Spend Matters welcomes another guest post from Kim Addington, COO of NPI, a spend management consultancy focused on eliminating overspending on IT, telecom, and shipping.
The cost just to “keep the lights on” in IT has grown exponentially over the years. Recent studies show that an average of 72 percent of the enterprise IT budget goes to this area, leaving only 28 percent to fund new projects. A big chunk of the 72 percent goes to maintenance and support – and that reality isn’t expected to change anytime soon.
Not very long ago, the typical software maintenance fee was 15 to 18 percent of license fees. Today, 20 to 22 percent of license fees is what most enterprises pay. Software vendors continue to rely heavily on recurring maintenance revenues to fuel their business. Oracle, renowned for high support costs, derived approximately 42 percent of its revenue in Q4 2014 from software maintenance. At a time when the company is focused largely on growing its cloud business, this speaks volumes.
With focus and a structured approach, enterprises can shave 5 to 7 percent off of their maintenance spend, and the impact can be huge. Not only do IT costs decrease, but unfunded innovation projects can come to life, helping the business drive higher revenues, efficiency, customer loyalty, etc. Here’s an example of the savings that could be achieved and funneled into other projects:
Here are four of the best ways to cut maintenance and support costs:
1) Benchmark pricing – Don’t assume that what you’re paying for maintenance and support is what your peers are paying. Find the pricing and vendor intelligence that will allow you to determine if you’re paying fair market value and whether there is room to negotiate a lower rate.
2) Optimize your support agreements – Are you paying for the licensing program (and the support costs they entail) that best suits your business and user needs? This is a critical question that often shines a light on unintentional overspending.
3) Eliminate shelfware support – Too often, companies pay maintenance costs on unused or underused software. Evaluate your software portfolio to see which applications can forego support.
4) Consider third-party support – More and more companies are turning to third-party support options that offer a competitive level of service (or better) for a fraction of the cost – as much as 50 percent less in some cases.
Maintenance and support is a tedious sub-category of IT spend to manage. Squeezing every nickel out of it requires focus and determination. But, the results can be powerful and may even represent the next IT initiative that will give companies a competitive edge.