COVID-19 has caused unprecedented business disruption, creating extreme operational and financial strain for most organizations. At the onset of the pandemic, companies triggered their business continuity plans, but few plans contemplated a persistent disruption like this, where there is no ability to predict when normal operations will resume. As a result, many enterprises are looking for ways to quickly and creatively reduce costs to not only conserve capital but simply survive. Here, we explore four potential opportunities within technology third-party spending that can yield immediate coronavirus cost savings.
- Identify billing errors (savings potential = low to medium)
Contract complexity, the nonrecurring nature of some adjustments and the inherent inefficiency of the billing administration process frequently result in invoicing errors. These errors often go undiscovered and may manifest in various ways, including applying rates that are too high, incorrect quantification of the number of billable units -- e.g., transactions, resources and consumption levels -- or pricing adjustment errors -- e.g., COLA and wage inflation. Auditing invoices and comparing charges to what is allowed and agreed upon contractually, such as per rate cards and pricing exhibits, may identify previously undiscovered errors, resulting in owed credits and reductions to future charges.
- Rationalize maintenance spending (savings potential = medium)
Now is the time to examine your application license and subscription portfolio, both for contracts that can be terminated and those that can be suspended for the time being. Consider terminating maintenance for software that is no longer being used or that is unlikely to require updates in the future. The same can be true for hardware maintenance across your computing and storage infrastructure and for network equipment such as Cisco and IBM. For your Microsoft portfolio, carefully review your software assurance program to identify opportunities for removing applications -- depending on your agreement -- to reduce unnecessary software maintenance expenses.
- Apply demand management flexibility (savings potential = medium to high)
The goal is to use less and only pay for what you are using. The two most promising opportunities for rapid, demand-related coronavirus cost savings are with your cloud and software licensing spend. For cloud spend:
- Utilize automated tools to conduct cloud usage audits, which can rapidly identify opportunities to shed expenses.
- Ensure compute workloads are matched to the most economical instance types that meet requirements and that storage is tiered to the most economical storage performance type.
- Check pay-as-you-go containers to identify those that have not been used over the past 30 to 90 days.
- Review instance inventories and spin down instances that are not required.
- Consider reducing CPU or container size where possible, especially for nonproduction systems.
- Look for pay-as-you-go instances that can be converted to reserved instances.
Similarly, for software subscriptions:
- Explore opportunities to delete users on monthly subscriptions.
- Review deployments to identify opportunities to reclaim entitlements from inactive users.
- Evaluate where tools are not being used and terminate subscriptions where possible.
- For organizations that are in the middle of a transition to cloud software subscriptions, explore opportunities with the software providers to suspend the monthly subscriptions while the implementations are delayed or extended. Typically, these subscriptions are "take-or-pay" and clients are paying for the full volume of users even though they are operating only nonproduction instances. Software providers may consider extending the agreement on the back end, while giving you temporary relief now.
- Negotiate quick wins (savings potential = high)
Ask your strategic partners how they can assist with coronavirus cost savings and be open to their suggestions. Engaging in collaborative discussions with your suppliers to explore options that deliver mutual benefit offers the most compelling opportunity to create meaningful savings. While it's unlikely that suppliers will provide "something for nothing" -- i.e., reduce costs without a corresponding benefit to them -- we have heard from many suppliers that they want and are often well-positioned to help clients drive near-term savings.
If a customer can offer increased commitment, reduced risk or future benefit, suppliers can typically provide mechanisms to reduce costs. Levers such as extending the contractual term, providing service level relief -- e.g., reduced fees at risk and relaxed performance targets -- increasing the scope of future services or committing to minimum spend thresholds allow the suppliers to demonstrate pricing flexibility. There may also be opportunities to restructure the overall financial framework, thereby accelerating the realization of productivity or other cost reduction commitments in exchange for longer-term considerations. Current circumstances may cause organizations to become more open to options that they had not seriously considered in the past, such as offshore delivery, captive shared service center acquisition and automation programs.
About the Author:
David Borowski is a managing director at Pace Harmon, a leading business transformation and outsourcing advisory firm serving prominent U.S. enterprises with guidance on complex transactions, process and operational optimization and provider governance. Borowski provides pragmatic and insightful advice that helps Pace Harmon's client base of Fortune 500 and other large enterprises optimize performance, productivity and cost. Pace Harmon managing director Andrew Alpert also contributed to this article.