A new Forrester Research report is providing key insights to decision makers on how they should adjust their IT budgets to find savings in the face of the pandemic recession.
The Forrester report, “Where to Adjust Tech Budgets in the Pandemic Recession,” can be read here.
CIOs and other business leaders are under intense pressure to reduce IT budget spending. It’s easier said than done though, given that any IT budget adjustments can also introduce risk to business disruption.
Forrester recommends that companies in survival mode – those that saw a drop of 40 percent to 95 percent in revenue due to the recession – aim to secure sizable savings on software maintenance. Here’s a look at why that is and how companies can achieve it.
Companies in survival mode find savings in software maintenance
Industries like travel, leisure and entertainment, retail and gas are all suffering financially from the stagnant economy and a varying degree of global lockdowns. Businesses in these sectors find themselves in what Forrester Research defines as ‘survival mode’.
Companies in survival mode are facing significantly reduced revenue for the foreseeable future, whether it be because of reduced demand attributed to the pandemic or due to other vulnerabilities, like weak business models or a lack of financial resources.
These businesses will need to source massive savings across the company and the IT budget will be the first port of call for many. However, the elements of the budget that are usually explored for cost reductions might not be available this time around.
Where a business may traditionally look to cut hardware investments or new projects to find 6 percent to 10 percent in savings, those changes could negatively impact companies preparing to accommodate a larger remote workforce. With that in mind, Forrester recommends targeting six key areas within the IT budget to strategically source savings in 2020 and 2021 without inflating risk levels due to cuts:
- Computer and communications equipment
- Technology consulting services
- Telecommunication services
- Technology outsourcing
- CIO staff spending
Software, both for new projects and software maintenance, represents the largest chunk of spend for the average U.S. IT budget at 22 percent total. Software maintenance on its own is the third-most expensive line item on the entire budget and warrants a closer look as to how large of a portion of those fees are providing a return on investment.
How much should a business save on software maintenance?
Arbitrary cuts can produce disastrous results when it comes to software maintenance. Rather than completely dropping the support service, businesses in survival mode should look for specific savings based on what products they’re currently licensing.
Companies seeking savings on back-office applications like Enterprise Resource Planning applications, for example, should switch to a third-party software support provider like Origina if the vendor won’t cut fees by 80 percent for the next 12 months, Forrester recommends. The same goes for core vertical industry applications, such as solutions that sit in fulfillment or the supply chain.
However, when it comes to IT management, operations and security software, Forrester recommends a different strategy altogether. If the business can’t source a permanent 50 percent reduction in maintenance fees from the vendor, it should switch to a third-party software support provider like Origina or use an open-source alternative.
Finding savings on application maintenance fees for licensed software isn’t just limited to companies in survival mode though. Businesses in adaptive mode – which have the potential for a revenue drop of 10 percent to 30 percent – can also benefit from third-party software support.
Forrester advises that these companies negotiate a one-year reduction in maintenance fees proportional to the drop in revenue or full-time equivalents. If this isn’t possible – which is a reality when it comes to vendor-supplied software maintenance – is to leverage third-party support, which can provide the reductions in maintenance fees.
How to find IT budget savings
Sourcing savings from vendors is a challenging task on a good day, but it can become near impossible during a recession.
In fact, firms like PricewaterhouseCoopers are encouraging mega-vendors like IBM®, Oracle and SAP to ramp up their audit practices to cushion falling revenue. It wouldn’t be far-fetched to suggest discounts might be out of the question.
Origina helps businesses get the IBM® software maintenance savings that Forrester Research recommends and delivers an improved support service along with it. Supporting over 800 IBM® Passport Advantage applications, Origina’s worldwide team of Global IBM Experts deliver responsive support when companies need it most.
The average Origina customer saves 50 percent on its annual IBM® software maintenance costs. These savings have driven digital transformation across the business, such as paying for the cost of an application migration. During a recession, the reduced cost can save jobs and potentially the company itself.
Organizations can learn which products are viable to move to Origina as well as understand the potential cost savings of doing so by taking a Feasibility Assessment. It’s a free evaluation of the financial viability of switching to Origina and only requires the IBM® parts and quantities to complete. Learn more about the Feasibility Assessment and get yours today.
Businesses face a challenging road ahead, but strategic savings in the IT budget can make up for a lack of revenue. Working with a third-party software maintenance provider can deliver the financial influx the company needs without introducing new risks.
Want to read the report in full? It can be read here.