Need to reduce software TCO? Focus on people

Today’s blog summary

Investing in software is undoubtedly important for enterprises to stay ahead. However, the process is rarely a simple task for CIOs and IT leaders. The current challenges facing the global economy mean it’s now essential that digitalisation efforts reduce costs and provide a return on investment (ROI) as fast and efficiently as possible.

When looking at the impact of digital initiatives, managing cost effectively seems to be a major challenge. A joint study from Oxford University and McKinsey revealed that 66% of large-scale software projects will run over budget and 33% will run behind schedule. 

Therefore it is key to look at the total cost of ownership (TCO) on software holistically and identify areas that are challenging to manage. When speaking about TCO, we’re referring to the aggregate cost of a given software product, taking both direct and indirect costs into account.

Direct cost is simple to identify: the purchase of the software licence itself or the subscription to a SaaS product. Expenses like software training or ongoing IT support are examples of indirect costs. It’s typically the case that indirect costs are harder to identify, measure, and control – and yet they can quickly accumulate if left unaddressed. 

Most indirect costs of any software project involve – in one way or the other – training and supporting people. Failing to focus on people invariably leads to another key challenge which drives up software TCO unnecessarily: poor digital adoption. In the end, people have to work effectively with new technologies and failing to enable them in the right way can lead to massive support costs and slow down key projects. 

This challenge has been further intensified by changes to the world of work. The workplace is increasingly digital and people tend to spend a significant amount of their time working from home, somewhat isolated from their co-workers. Such working arrangements will result in stronger reliance on software to keep operations running smoothly and – crucially – to keep employees engaged with their work. 

With this in mind, it’s important for decision makers to embrace a new way of thinking about software TCO reduction – one which prioritises strong digital adoption. 

How poor digital adoption affects TCO

Poor digital adoption is perhaps the single biggest indirect cost responsible for driving up software TCO. Businesses frequently fail to recognise that successfully implementing a new software product is only half the battle; they must also train employees to use it to maximise its potential benefits.

While initial training is commonplace, decision makers often fail to consider whether or not employees actually understood the technology, leading to the need to support and re-train them on a regular basis. Not to mention Ebbinghaus’s Forgetting Curve, which stipulates that the average learner will forget 90% of what they have learned within the first seven days. This has a seismic effect on overall TCO, with software training costing UK businesses, on average, £2,086 per employee each year, according to Userlane research

Conventional training methods are also difficult to use at scale. The number of applications that employees are required to use in their daily work is increasing. Simultaneously, the rise of hybrid working arrangements is making it more challenging to organise effective in-office and virtual training sessions.  

One consequence is that IT departments are facing severe ticketing backlogs with, according to Zendesk, an average cost-per-ticket of £13. These tickets can quickly add up and dramatically affect the TCO, especially when you think about the thousands of employees who are struggling with software every day. Alternatively, an employee may turn to a peer for guidance on a task or function they are unsure of. This hampers productivity further, as it takes people an average of 30 minutes to refocus on their tasks after even a simple distraction.

This is obviously bad news from an ROI perspective. Users lack the training needed to fully take advantage of the software and are lodging complaints en masse, many of which are easy fixes to someone in the know. 

Lack of knowledge also translates into massive under-utilisation of software features. In fact, the average employee uses just 40% of a software’s total features – a considerable waste of resources from an investment point of view. Improper use of software will also lead to poorer process quality – if employees do not fully know the software, they are more prone to making errors. 

Addressing these challenges 

Left unchanged, this pattern of poor digital adoption will lead to avoidable increases in costs for CIOs and IT leaders. Thankfully, there are solutions to these problems. 

Implementing a digital adoption platform (DAP) is a highly effective way to reduce software TCO. These platforms can eliminate onboarding and training costs by supporting employees to independently learn how to use their applications. 

The DAP provides the user with continuous, interactive guides embedded as an overlay on the software itself, empowering them to “learn while doing”. Employees also become more self-sufficient as they are not reliant on static training materials and classes to make full use of software.

A DAP also reduces the burden on internal support resources (human, technological and financial). Furthermore, the decentralised, on-demand nature of training through a DAP makes it far more scalable and cost-effective than regular classroom-style training. 

Importantly, a DAP also has a clear positive impact on software ROI. Whereas previously a typical user would leverage less than half of a program’s features, the on-demand training and support offered by DAPs allows them to tap into the full set of advanced capabilities. A DAP also ensures that employees comply with SOPs (standard operating procedures), an important step to ensure process quality is consistent. Overall, it makes the purchase of, or subscription to, a piece of software a much more valuable investment. 

In turn, these changes lead to higher productivity and a more forward-thinking culture. Giving users a pathway to mastering a software will instil within them the confidence to take on other applications – this in turn makes them more receptive to digital change. 

Lower costs, higher productivity 

Even when firms do take the need for continuous learning into account, the repeat cost of traditional training methods causes the software’s TCO to sharply increase. Using DAPs, employees can learn on-demand and receive guidance through every process the program offers – in real time. 

This modern approach to training frees up capital and human resources, meaning no further drags on productivity and more funds to invest in further digital transformation. Most importantly, the ability to ensure a consistently a high level of digital adoption allows firms to stay ahead of the curve and truly embrace new technologies.

Hartmut Hahn
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Hartmut Hahn is the co-founder and CEO of Germany-based technology company, Userlane. Hartmut holds two Master’s degrees in Business Administration and Management. Prior to founding Userlane, Hartmut worked in management consultancy, specialising in M&A, digital transformation and technology adoption for businesses.

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