It takes money to make money, but it also takes money to save money.
While most business leaders know their IT costs are rising — dominated by a growing list of cloud, mobile, and telecom services — most don’t know how much they’ll have to spend in order to lower their costs. And it’s safe to say that far fewer are aware of the one small detail that can make a 5X difference in the price they’ll pay to recognize savings.
Can you guess what it is?
A new Vanson Bourne research study of 500 IT expense management (ITEM) programs reveals the answer, and it all comes down to your approach. That is, whether you rely entirely on a managed solution, build an in-house program, or take a hybrid approach (doing a little of both).
Data shows that a hybrid approach is around five times more expensive than a fully outsourced solution. That’s a huge cost difference! So, where does the cost difference come from, and what other valuable lessons can we learn from the study?
Download the Vanson Bourne research report for the full details and keep reading for the key takeaways.
Get the graphic summary of the key takeaways.
The True Value of ITEM Solutions: Less Expensive, Faster Savings, FinOps Maturity
As the study finds, managed ITEM solutions cost five times less than hybrid approaches while delivering faster results. They also correlate with more mature FinOps programs. Let’s unpack each of those advantages.
5X Less Expensive: Automation and Less Overhead
That 5X price difference comes from several places: lower overhead costs, automation, and higher cost savings achievements which can offset the cost of an ITEM service.
It’s easy to underestimate the administrative work required to get cost management and optimization right, and in-house programs typically use manual processes and native tools that require more dedicated human resources with higher overhead.
Forrester analyst Tracy Woo reports that financial management typically requires 3+ full-time employees, and companies building an automated expense management platform from the ground up invest at least $1M in technology and have teams of 15-45 engineers to do so. With these barriers to entry, out-of-the-box ITEM solutions infused with advanced AI algorithms, robotic process automation, and fully managed services (like Tangoe One) offer more automation with less overhead.
Superior Results: Faster Insights & Cost Savings
As the research shows, ITEM software and services can deliver results faster. Vanson Bourne finds businesses with either a fully outsourced or hybrid solution experience faster time to business insights (88%) and faster time to cost savings (88%).
Insights for both Finance and IT Operations
ITEM solutions aid both financial management and IT operational management. Financial analysts appreciate the overarching visibility into a vast number of expenditures across multiple providers with detailed reports showing fully loaded costs, how actual spending compares to the budget, and how expenses get charged back to each department and tied to innovation projects – key elements in measuring technology ROI.
IT functional managers benefit from utilization insights, helping them understand how efficiently (or inefficiently) each resource or service is being used. They can pinpoint waste by seeing where cloud infrastructure, software, and mobile devices are going unused. New purchases are made more purposefully when IT teams are squeezing the most value out of every asset they already own.
Faster Insights Lead to Faster Time-to-Savings
The research confirms that managed solutions drive to business insights faster, which means a faster time-to-savings. Only 66% of in-house programs deliver results within the first month, while 81% of fully outsourced solutions deliver results within the same timeframe. In fact, this is also the case with Tangoe’s clients — 83% see value-add within the first month.
Time-to-savings is a known problem particularly for cloud cost management. A different study indicates 75% of companies wait at least 2-3 years to see real results from their in-house platforms.
The Opportunity Cost of Saving Money
The faster a company can find new ways to save and capitalize on those opportunities, the more money it can save. The opportunity cost multiplies the return, which can then be used to offset the cost of the ITEM service or simply pad overstretched IT budgets.
This is an important point to call out, because savings opportunities are worthless if there aren’t enough human resources to act on them. Missed opportunities teach us the cost of doing nothing. This is where fully managed services can make a meaningful difference, helping clients both find the savings and act on them, turning opportunity into real dollars back in the IT budget.
More FinOps Maturity: Cloud Services Management
The data shows a direct correlation between outsourcing and FinOps maturity; 94% of organizations that use a managed ITEM solution also have a dedicated FinOps practice, meaning a mature FinOps program for cloud services management. This is higher than those taking a hybrid or in-house approach. Furthermore, those using ITEM solutions are more likely to have also achieved full deployment of their FinOps practice (61%) compared to those taking a different approach (53%).
What does it mean to be fully deployed or mature in your FinOps practice? The FinOps framework offers a step-by-step model to curb cloud infrastructure and software costs. Maturity is marked by three phases:
- Inform: The first phase is dedicated to gaining granular clarity into invoices, service utilization, and any expenses charged back to departments or business units.
- Optimize: The second phase focuses on decreasing wasted cloud resources and leveraging discounts to reduce the price paid for cloud services.
- Operate: The third phase closes the loop to create a continuous process of improvement.
But while the model is sound, most FinOps programs are immature particularly in data and analytics functions. Indeed, Vanson Bourne found that data analytics are among the top three challenges for in-house ITEM programs. They also struggle with maintaining an accurate inventory of their IT services and assets. This finding is echoed by other sources. The FinOps Foundation’s research demonstrates that it can take days to detect and analyze anomalous spending – even weeks to determine the root cause of it.
All of this is understandable considering the growing number of cloud applications and mobile devices in use today. But this reality means most companies can’t get past the first, most basic phases, because they don’t have the information required.
Accurate catalogs and AI’s advanced analytics are the prerequisites for optimizing IT costs. Plus, data becomes unusable without the ability to customize the presentation of it – i.e. personalizing data for different teams and executives but also tailoring data specifically to corporate financial practices by applying custom rules. This is where providers step in to ensure their clients don’t just spin their wheels trying to collect information and crunch numbers – a key pitfall to avoid.
What’s at Stake? Business Continuity, IT Performance, Innovation
Vanson Bourne’s findings spotlight the complexity of IT financial management and what’s at risk without it:
- Managing services and expenses is growing increasingly complex. On average organizations handle 39 IT service providers with 60-80 employees involved in overseeing them.
- When it comes to tech sprawl there’s no end in sight. Respondents predict double-digit spending increases over the next couple of years with cloud infrastructure (20%) and software (16%) investments leading the way. Additional investments in mobile and telecom technologies aren’t far behind.
- Business continuity and operational performance are at stake. Late payments cause 85% of organizations to experience outages in their cloud, mobile, and telecom services.
As the data reveals, financial management is central in safeguarding IT operations, especially when cloud spending dominates +50% of IT budgets and is expected to grow with increasing GenAI adoption. Cloud infrastructure spending has been a growing trend due to recent acceleration in digital transformation but also because it serves as the underlying enabler for AI innovation and new GenAI platforms. Sustainable innovation hangs in the balances when companies fail to invest in new technologies with fiscal responsibility top of mind. Learn more about the hidden costs of AI and how they can threaten innovation.
Wisest Approach to ITEM: A Fully Managed Service
Demonstrating that ITEM solutions deliver more value when compared to in-house programs, the new research answers key questions in the minds of IT and finance leaders. What’s the best way to financially manage a growing number of IT services, invoices, and costs? Should I build or buy a software tool and managed service?
With substantial spending increases expected, efficient financial management practices become even more pronounced. The study underscores the imperative of ITEM software and fully managed services, revealing their capacity for maturity and faster results paired with significantly lower overall costs.
What’s most interesting?
The study shows companies that fully outsource their ITEM program do so with Tangoe more than any other provider. This serves as an endorsement of the value-add, client trust, and expertise Tangoe delivers through our IT cost management software and services.
Download a free copy of the research report:
Faster Results at a Lower Cost: The True Value of an IT Expense Management Solution