What Should Procurement Focus on in 2024 When It Comes to Software Management?
Ben Pippinger: Hello everybody. Ben Pippinger here. Welcome to another episode of SaaS Me Anything. Well welcome to 2024. I don't know about you, but I'm seeing the new year as a big turning point for procurement when it comes to software and SaaS management.
Ben Pippinger: But before we get too far ahead of ourselves, let's take a quick look back at what happened in 2023. There were actually quite a few ups and downs. The global political dynamic created a lot of uncertainty for us. We went into the year hopeful about the economy, but it didn't quite bounce back like we had thought.
Ben Pippinger: Then on the business side, companies really started to tighten their budgets and as we neared the end of the year, we saw vendor price increases across the board. These factors have elevated procurement in many companies and have also led to a more focused approach to SaaS management.
Ben Pippinger: Here are a few things that I've seen. First, companies that add SaaS into the software management equation are combating market trends. Gartner has predicted that we will see a 13% increase in software spending in 2024, yet companies practicing SaaS management are containing and reducing costs.
Ben Pippinger: Our data shows that in early 2023, companies averaged$ 50 million in spend for SaaS and had about 291 applications. Those numbers actually decreased throughout the course of the year, and our data now shows that the average company doing SaaS management has$ 45 million in spend and 271 apps.
Ben Pippinger: Second thing here is that how teams are buying software is changing. Previously and historically, companies were buying software either direct from their vendor or through a reseller. Now it's becoming more common to purchase in marketplaces like AWS Marketplace, Google Cloud Marketplace, and Azure Marketplace.
Ben Pippinger: In fact, Tackle who's a third party ISV that helps companies launch their products on marketplaces, puts out a state of the cloud marketplace report. They stated that in 2023, $15 billion in spend went through marketplaces. So a lot of money. They're saying by 2026, that number will increase to a hundred billion dollars in spend.
Ben Pippinger: And then last thing here is that there's an accelerated interest in all things AI. I'm sure we've all felt that one. IDC is expecting that by 2028, AI will make up 10 to 20% of IT budgets.
Ben Pippinger: So in today's episode, I'm going to answer the question, what should procurement be focused on in 2024 when it comes to software management? I'm going to tackle that question with the five top things you should be prioritizing. So let's go.
Ben Pippinger: First thing is that you should be rationalizing your applications. Consolidation is also at the top of your CIO's priority list this year, so there's a big opportunity here to partner. Rationalization is a critical lever to trim down your SaaS footprint and save money. You do that by reducing redundancies and consolidating duplicate contracts. Now you need to make sure it's an ongoing initiative because it is a little bit of a heavy lift. Don't try to boil the ocean. Take it in small steps.
Ben Pippinger: All right. Second thing you need to be prioritizing is SaaS Governance. In this day and age, governance is a must have to eliminate shadow IT, reduce unnecessary spending, and increase purchasing efficiencies. A critical piece of this puzzle is executive sponsorship and alignment to your company directives. When you have this, an effective governance practice will enable you to avoid redundancy and duplication of SaaS tools in your environment, guide your app rationalization decisions and support demand management by having processes and mechanisms in place for employees to request new tools and engage procurement in the buying process.
Ben Pippinger: Speaking of the buying process, number three thing you should be prioritizing is ensuring procurement is part of the intake process. Intake is not just about budget, it's about governance. Build demand management and procurement vetting into the early part of the end user request. As new requests are being made, being part of that process helps you make sure governance is being followed, but it's also important from the standpoint of value. You should be asking yourself, are we buying through the right channel? And maybe do we already have similar tools that can accomplish this goal? This is your opportunity to be an advisor to stakeholders in the purchasing process versus a gatekeeper.
Ben Pippinger: All right, number four is you need to be forecasting your renewals at least quarterly. You need to establish operating processes around your renewals. It is foundational to your and your business's success. Consistent forecasting will help you manage renewals more proactively.
Ben Pippinger: Ahead of each quarter, make sure that you are number one, examining every renewal, auto- renewal and termination notification periods.
Ben Pippinger: Second thing is you need to make sure you're seeing what's up ahead and prioritize your renewals.
Ben Pippinger: Third, create an action plan to address each specific renewal. For instance, evaluating redundancies, getting benchmarks on pricing, just to name a few.
Ben Pippinger: And then lastly, understand the impact on your cashflow, budget and overall spend.
Ben Pippinger: All right, fifth thing that you should be prioritizing is you should be collaborating with IT and software asset management teams. SaaS management is a team sport. IT and SAM often both have cost saving goals and you are a key player in making that successful. Renewals are the biggest opportunity to do that. At renewal, take a central role in licensed clawbacks, work with your IT and SAM teams to ensure the correct licensing needs to inform your renewals.
Ben Pippinger: All right, in close, procurement has a huge potential benefit in 2024 to be an important partner and value driver for the business. Start this year off right by prioritizing app rationalization. Number two, governance to enable SaaS optimization. Number three, new purchase vetting early in the intake process. Number four, quarterly renewal processes and forecasts. And number five, collaboration with IT and software asset management teams.
Ben Pippinger: I've covered a lot of these topics in greater detail in past episodes, so be sure to scroll through our playlists for a deeper dive. That is all I've got for you for today, and I will catch you next time.
Tightening budgets. Soaring SaaS prices. The rise of purchasing software in marketplaces. With these shifts, Procurement has their work cut out for them. But there’s a huge opportunity for procurement leaders to be strategic business partners when it comes to software purchasing and renewals. In this episode, Ben Pippenger shares his optimism for Procurement and what teams need to prioritize in 2024.
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- [00:07 - 01:01] Recapping SaaS trends in 2023
- [01:01 - 01:21] Gartner predicts 13% raise in software spending in 2024
- [01:19 - 01:41] Zylo data shows companies averaged $45-50 million in spend for SaaS and had about 270-291 applications
- [01:40 - 02:20] How teams buy software is changing, more common through marketplaces now
- [02:20 - 02:34] An accelerated interest in AI
- [02:34 - 02:46] What should procurement be focused on in 2024
- [02:47 - 03:18] Rationalizing your applications
- [03:18 - 03:56] Prioritizing SaaS governance
- [03:54 - 04:36] Make procurement part of the intake process
- [04:37 - 05:17] Forecasting renewals at least quarterly
- [05:24 - 05:54] Collaborate with IT and software asset management teams
- [05:54 - 06:22] Episode summary
SaaSMe Anything is the bi-weekly podcast that brings clarity to the chaos of SaaS, hosted by your resident SaaS expert and Zylo co-founder Ben Pippenger. Connect with Ben on LinkedIn here.