Businesses are scrambling to cut costs to ensure survival amid what many economists are calling a looming recession. Regardless of whether it’s a Fortune 500 company, a growing small business or an up-and-coming startup, cost-saving opportunities that can help you weather the storm exist if you know where to look.
Given that tech stacks have become an integral part of most businesses — the average company has upward of 100 software contracts and the overall spend of businesses on cloud technologies is up by 50% compared to two years ago — trimming tech stack spending provides an opportune way to save money.
Breaking it down
What is a tech stack?
HubSpot defines tech stack as “the collection of tools, platforms, apps, and pieces of software that a company uses to build its products, carry out its business operations, and monitor its performance metrics.” It can also encompass coding languages.
Why now?
The COVID-19 pandemic has expedited the adoption of new digital technologies to improve business operations in keeping with an increasingly hybrid workforce. But to keep up with competitors and stand out, many businesses have indiscriminately invested in top-notch digital technologies and ended up overspending on their tech stack.
Some businesses are uncertain whether they have deployed the right tools, or if the plethora of apps and platforms they are paying for are even being used. The spending spree has precipitated massive inefficiencies that threaten to eat away at the bottom line. Particularly in this era of economic turbulence, the status quo approach to tech stack spending and management could make such businesses more vulnerable to failure.
| Talk to us about how outsourced business services can help you access advanced technologies and systems. |
Strategies to optimize tech stack to weather a recession
Here are ways to approach your company’s tech stack to the new environment of intense financial discipline and economic uncertainty.
Ensure you’re not overinvesting.
Obtain a granular understanding of your current tech stack spending and how the stack is being used. Identify usage rates, and then figure out the level of waste, including the number of unused licenses and tools etc.
Next, plan a strategy for eliminating inefficiencies in your tech stack. Outline actions to do away with software licenses that are not being used and discuss renegotiating contracts with vendors to arrange bespoke usage parameters.
While this might seem like a daunting undertaking that requires you to scan hundreds of spending records and systems, conducting a company-wide audit of your tech stack is indispensable. Obtaining a clear view of your entire tech spend will help you eliminate waste and inefficiency, and to avoid budgetary overages that could compound without intervention.
Implement a purchasing process.
Examine your firm’s purchasing process to ensure that you have standardized protocols in place for buying software. Your plan for tech spending should prioritize protecting your business from compliance, security and commercial risks.
It goes without saying that software procurement is arduous. Software prices, features, renewals and the number of seats required for your team can change rapidly, making it very difficult to ascertain whether you’re buying the right tool.
Further, the purchase process involves sizable soft costs such as employee time and productivity. Businesses spend an average of four hours on a single software purchase contract, according to Tropic co-founder and CEO David Campbell.
With an average business requiring about 100 software contracts, that translates to at least 400 man hours a year being spent on contract processes, time that could have been spent on core business activities. Additionally, an inefficient software purchasing setup often begets rogue or shadow spending, which refers to tech spending that is not under the auspices of the IT team.
Embracing automation in a downturn can help ensure that your tech stack purchasing processes are centralized and enforced through dynamic workflows. That is, any new purchase request must meet the criteria explicitly set forth by your organization to mitigate risk, thereby eliminating rogue spending.
Take it a step further by striving for software procurement excellence, which combines the right tools (process automation), data (benchmarking and competitive intel) and resources (procurement professionals). When done right, it can go well beyond cost savings and compliance and be a growth driver for your organization.
Seek price transparency.
The dynamic nature of software also makes it hard to determine if you’re paying a fair price. Most buyers lack access to the benchmarks that drive the true cost of software. This power imbalance gives vendors the upper hand and minimizes buyers’ ability to negotiate.
“[O]n an individual basis ,companies are overpaying for software by between $700 and $1,200 per employee,” Campbell estimated.
Clearly, managing your tech stack’s budget is complex. If you don’t have the staff or the expertise to assess whether you’re paying a fair price and whether you need to eliminate redundant software licenses that aren’t being used, consider insight-driven technology that can streamline the process by perusing a database of thousands of SaaS transactions to find the best price for your software. Another option is to seek assistance from a software procurement professional whose expertise will help prevent costs from spiraling out of control.
Want more?
Escalon provides comprehensive back-office solutions to startups to emerge robustly from a recession. Escalon’s services support firms with outsourced finance, accounting, human resource, risk management and compliance. Talk to an expert today.
