Now that CIOs have completed step 1 of their ad-hoc coronavirus crises playbook — hammering out remote work and business continuity strategies — many are evaluating step 2: cost containment, ranging from right-sizing instances of cloud software and renegotiating SaaS contracts to eliminating excess applications and shuttering legacy servers and other hardware.
Such are the moves CIOs may take to get ahead of any financial fallout the coronavirus crisis may have on their business, as the pandemic rages on, crippling productivity across every sector, and CFOs get increasingly skittish about budgets.
Coronavirus spooks CFOs
Eighty-seven percent of finance leaders reported great concern for their business, with 80 percent expecting COVID-19 to decrease revenue or profits in 2020, according to a recent survey of 55 CFOs in the U.S. and Mexico polled by PwC. Sixty-seven percent of these CFOs say they are prepared to reduce costs to counteract the financial impact of the COVID-19 pandemic. Translation: It’s knives out time.
“CFOs are just doing their jobs and focusing on driving value,” says ServiceNow CIO Chris Bedi. “They will start to question things that are not on the value side of the ledger.” Accordingly, it’s more important than ever for CIOs to show quantitative proof that their investments are providing value to the business, Bedi says.
Aggressive CIOs will take advantage of the uncertainty to accelerate their digital agendas, but it behooves them to shed some of the excess weight carried in their bloated tech portfolios. Here analysts and CIOs offer ideas of how IT departments can shed flab — before CFOs make some unwanted recommendations on that front.
Cull superfluous servers and apps
During the heady dot-com days, irrational exuberance dictated that everybody bought every shiny new technology, says IDC analyst Aaron Polikaitis. Businesses stored a surplus of servers under desks and fielded five different apps for each business task. When the bust happened, IT departments tightened their belts.
Now that the global economy appears headed for a coronavirus-induced recession, CIOs should look to eliminate extraneous software, such as multiple time management apps or the infamous HR “summer outings” app, which costs $200 a month to maintain, Polikaitis says. Even legacy line of business applications used by relatively few employees are up for a reckoning. That culling also holds for excess hardware, including servers and desktops, as work moves from the corporate office to the home office.
Renegotiate SaaS deals
Many CIOs have inked multi-year deals with their SaaS vendors, with prices often based on usage metrics such as number of users, number of customers, or number of transactions. That’s a tough pill to swallow if you’re trying to dial back expenses in a recession. So, if you’ve signed a contract for X amount of seats and you’re not using all of them, ask for a reduction in your contract, says Polikaitis. The worst a vendor can do is say no. But that’s bad for business. Vendors should always work to keep customers happy, even if it means reducing fees.
Rein in your cloud sprawl
Here’s something you can do without standing, hat in hand, in front of your vendors. Shut down those developer sandboxes and other innovation environments running in a public cloud like an open water tap. Probably not the most efficient use of resources, even during an economic boom, of which the world is not enjoying presently. Wise up and shut them down, Polikaitis says.
Reserved instance relief
Alternatively, companies can elect to negotiate out of reserved instances — in which customers are billed whether they use the reserved compute capacity or not — that they may have purchased from Amazon Web Services, Microsoft or other cloud vendors.
Introducing: The recession clause
There may be another way to extract value from your cloud vendors, particularly SaaS sellers. Ask them for a recession clause, in which the vendor agrees to cuts its subscription fees for a client whose revenues drop in a fiscal year, in return for the client extending that contract, says Forrester Research analyst Andrew Bartels. Customers would need to show certified, audited financials attesting to their distress.
Better yet, vendors should get ahead of what are sure to be hard asks from customers seeking to renegotiate contracts by offering recession clauses. Bartels says that most vendors aren’t doing this because it will compromise their annual recurring revenues. But some vendors are offering relief on an ad-hoc basis, a slippery slope because customers feel fleeced when they receive quotes that differ from those of their peers. But this is new territory for virtually every cloud vendor and customer. During the last major financial downturn — the 2008 financial crisis — SaaS accounted for only 5 percent of U.S. software revenues. In 2019, SaaS sales comprised 31 percent of U.S. software spend.
“I think that, by and large, the vendors are in the dark here,” Bartels says. “But this idea is one that I am expecting will get traction will vendors.”
Digital transformation carries on
Cost-cutting nudges from CFOs might cause consternation among CIOs, but spending on digital transformation will remain largely intact, says Amity Millhiser, PWC’s chief clients officer. The reason? It paves the way for future competitiveness.
“CFOs in our survey ranked digital transformation and customer experience investments much lower on the list of potential cuts than IT, general CapEx, and even workforce,” Millhiser tells CIO.com. “They realize the importance of such investments to future competitiveness.” At worst, companies may slow or postpone such transformations, while prioritizing cuts in other areas.
Even so, CIOs should work in concert with their CFOs, making surgical digital investments aimed at delivering return on investment, says TD Ameritrade Vijay Sankaran. “It’s not a free-for-all for dollars,” Sankaran says. He adds that CIOs are wise to use scant technology resources to deliver value is critical in any business, regardless of global economics.