‘Deflation’ and Managed Services

A major theme of our discussions with IT Leadership and EA teams is to understand the ongoing changes in, and potential impact of, the continuing price/performance improvements in processing, networks, storage and services.  (See our materials on ‘Tech-tonics’ – the long-term implications of the changes in technology economics). 

I was reminded of the importance of monitoring these trends when working with a client this week.  The client is a small/mid-sized IT shop with approximately 70 staff (including contractors).  We have been encouraging this client for some time to look at selective outsourcing to improve service as well as lower cost. 

I reviewed with the client this week a proposal to manage and monitor their approximately 100 Windows servers.  The client was planning to hire two additional staff to meet the demands of applying updates and patches, and to extend support coverage into evenings. 

I like to think I am ‘on top’ of everything but I was positively surprised by the proposal they received from a mid-sized, good quality services provider using on-shore resources whose business remains strong.  

The proposal includes 7x24x365 support at a cost of just around $100.00 USD per physical server per month.  Said differently, the cost of the managed service is significantly less than the cost of the two hires (e.g. salaries, benefits, office space, PCs, travel) and the client’s organization receives significantly extended service coverage. 

This experience just reinforces our view at EAdirections that focused outsourcing can provide significant benefits in both cost and service.

Survey: Help Us Plan New EAdirections Events

In response to several inquiries, we have created a survey to the larger community to understand your needs for high-quality, practical and pragmatic education including conferences, workshops, webinars, roundtables, etc.  Please take a few minutes to complete this short survey. 

DRAWING – At the end of the survey you will be asked if you would optionally like to enter a drawing for a complimentary one hour Mentoring Teleconference to discuss your IT Leadership, EA, Portfolio Management, Governance, IT Strategy, Alignment, Cost Containment or Transformational Initiatives.

Discipline & Knowledge: Keys To Cost Containment Assessments

The pressure on IT to contain costs is well understood. Every vendor has a presentation about how their products can be central to lowering costs.  Research companies are publishing cost containment frameworks and consultants have lots of white papers. 

Over the past several months we have worked with a number of clients to help them in their cost containment efforts.  At 50,000 feet, it appears that everyone starts with the same playbook – renegotiate with vendors (starting with your telecomm vendor), cut consultants and contracts, virtualize everything, defer some maintenance, cut travel and training…and hope that is enough (so you don’t have to cut permanent staff).  Frankly, this approach gets many CIOs down to an expense level that is “acceptable” to corporate leadership.  Many CIOs also “accept” that this approach will likely increase long-term IT costs as well as inhibit long-term business strategy. 

On the other hand, those clients who seem to make the best tactical and strategic decisions, when executing a cost containment exercise, appear to have two consistent characteristics. 

First, they are very disciplined in their approach to ensure a comprehensive review of all areas of IT costs (i.e.  IT Procurement & Asset Management, Product & Technology Rationalization, Application Portfolio Rationalization, Server Virtualization, Open Source, PC Costs, IT G&A etc.).  Even ‘un-thinkables’ are reviewed to ensure completeness, for example:

• “Are there staff who can use OpenOffice instead of Microsoft?”
• “Should we re-examine our commitment to clusters and look at horizontal scaling?”
• “What are the implications of replacing EMC with NetApp?”

 This discipline includes doing an objective and ‘truly loaded’ cost analysis.  ‘Truly loaded’ refers to being sure that all costs are fully accounted for.  For example, in looking at the cost of internally managing Microsoft Exchange and BlackBerry Enterprise Server versus a specialized outsourcing option (e.g. MailStreet) they make sure they include the cost of internal staff’s travel, training, PCs, cell bills, office space, etc. as well as the full loaded data center/support costs (e.g. Help Desk, space, storage, electricity).  It is very clear that internal IT staff significantly underestimate the ‘truly loaded’ costs of providing specific services.

Second, they make sure they have adequate knowledge to make their evaluation.  They don’t rely on speculation or anecdotes and, instead, look for hard facts and case studies.  And when they see an example they really work to understand what are the dynamics in play at companies like:

• Wal-Mart – which uses SaaS (Red Prairie) to optimize employee scheduling at their stores versus running a similar application in house
• Sabre – which executes 60% of all travel reservations in North America on a server farm using very inexpensive HP Intel servers running Linux and MySQL, which saves Sabre approximately $20 million a year in operating expenses in support of AA.com, Travelocity and several other travel-related sites

 These clients recognize that a meaningful evaluation of Cloud Computing requires an in-depth knowledge of the types of offerings available, and comparative strengths and weaknesses of each category of offering as well as the different vendor offerings in the category. These clients make sure that if they are evaluating an open source alternative to Cognos (e.g. Pentaho) that it can meet their needs.

 The bottom line is that ‘discipline’ and ‘knowledge’ are key characteristics of cost containment assessments that yield  the best tactical and strategic decisions.  (Based on our experience working with clients, we have developed a Cost Containment Workshop that helps ensure these are achieved. 

For more information on this topic and to read a description of a new IT Cost Containment Workshop check out the entry on the Education and Seminars page.