According to Gartner, the software-as-a-service (SaaS) market makes up more than 50% of the overall software market. We also found that ~40% of organizations use 50 SaaS tools, whereas ~5% use 250+ tools!

Also, IBM's Cost of a Data Breach Report 2023 highlights that data breaches cost organizations an average of $4.45 million. Investing in SaaS management now will save millions of dollars down the line.

Pricing models are complex and opaque. User-based pricing, usage-based pricing, etc. make it difficult to predict spends before the invoice is sent. 

In addition, buying behavior has changed—employees evaluate, shortlist, and buy SaaS tools with their own credit cards without IT/procurement oversight. This decentralized buying causes shadow IT, which adds to the problem of SaaS sprawl.

In this blog post, we will explore:

• What causes SaaS sprawl?
• How SaaS sprawl impacts your business
• Best practices to manage SaaS sprawl

What is SaaS sprawl?

SaaS sprawl refers to the proliferation of SaaS tools across an organization. It results from teams adopting a large number of SaaS tools to get work done quickly and efficiently.

It also occurs when different departments independently buy SaaS tools without approval from IT or procurement, and without coordinating with other departments to check if there is an overlap or duplication of licenses.

SaaS sprawl leads to increased costs, makes it harder to keep track of SaaS tool usage, and causes security concerns because unapproved tools may have vulnerabilities. 

Moreover, we found that 56% of organizations don’t have a monthly cadence for SaaS spend review and optimization. Of them, 16% do not have a pre-established cadence; they review on an ad hoc basis. Thus, optimizing SaaS spending is the need of the hour.

What causes SaaS sprawl?

The phenomenon of SaaS sprawl is the result of several interconnected factors:

1. Decentralized SaaS procurement lacks visibility and control

When SaaS tools are procured independently by different departments, each focused on addressing their specific needs, it causes mismanagement of licenses, duplicated apps, or overlap between functionalities. 

Lack of visibility over these tools and absence of SaaS management causes SaaS sprawl. 

2. The rapid growth of the SaaS market

Since most software has gone SaaS, spending has also increased exponentially. Our study found that nearly 40% of the respondents spent over $1 million on SaaS each year, of which 14% spent over $5 million.

The allure of cutting-edge features and functionalities prompts teams to adopt new tools without checking if other departments use similar SaaS tools. This causes duplication or feature overlap, leading to wasted money.  

3. Impact of Bring Your Own Device (BYOD) policies

When employees use various SaaS tools via their personal devices (that may not be IT-approved), it becomes challenging to maintain a centralized and secure software environment. 

Clear guidelines and controls are required to prevent personal and professional SaaS app usage from getting mixed up.

How SaaS sprawl impacts your business

The ramifications of SaaS sprawl can be significant, impacting multiple facets of your organization:

1. Increased SaaS spending 

As various departments independently adopt SaaS tools, there's a high probability of overlapping functionalities. Two teams may also end up buying the same SaaS tool because they’re unaware of what is happening outside of their department. This redundancy results in purchasing more licenses than necessary, directly inflating software costs. 

Furthermore, tracking these disparate expenses becomes increasingly complex, leading to budget management and cost optimization difficulties. Our study revealed that 63% of business leaders want to automate spend tracking, giving them better visibility into SaaS spending and ownership. 

2. Operational inefficiencies

The use of multiple software tools, each serving a specific function, allows teams to customize the SaaS app for their work. While specialization is valuable, this fragmentation leads to operational inefficiencies. 

Procurement and IT teams have trouble keeping track of renewal dates, license usage, and contracts across all the SaaS apps being used. Hence, they waste time requesting clarification and pulling data from different sources. 

3. Reduced employee productivity

With too many SaaS apps, employees switch between multiple interfaces and credentials to get their work done. The context-switching reduces their ability to focus and access the information they need quickly. 

These inefficiencies compound and lead to errors, missed deadlines, and communication breakdowns. 

4. Security and compliance risks

The State of Ransomware Attack Preparedness 2022 reveals that more than 51% of organizations have faced a SaaS data ransomware attack, and 52% of these attacks were successful in penetrating enterprise defenses to encrypt the data. 

As different teams independently adopt SaaS applications, the chances of introducing security vulnerabilities increase substantially. 

Without IT oversight, tools do not undergo rigorous scrutiny, exposing you to data breaches or cyberattacks. 

5. Data management challenges

Data silos are caused by each team adopting its own set of SaaS tools to manage projects and communicate. This makes it difficult for teams to collaborate with other functions.  

At the level of CFOs and CPOs, disparate data sets makes it difficult to drive a unified SaaS strategy. 

Best practices to manage SaaS sprawl

Here are some best practices to manage SaaS sprawl and control SaaS spend:

1. Establish a SaaS procurement process

Implementing a SaaS procurement process provides clarity on SaaS expenditure. 

Collaborating with key stakeholders, including finance and procurement, ensures that each investment into a SaaS tool aligns with business objectives. 

Large organizations use more SaaS tools, which adds to the complexity of SaaS procurement and renewals. Without real-time visibility via a SaaS management platform, SaaS procurement becomes a bottleneck. 

2. Conduct regular SaaS audits and assessments

Routine SaaS audits and assessments are comparable to financial audits for software expenses. They help identify underutilized or redundant tools that waste money. 

Consolidating these tools from the portfolio frees up the budget for investments that deliver higher returns. 

3. Identify tools with duplicate accounts

Using a SaaS management platform, you can rationalize and reduce SaaS tool redundancies. This will help you save on licensing fees and operational overheads. 

Steps you can take to reduce functional SaaS application redundancy are:

• ‍Build a system of record - For each SaaS tool being used, create a record of total spend, ownership, category, and function, number of seats, contract terms, and renewal date. You can do all of this automatically with Spendflo.

• Survey users about preferred tools - Perform on-ground analysis by directly asking end users which SaaS tools they prefer to use. Spendflo helps you conduct a user sentiment survey before tool renewal to decide whether to renew or eliminate the SaaS tool.
• Measure utilization and costs - Armed with user query data, cross-check how tool utilization stacks up to SaaS spend data. 
• Identify the ideal number of SaaS tools - With an understanding of how SaaS tools are used, you can determine the correct number of tools suitable for your organization and eliminate the duplicate ones.

4. Monitor license usage for tools

Monitoring license usage helps you know which tools actively contribute to operations and which remain idle. This insight enables informed decisions about renewals and terminations. 

Spendflo’s usage tracking module helps you monitor all your active SaaS usage from a single source. You can see usage based on administrator and user roles. You can also monitor usage for each department and user. 

5. Bridge the gap between IT and other departments

The IT department should interact with other departments to understand which SaaS tool they prefer and which one is the best fit for their use cases. 

Aligning software decisions with organizational objectives prevents unnecessary tool purchases and promotes cost-effectiveness.

6. Improve onboarding and train your employees

Investing in employee onboarding and training programs that educate people about procurement best practices, shadow IT, and cybersecurity practices. 

When employees understand the need to standardize SaaS tool usage, their productivity is enhanced and shadow IT is reduced.

Manage SaaS sprawl with Spendflo

Spendflo can save you up to 30% on your SaaS stack by automating procurement, identifying shadow IT, rightsizing license usage, and tracking user sentiment. 

Our expert buying team also negotiates the best price for your SaaS contracts based on benchmark pricing data and years of experience. 

Some clients have seen a 2X ROI with three urgent procurements within a week of onboarding. Others have reduced costs by 80% by migrating their existing technology vendors to more cost-efficient SaaS alternatives. 

To know more, get a free saving analysis today!

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