It’s easier to accumulate tech bloat than to shed it.
Tech bloat describes outdated, redundant or complex software or systems that weigh down an organization. If executives don’t manage and reduce it, it can inflate the annual technology budget without providing benefits like additional revenue or efficiency.
Tech bloat can happen in several ways: an institution engages in mergers and acquisitions and forgets to cancel small, duplicate contracts. It adds new software and pays for it without checking if it’s fully leveraged. A team buys software from a new vendor without verifying whether something similar is in use in another part of the company or whether an existing vendor sells a similar product. These decisions on their own aren’t necessarily wrong, but once they’re piled together, they lead to redundancies, underutilization of technology and wasted money.
Maximizing tech spend has been the driver behind Kansas City, Missouri-based Dickinson Financial Corp.’s focus on whittling down its vendor list, says Chief Operating Officer Tom Kientz. Dickinson, which has two bank units that have about $4 billion in assets combined, manages its technology budget centrally and realized that it had 300 software vendors after uploading its vendor management information into True Digital, which has a platform that helps banks manage their technology vendors.
The organization decided to cut its vendor count 10% by making sure the bank units had enabled all the features of the software it had acquired. Software can be complicated to implement and configure. An institution will sometimes implement some features initially but forget to implement the rest. Over time, Kientz says, the institution may buy a new, second piece of software that does the same things as the features in the first software that were never implemented. Enabling all the features allowed Dickinson to cut these second vendors, reducing the bank’s overall tech budget by 8%.
“The biggest thing I want to create internally is the discipline that we are always getting and using all of the features out of a software solution that we’ve already bought,” he says.
Community banks with hundreds of vendors aren’t unusual, says Patrick Sells, True Digital’s founder. Over the last several years, the number of technology vendors has exploded; additionally, the number of products those vendors offer continues to grow. A 2022 global survey from software firm Freshworks found that 54% of IT professionals across different industries say their organization pays for software features that the IT team never uses. A little more than a third say their company doesn’t know how to stop paying for unnecessary services.
“Technology companies are constantly changing and adding to the product set they have,” Sells says. “What bankers tend to do is say, ‘At this moment, I had a need and figured out who I could get it solved from.’” But they don’t check later to see if an existing vendor added a similar product or service.
Sells gives the example of e-signatures: the number of vendors offering this functionality has expanded from one to more than 30 in five years. Institutions end up inking a contract for one service from a new vendor — which requires due diligence — rather than adding this service with an existing vendor, which could make the service more affordable and increase the institution’s buying power. The outcome is a long vendor supplier list, usually for one product each, he says.
Mapping out an institution’s vendor relationships allows it to identify potential redundancies and one-off products that it could purchase from another existing vendor. Sells says one bank customer with between $10 billion and $15 billion in assets identified $9 million of highly redundant spending. A community bank found they were paying $250,000 a year to three shredding services, contracts they had assumed in M&A deals over the years.
But identifying bloat is just the beginning of the work needed to reduce it. An institution needs to identify the owner and users of potentially redundant tech and come up with migration and mitigation strategies if they decide to end contracts and combine services. They may decide not to renew a contract or break it early. Kientz says at Dickinson, this initiative was led by the bank’s CIO with help from its vendor management department.
Another way for executives to address tech bloat is to keep tabs on how many employees and customers use the technology or software, says Paul Schaus, CEO of bank consultancy CCG Catalyst.
“Bankers notoriously don’t like getting rid of things. … They keep paying for something because there could be one customer still using it,” he says.
Or — even worse — the institution is paying for technology it’s not using. This isn’t a new problem either; when Schaus ran his own bank decades ago, the chief lender pitched him on an underwriting tool, which was approved. Eighteen months later, he was back in Schaus’ office, pitching another tool because the first tool didn’t work properly. When he checked in with the finance office later, Schaus found the bank was still paying for the first tool.
Now, he likes to ask financial institution clients if they still employ voice response units, or VRUs, in their call centers. VRUs were popular in the 1980s, but an institution may want to audit the technology to see how many bank customers still use it and if they could be persuaded to use other assistive technology.
Another problem comes from contracts for software services that have diffused across an institution without central oversight. Sometimes, the IT or finance departments don’t realize the marketing or credit groups have purchased software licenses directly, which is increasingly easy in a software as a service model. Schaus has encountered institutions paying for hundreds of licenses to companies like Salesforce across dozens of contracts; the disconnection means they’re likely overpaying relative to putting all the licenses into one contract and negotiating directly.
“You might sit there and say $20,000 or $50,000 is a lot of money. It’s not,” he says. “The big money is when it’s seven figures, that’s when everyone talks about it. When you get these five-figure numbers, they could get buried, and no one knows about it.”
Dealing with existing and future tech bloat is important for institutions that see technology as a crucial way to operate and grow. It’s also a good way for executives to control rising costs at a time of economic uncertainty as they mull other cost-saving measures such as layoffs or branch closures.
“Vendor contracts aren’t cheap,” Sells says. “You stack up a few of those, and while it’s not a forever thing, it could likely save quite a few jobs.”
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