new system suffers resulting in its more advanced features becoming superfluous.
Kesavan says, “Governance needs to take a stubborn stance on relying exclusively on the information and intelligence provided by the new system even if it results in a poor decision or delays. Such stubbornness triggers compliance as the team’s realize that their KPIs are going to suffer.”
Map features to user cohorts and understand real ROI
Doing the homework of mapping features tocohorts of employees along with frequency of need within the target employee base helps enterprises negotiate better.
“Invariably base features will be used by a majority on a high frequency basis while at the other end of the spectrum some features will invariably be used only by power users or a specialized cohort, on an ad-hoc basis. Mapping of features and user cohorts will help the buying organization and procurement to negotiate not just the right volume but also the right licensing model — per user, by compute, or floating licenses,” Kesavan says.
Centralized approval process and systematic decommissioning
According to R Anand Laxshmivarahan, group chief digital and information officer at Indian conglomerate Jubilant Bhartia Group, it is fine if an enterprise is clear on what business capabilities it needs and how to enable those capabilities with market leading market standard SaaS applications. “The problem occurs when instead of the IT department, other business stakeholders start doing so themselves. Therefore, IT must be proactive in partnering with the business addressing digitization of business capabilities,” he says.
Kesavan agrees, adding, “Digital operating models encourage empowered federation resulting in a sprawl of use case specific software or even Excel macros that inhibit the use of new systems, which inevitably results in undermining not just the ROI but also the security and single pane benefits. To ensure adoption of the new SaaS software and its features alongside user training, etc., CIOs need to understand the day in the life of their user base and then put a formal program in place to decommission use of nonstandard software.”
To preempt such instances of shadow IT, Goel proposes that enterprise technology leaders implement a centralized approval process for any new SaaS tool adoption. “IT leaders should require teams to justify the need for the new tool, demonstrate its value, and explain how it complements the existing tech stack. This approach ensures that every SaaS subscription aligns with the organization’s overall strategy and prevents impulsive adoptions that may lead to SaaS bloat,” he says.
At one of Goel’s previous employers, the IT department introduced a formal SaaS request form. Any team wanting to adopt a new SaaS tool had to fill out the form, including details about the tool’s intended purpose, anticipated benefits, and estimated costs. The request then underwent a review process involving key stakeholders, IT, and finance.
“This process led to a significant reduction in unnecessary subscriptions as teams became more mindful of their software choices,” says Goel.
Laxshmivarahan adds that CIOs can also adopt technologies aimed at providing visibility into the sprawl, which can then be arrested. “We are in the process of implementing cloud access security broker (CASB) that will give us a view into shadow IT, which we didn’t have earlier.”
Periodic vendor and contract review
It is also critical for enterprise IT decision makers to regularly review existing SaaS vendors and contracts to ensure they still meet the organization’s needs and align with its objectives.
“As business requirements evolve, certain applications may become obsolete or less relevant. Negotiate with vendors for better terms or consider alternative solutions that offer similar functionalities at a lower cost. One organization discovered that over time, the features offered by their email marketing software were not being fully utilized. Instead of continuing with the current vendor, they opted for a different platform with a more tailored feature set, resulting in substantial cost savings,” says Goel.
There are technologies available today that can provide an IT leader with complete visibility into the organization’s SaaS environment. However, whether technology leaders are leveraging such technologies or not depends on their scope of work. Old-styled IT leaders, who just define the hardware and software environments and focus on only managing the IT environment, seldom use such technology to cut SaaS bloat.
“In the current bloat, there is a possibility that smart leaders will find ways to create valuable opportunities for businesses to differentiate themselves, by leveraging the unused features. That is, CIOs should be singularly thinking about ways to develop digital business capabilities, and employees may be encouraged to think about creative ways as well, in case they find something valuable,” adds Dr Setia.
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