Getting the most out of each IT investment matters. Consequently, items such as cloud waste, data waste, and storage waste have all been recent focal points, but what is your organization doing about the optimization and ROI of applications and systems, particularly in a SaaS era?
Not much attention has been devoted to it. Instead, the daily focus on applications and systems is on performance and uptime, without much emphasis on how much an individual app or system is actually being used, and whether it is delivering value to the organization.
Why don’t companies pay more attention to applications and system maximization and optimization?
Frankly, there is no incentive to do it. For decades, companies have been content to let software licenses automatically renew, pay for shelfware that they can’t even remember purchasing, and run systems that only one or two users in the company utilize.
Given the other priorities facing IT, does this laissez-faire approach make sense?
In 2023, SaaS management firm Zylo reported that “44% of businesses’ SaaS licenses were wasted or underutilized and that the average organization was wasting $17 million in unused SaaS licenses every year.” Zylo went on to say, “Enterprise organizations (10,000 employees+) spend over $224M on SaaS but only utilize 50% of their SaaS licenses.” Zylo added that “70% of SaaS application contracts were renewed in 2023, despite being underutilized.”
CIOs know this, but most feel they don’t have the bandwidth to address it. Yet should they?
In the first four weeks of 2024, nearly 100 tech companies, including Salesforce, Google, Amazon, Microsoft and Meta, have laid off workers. Some layoffs are due to companies wanting to drive up their stock prices and the loss of “easy money” in lending markets. However, the need to tighten budgets is also a factor.
“For companies looking to reduce costs and navigate budget constraints, software optimization is your greatest missed opportunity,” opined Zylo CEO Eric Christopher. “Our report shines a spotlight on software optimization and smart consolidation so organizations can understand their tech stack, reduce SaaS waste, and uncover budget to curb the need for layoffs.”
Understand the 5 Culprits of Application Underutilization
Shelfware. Shelfware is precisely that: applications and systems that sit on the physical or virtual shelf because nobody uses them. They could even be installed, where they take up storage space.
Shelfware doesn’t start out that way. Someone at some point purchased that software because they thought it would address a company’s need. Then, through either disappointment with the product or product obsolescence, they find out that the product doesn’t meet their need.
There will always be well-intentioned software failures like this in companies, but if IT doesn’t sweep out the debris by getting rid of the software and cancelling contracts, shelfware will continue to show up as an expense in the IT budget.
Underutilization. When I was head of development for a commercial software company, we ran an analysis and discovered that only our top 15% most advanced customers were taking advantage of the enhancements and functionality we were delivering, although all of our customers were paying for them.
When we approached customers that were not using all the functionality that our software offered, they told us that they didn’t have the time or resources to kick the tires of these new functions. Besides, they said their users were pretty much satisfied with what they already had.
From a selfish perspective, this non-use considerably lightened our technical support workload. However, the software was not paying back well for many of our customers. Today, underutilization of software (i.e., not using the full capability of what you’re paying for) is a major source of waste for enterprises.
Integration issues. There are few more painful software installation issues than system integration, especially when vendors tell you that they have interfaces to your systems, and you discover major flaws in the interfaces that you must manually correct.
Complicated integrations set back projects and are difficult to explain to management. If an integration becomes too difficult, the software likely gets dumped, but someone forgets to dump it from the budget.
Obsolete software. Imagine you’re running an operating system or an application and you’re told by the vendor that it’s going to sunset this system and cut support in two years. From a budgetary standpoint, you hadn’t planned to fund an upgrade in two years.
What often happens in the small and mid-sized business space is that you continue to run the obsolete software well past the sunset date, hoping that it doesn’t break down until you can afford to fund an upgrade. Meanwhile, software security and functionality enhancements for the new release are being issued, of which you can’t take advantage.
Software overlap. There is a plethora of duplicate tools for monitoring and fixing things, particularly in the systems and networking areas of IT. Unfortunately, IT doesn’t always take the time to clean up its own tool bench, so it continues to overpay for multiple software products that do the same thing. Budget spending can be reduced when duplicate products are eliminated.
If I took a poll of CIOs right now and asked them if they had metrics in place to measure software utilization, I would guess that most would tell me that they didn’t. Conversely, these same CIOs have metrics in place to measure network, server, storage and even floor space utilization.
It’s time to clean the back room’s physical and virtual closets of software waste as well. This is the one IT waste management strategy that is still a work in progress.
