SaaS has changed the way enterprise organizations acquire and manage software. In many respects, this development has transformed the role of modern procurement leaders.
Recently at ProcureCon IT Sourcing 2019 in Denver, we hosted a panel session with Bret Bartolai, head of procurement for Grubhub, and Andrew Park, senior strategic sourcing manager for Zendesk.
The conversation with these sourcing leaders and Zylo customers focused on the changes in expectations and leadership needed to manage SaaS in enterprise organizations.
With more than 20 million active users and 100,000 plus connected restaurants in more than 2,000 cities across the US, Chicago-based Grubhub’s online food ordering and delivery marketplace values speed and innovation.
Zendesk is the leading choice for customer service software for enterprise businesses. With more than 145,000 customers and 2,000 employees in 160 countries, the San Francisco-based company seeks to balance value with continued growth.
An Increasingly Cloud-first Software Sourcing World
According to IDG, spending on cloud services and SaaS has risen dramatically in the last few years. The average budget for cloud tools and services, approximately $1.6 million in 2016, grew to $2.2 million in 2018, a nearly 36% increase. Roughly 48% of that spend is devoted to SaaS, with 30% on IaaS and 21% on PaaS.
Park and Bartolai highlighted that as their firms are cloud-native companies (that sell or provide cloud-based services themselves), sourcing new software via the cloud is the default way of doing business.
“Being a cloud-forward business amounts to table stakes today,” Bartolai said. “It’s no longer an optional activity or solely a competitive differentiator.”
Bartolai specifically noted the need to attract and retain the best engineers and developers. A cloud-first environment allows the organization to provide talent with in-demand tools quickly.
In turn, this helps continue to spur the innovation that tech-forward companies like Grubhub and Zendesk use to preserve their competitive advantage.
The ultimate goal: Quickly provide employees the tools they need so they can continue to execute with agility. However, this “need for speed” needs to be balanced with tools that promote governance and optimize value.
How Strategic Alignment and Collaboration for SaaS Helps Elevate Procurement
Despite the acknowledgment that it’s now a cloud-first software world, few organizations have defined specific procurement strategies for cloud-based tools and SaaS. Enterprise software acquisition, once the purview of IT teams, has shifted towards lines of business.
According to IDC, the ease of cloud software acquisition means that more than 70% of application investment now originates from lines of business budgets, not IT. Unfortunately, when everybody can buy software throughout the organization, nobody truly owns and manages software in terms of developing best practices.
However, this shift represents an opportunity for procurement and sourcing professionals to create proactive processes and value specifically for SaaS applications.
Park and Bartolai shared the common experience of building the procurement function at their organizations from scratch. Their goals specifically for SaaS were to create best practices around how SaaS was purchased, provisioned, and governed.
The Evolution of Software Procurement
Both organizations formerly used semi-formal processes for software acquisition. Park highlights that his peers created a software review board for new tool requests.
Meeting weekly, representatives from Legal, Finance, Information Security, and the business stakeholders who had requested new tools discussed the pros and cons for each proposed application. If the tool met each team’s criteria, the review board approved the application for use. Bartolai’s team used a similar review process.
However, this process chiefly accounted for large, mission-critical applications that required significant budget or resources to implement. The review process also failed to address tools acquired by lines of business, including those purchased via P-cards or expense reimbursement.
Eventually, both Park and Bartolai turned to Zylo’s SaaS management platform to create a SaaS management strategy that:
- Provides full visibility into SaaS spend across the organization
- Measures the value each SaaS application offers to users
- Creates transparent inventories of licenses
- Proactively manages and enables negotiation for all SaaS renewals
- Identifies strategic opportunities to reduce SaaS spend
How SaaS Management Elevates Procurement’s Strategic Value
SaaS management empowers procurement leaders by focusing on their role’s strengths. With a SaaS management tool in place, a procurement leader can:
- Help the business understand what it’s spending money on with SaaS
- Learn how to categorize that appropriately
- Make previously inaccessible data (like license provisioning or utilization) transparent
- Provide business stakeholders awareness and data for upcoming renewals
Bartolai said these things allow teams and employees to focus on their jobs: generating revenue for the business.
“Our role is to provide them with the tools and information to support making better business decisions,” Bartolai said.
Park noted that having a complete view of all SaaS applications within the environment – especially when previously unavailable – unlocks new collaboration opportunities.
“It’s powerful to have that information,” Park said. “Delivering a comprehensive report of everything in the environment is powerful. It’s a huge help when you’re going into any relationship.”
Practical Applications of SaaS Management for Procurement
Park and Bartolai also shared their experiences in developing best practices for several common SaaS management topics.
Identifying Value Optimization Opportunities
With a SaaS management platform displaying every tool in the environment, Park said he began optimizing by consolidating tools.
As a best practice, Zylo frequently recommends consolidating tools that have redundant functionality. Then determine which application is appropriate for all users and negotiate an enterprise agreement.
Parks said he focused his efforts on consolidating shadow IT SaaS applications that frequently pop up as freemium options. These included conferencing platforms, online storage platforms, and video communication tools.
Collaboration for SaaS Renewal Strategy
Park and Bartolai agreed that SaaS renewals represented one of the most practical areas for procurement-led collaboration. “One lever for procurement to show value is to support the business in terms of renewals and communications,” Bartolai said.
After documenting SaaS application spend and utilization information in a system of record, Park said renewal strategy becomes much more data-driven.“Providing teams with data on their renewals can help them prioritize,” he said.
For example, for mission-critical applications with a large user base and significant investment, Park’s team leads proactive renewal decisions 180 days in advance.
Engaging business stakeholders and teams such as Legal, IT, and Finance in the decision-making process forces a hard look at objective data. This review includes contract information, utilization data, license optimization and, other factors well in advance, he said.
Using SaaS management to elevate procurement’s role as a centralized, cross-functional, and collaborative leader has reset organizational expectations for Park and Bartolai’s roles.
Bartolai said that establishing a strategic, procurement-led SaaS management strategy has helped Grubhub prioritize IT security and value optimization.
Park noted that as he established full visibility into Zendesk’s environment, C-suite leaders have prioritized cost savings. “They want to see cost savings,” he said. “It’s a tangible metric.”