Why Fewer Employees Expense Software at Companies with a SaaS Management Program

In recent years, organizations that have embraced SaaS Management have witnessed a significant transformation in how software is purchased. By strategically reducing acquisitions through expense channels, these companies are effectively eradicating shadow IT from their operations. 

The latest figures are telling. Now, less than one in ten employees (7%) expense SaaS applications, marking a 53% decrease since 2022 and a staggering 72% decrease over the past four years. With this decrease in employee expense purchases, spending has also gone down — from 6% of total SaaS spend in 2019 to 3% in 2023. 

But what spurred the rampant growth of shadow IT? 

The primary culprit: decentralized purchasing by employees who circumvent official company policies. Lines of business and individual employees buy a whopping 83% of applications and 72% of SaaS spending. This rogue procurement often stems from a lack of centralized control and visibility over software acquisitions, driving employees to make independent decisions about their software needs.

Consequences of Decentralized Software Purchasing

When employees decide to expense software, they’re not doing it out of malice. They need a tool to do their jobs better, and they don’t know if the company provides one that works. So when they find one that delivers, they whip out the company card. Yet despite their innocence in the matter, several problematic outcomes ensue:

• Overbuying or Overpaying: This often occurs when an existing enterprise agreement could have offered more favorable pricing.
• Unfavorable Terms and Conditions: Employees might accept click-through agreements not vetted by Legal or Procurement teams, leading to potential liabilities.
• Security and Compliance Risks: Utilizing unvetted software can introduce significant risks to the organization’s IT environment.
• Unmanaged User Access and Unused Licenses: Without proper oversight, purchased software may go underutilized, or worse, become a gateway for unauthorized access.

Putting A Strategic Focus on Shadow IT

Ali Najeed, Principal Business System Analyst at Intuit, summarizes the challenge succinctly: “As time goes on, the lack of visibility for business units creates an environment where optimization and license management becomes a challenge.” 

This statement reflects a widespread acknowledgment among IT and Software Asset Management (SAM) leaders of the issues posed by shadow IT. Our 2024 SaaS Management Index reveals that 67% of surveyed leaders view the practice of employees purchasing software on their expense cards, outside of company policy, as a major challenge.

In response, many organizations are now targeting shadow IT not just as a compliance or security issue, but as a strategic avenue to curtail unnecessary SaaS spending. By understanding the origins and implications of shadow IT, companies can better implement strategies to control it, turning a pervasive challenge into an opportunity for improved governance and cost savings.

Why Fewer Employees Are Expensing Software

The marked decline in employees expensing software is not coincidental. Rather, companies are being intentional about addressing shadow IT. They are implementing strategies to govern SaaS purchasing across the business and enforcing those policies. To do this effectively, it starts with gaining comprehensive visibility into all applications and spending.

Implementing SaaS Governance

Organizations like AbbVie and Adobe have become proactive in establishing robust SaaS governance frameworks to ensure compliance with company policies and reduce shadow IT. These policies and procedures are meant to:

• Limit or Prohibit Expensed Software: Companies significantly reduce rogue spending by setting clear boundaries around what can and cannot be expensed.
• Enhance Visibility: An application catalog offers employees a transparent view of the available applications, promoting the use of approved tools and preventing unnecessary purchases.
• Educate and Guide Employees: Clear guidelines on requesting new software and educating the workforce about available resources and proper acquisition channels are critical to curbing spending.
• Monitor Purchases: Keeping an eye on new purchases enables quick intervention in case of unauthorized transactions, ensuring acquisitions align with corporate standards.

Adopting a Flexible Yet Controlled Approach

Many companies are transitioning to a “Freedom within a Framework” policy, which balances employee tool autonomy with necessary controls. The benefit of this method is that employees can make informed decisions within predefined guidelines, fostering a responsible purchasing environment.

Renee Turco, Technology Asset Manager at AbbVie, highlights the effectiveness of these educational initiatives. 

“Folks weren’t expensing software maliciously. They just didn’t know where to go for centralized purchasing of software,” said Turco. “We’ve educated our user community, and by doing that, we’ve reduced expense spend by 47%.” 

AbbVie’s significant reduction of shadow IT demonstrates how education and clear communication with employees can help enforce SaaS governance. By following a flexible format, you can reduce expense spend and set a new standard in software management.

How to Reduce Expensed Software at Your Organization

While robust governance helps prevent unauthorized software expenses, optimization is key to reducing existing ones. This dual approach limits future expenses and addresses inefficiencies in current software spending.

Get Complete Visibility into SaaS Spending

The foundational step in effective SaaS Management is gaining a comprehensive view of all software applications and expenditures. On average, organizations spend $45M annually on software, with 3% of this total—equivalent to $1.35M—from expensed purchases. A significant portion of these (about 51%) is often miscategorized in expense reports, so they can easily evade detection during manual reviews. 

While many organizations still use spreadsheets or legacy SAM tools to track SaaS apps and spending, they don’t work for SaaS. That’s because they lack the ability to discover unknown software.

The best tool to gain this visibility is a SaaS Management platform (SMP). An SMP excels at comprehensive and continuous discovery and categorization. To truly uncover the unknown software – or shadow IT – in your environment, financial discovery is essential. Because, as we mentioned, software hides in expense reports, and you’re not going to easily uncover those applications manually at scale and with certainty.

“To date, less than 1% of our total SaaS spend is being expensed, which is awesome compared to where we were before we had this visibility available to us.”
– Ali Najeed, Principal Business System Analyst at Intuit

Address Key Questions in Your Analysis

To better control software expense spending, it’s important to analyze that data so you can identify purchasing inefficiencies, software redundancies, and potential security and compliance risks. Begin by asking yourself these questions: 

• How much are we spending via expense channels? This figure provides a baseline for understanding the scale of shadow IT and unsanctioned software purchases within your organization.
• What apps are being expensed? Identify which applications are most frequently expensed. This helps you understand employee needs and preferences and whether they align with the company’s software policies.
• Which apps do we already have an enterprise agreement for? Compare the list of expensed applications against those covered under your enterprise agreements. This step is crucial for identifying cases where employees may be unaware of existing contracts, leading to unnecessary expenses.
• Where are there duplicate purchases among those expensed apps? See if the same application is purchased multiple times across different departments or by various employees. This often indicates a lack of centralized communication or software management.
• Does a standard tool already exist for the application’s particular functionality? For each application being expensed, determine if there is a standard tool already available within the organization that offers similar functionality. This can reduce the need for multiple tools that serve the same purpose, thus optimizing software spend.
• How well is the application being used? Low utilization rates might suggest that the software is either unnecessary or that employees need more training on effectively using it.
• What is the risk score for each expensed app? Answering this involves considering security vulnerabilities, compliance issues, and the potential for data breaches. High-risk scores may warrant immediate action, such as discontinuation or replacement.   

Once you’ve answered these questions and understand your software expense landscape, you can take action. If you want to reduce spending, this data can help you make more informed decisions about where to cut or consolidate. Likewise, it can help you understand where you can improve policies or operational efficiency. Ultimately, the goal is to cut costs while streamlining software management so every application brings value to the business.

Identify Strategies for SaaS Spend Optimization

One of the most straightforward opportunities is consolidating duplicate subscriptions. Review the list of all software currently being expensed and find applications for which an enterprise agreement already exists. By consolidating these purchases under the existing contract, you can leverage volume discounts and reduce the total number of transactions, lowering administrative overhead.

Upon reviewing your inventory, it’s common to find SaaS applications that are no longer in use or have become redundant with other similar tools. Canceling unused subscriptions is a quick way to cut costs. While rationalizing redundant apps also cuts cost and prevents wastage, it’s a longer-term and more intensive strategy. Whether an unused or redundant app, be sure to involve app owners and communicate any changes with users.

By identifying and acting upon these cost optimization goes a long way in reducing expense spending. By standardizing tools across departments, enhancing employee training and awareness, and regularly monitoring and reviewing your SaaS can also keep it at bay. 

Manage Software Spending with a SaaS Management Platform

Effective SaaS spend management isn’t done in spreadsheets. It requires a SaaS Management platform that enables you to:

• Get complete and ongoing discovery and inventory of all your SaaS applications, spending, usage, and risks. That includes shadow IT.
• Identify and act upon opportunities to reduce SaaS spending.
• Implement and enforce governance of software purchasing policies.
• Monitor new software purchases made against policy.

Want to help your organization achieve a more strategic approach to software spending? Our technology supports better financial management, enhances operational efficiencies, reduces risks, and ensures compliance with internal policies. 

Having a robust management platform is indispensable for managing your SaaS costs. Ready to gain visibility into your SaaS inventory? Contact Zylo today!