How to reduce IT costs by 25% at the same time as increasing IT effectiveness

This article provides guidance to those accountable for the IT budget on how to get the most value from IT while radically reducing costs by at least 25% by:

1. Establishing a service centric IT group focused on business priorities2. Establishing governance framework to maximise benefits realisation, reduce risks & optimise resources3. Reducing application development & support costs by utilising the latest technology innovations4. Reducing desktop infrastructure and software costs by adopting cloud services and supporting BYOD5. Reducing Data & Networking costs6. Reducing Voice costs by adopting SIP trunking and eliminating ISDN based legacy infrastructure7. Reducing infrastructure costs by virtualising services and utilising hybrid private/public cloud services

Service Centric

The key to keeping IT costs under control is to not view IT as a cost centre but rather a service centre. Services must each have value to the business and costs that must be kept at a level below the related value. This approach ensures work conducted within the IT group is both relevant to the needs of the business and is done in an efficient and effective manner. The service based approach to IT enables future virtualisation of those services and can be achieved by maintaining a register that lists all activities (services) done by IT. Each service has related business objective(s) that it contributes to and who the key stakeholders are for each objective. This is commonly referred to as a service portfolio. It helps maintain relevance and serves as an important reporting tool in keeping business stakeholders informed on the status of all IT projects that are aimed at improving KPI's associated with business objectives they are accountable for. Best practice frameworks such as ITIL exist to assist CIOs in implementing service based IT.An overview of ITIL is available here: http://www.itil-officialsite.com/AboutITIL/WhatisITIL.aspx .

Governance

Good governance is mostly about 2 key issues: establishing clear direction and ensuring adherence to that direction. IT governance frameworks such as COBIT (http://www.isaca.org/COBIT/Pages/default.aspx ) and the International Standard ISO38500 exist to assist CIOs in implementing and achieving adherence to governance principles. Research shows that organisations with above average IT governance perform 20% better than those following the same strategy without an IT governance framework (refer http://books.google.com.au/books/about/IT_Governance.html?id=xI5KdR21QTAC).

A key aspect of governance is that a separate group should be responsible for governance to those actively involved in the management of IT, those people should include key business representatives for whom IT work is meant to benefit. This governance committee should focus on:

Benefits realisationo Appoint an organisational change manager whose job includes ensuring staff follow agreed

processes, use applications properly and keep data up-to-date. Prosci is an excellent change management framework that helps to improve adoption and thereby maximise benefits realisation. Prosci advocates that any change initiative needs to address all the following factors in order: awareness of the need to change, desire to participate and support the change, knowledge of how to change, ability to implement the change on a day-to-day basis, reinforcement to keep the change in place. More information on Prosci is available at: http://www.change-management.com/tutorial-adkar-overview.htm .

Risk optimisationo From my experience the greatest risk in IT is the cost related to projects that should never have

gone ahead in the first place because they either have no relevance to assisting the business to achieve their goals, or they represent a duplication of existing functionality elsewhere and were created for political reasons. It is the job of the governance committee to ensure projects never get started unless they are directly related to achieving organisational goal(s).

o Never start any development project without a clear understanding of what resources and processes are required to support it post deployment. Gartner research has shown that if you

How to Reduce IT Costs by 25% Author: Sean Chamberlin 11 th Dec 2013 Page 1

own an application for 15 years, the cost of the initial project will be, on average, 8% of the 15 year “total cost of ownership”. In other words, 92% of the cost of an average application is maintenance and support after project completion.

o Reduce application development costs by adopting an agile approach. The key aspect is to rapidly develop prototypes that users can interact with and provide feedback on, rather than focusing on lengthy requirements capture documents that are rarely understood or useful.

o Create a Risk Register and ensure the items in it are managed proactively. A free template you can use for Risk Management is available here: https://app.box.com/s/p7tns5kbrliny06mnouu .

Resource optimisationo Each application, data entity and process should have a single accountable owner. All staff

should know or be able to rapidly find out who these owners are. These owners are responsible for maximising adoption, data accuracy and completeness. This increases accountability and decreases duplicated effort.

o Define Metrics for each key process such as fault turnaround times, bill distribution times and volume of billing disputes. Develop a plan for improving each of these metrics.

A more complete overview of governance best practise is available here: https://app.box.com/s/k6ab616y8pi5lbf461fg

Application Development & Support

Application development and support costs typically consume 40% of the IT budget. Innovation in this space has moved fast in recent years with huge savings and agility improvements now possible by using tools and approaches such as the following:

Creating and customising mobile applications can now be done completely free via a new tool recently launched called ‘GoBizMo’ (http://www.gobizmo.in) . There’s just an ongoing subscription fee per user per month after it is published and being used.

Web sites do not have to be developed any longer but instead can be created from templates downloadable from Bootstrap for less than $20 (http://getbootstrap.com/ ).

Spending large sums of money on customised CRM applications may be a thing of the past now that LinkedIn have entered the CRM arena. LinkedIn can either be used as a CRM in its own right or integrated with your existing CRM and used as the source of leads data. They have released new apps that allow users to build their own CRM database at no cost. These new apps include (in my personal order of preference) ‘LinkedIn Contact’, ‘Evernote’, ‘InMaps’ and ‘Tripit’. If using LinkedIn as your CRM is not your preference, then both SalesForce and Microsoft Dynamics offer cloud based CRM applications that eliminate any infrastructure costs and significantly reduce risks of cost blowouts.

Desktop infrastructure and software

Fully managed desktops via the Cloud (also known as ‘desktop as a service’ or DaaS) are now not only possible but are increasingly being adopted by small businesses right up to large public corporations. Amazon Web Services is revolutionising the industry by providing low cost fully managed desktops in addition to a broad range of virtualised services and apps that can be operational in minutes. Microsoft 365 and Google Desktop also offer cloud based desktop platforms that include email, word processor, spreadsheet, database and web site applications. DaaS requires no upfront capital expenditure and is far cheaper to maintain and faster to deploy than the alternatives of rich desktops, terminal services or in-house purchased Virtual Desktop Infrastructure. It also greatly reduces help desk support services as repairing a desktop is as simple as refreshing it with a new virtual machine. Data security concerns are mostly unfounded as the data resides in the corporate data centre which is likely to be more secure than the device itself. If the device is lost, then the data is still secure. Further the risk of viruses from desktops infecting the corporate network is reduced.

Bring your own device (BYOD) provides an opportunity for staff to have their own preferred hardware & software choice, thus increasing productivity. It also greatly reduces the cost of hardware that would have otherwise been bought by the employer. It also reduces support costs. According to a recent study by Cisco, the most significant savings are associated with “employees using their own mobile devices, software, apps, and cloud services to find new ways of working. An astounding 53% of BYOD workers have increased their productivity through employee-led innovation, and 38% are saving 30 minutes per week or more”. The study concludes that a comprehensive BYOD approach would yield net annual gains of $1,650 per mobile employee per year. Refer http://www.cisco.com/web/about/ac79/docs/re/byod/BYOD-Economics_Econ_Analysis.pdf .

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Data & Networking

Data networking costs typically consume 10% of the IT budget. Price erosion in this market has increased significantly over recent years with increased competition. You should negotiate with your supplier each time you come out of contract and insist on a per Mbps unit cost reduction of 15% to 20% per year. There are also other ways of both reducing your total spend and decreasing variability in spend by choosing pricing plans that include percentile billing, bursting, temporary turn-up and turn-down capabilities, and shorter contract duration. Make sure you negotiate and change supplier if you don’t get what you want.

Voice

Voice costs typically consume 10% of the IT budget. Fixed voice prices are in heavy decline with 5% reduction in unit prices per year but more importantly technology innovation has enabled businesses to slash their legacy PABX costs by adopting SIP trunking. SIP trunking enables consolidation of all PABX equipment to a small number of redundant locations with older equipment retired. Most corporate deployments use Ethernet for corporate WAN networks and multiple ISDN lines for voice. With SIP Trunks the voice traffic converges on to the Ethernet network, without impacting the performance of your WAN. This not only reduces the monthly fee on ISDN line rentals but also ensures that your growing voice needs will be met. Savings of 20% per year compared to legacy ISDN based services should be expected.

Infrastructure & Operations Virtualisation

Infrastructure & Operations costs such as servers and energy consumption typically consume 25% of the IT budget. These costs can be slashed by virtualising and migrating to a cloud based solution. The roadmap to achieving full cost reduction and agility improvement is typically done as follows:

Step 1 is to Virtualise Server Infrastructure. The main objective initially is usually to reduce the number of servers and thereby reduce capital expenditure.

Step 2 is Distributed Virtualisation. Creating a catalogue of services that can be offered to consumers via a self-service interface such as a portal is a key next step to virtualisation. In order to realise the full agility and cost saving benefits this step requires related changes to processes, technology architectures, tools/systems, and staffing levels & their skills needed.

Step 3 is Private Cloud. This stage is a means of taking the servers that were virtualised in Step 1, centralising data centre resources internally, and leveraging off this infrastructure to drive business flexibility. Organisations typically start with development, training and test environments and then move on to other business services. Private clouds better enable usage monitoring and hence the ability to perform business unit charge-backs for services consumed.

Private clouds are rapidly becoming mainstream. According to Gartner almost half of large organisations now have one with 75% expected by the end of 2014. The main driver for most organisations is agility, not just cost control.

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- Reduce # servers- Reduce CAPEX

- Agility- Reduce OPEX- Reduce downtime

- Agility- Self serve (IT as a service)- Usage monitoring- Business unit charge-back

- Flexibility- Lower costs for peak loads- Service levels- Maintaining both provides fall-back options

- Eliminate CAPEX- Extra flexibility & agility

Step 1Server

Virtualisation

Step 2Distributed

Virtualisation

Step 3Private Cloud

Step 4Hybrid Cloud

Step 5Public Cloud

It is predicted that most private cloud services are likely to become hybrid over the next few years. Therefore private clouds should be designed with interoperability and public cloud computing in mind and the technology platform(s) chosen should allow for future expansion in scope of services.

Step 4 is Hybrid Cloud. Hybrid cloud deployments typically use public cloud for development, test and training services (services that typically require great agility) and private cloud for mission critical services (services that require greater control and accountability). The other common approach to hybrid clouds is to use public cloud services when private clouds near full capacity usage – ie. as an ‘overflow valve’.

Interoperability is very important at technology, process, architecture and service levels. Standards also become critical, especially Service level Agreements (APIs) and Automated Programmatic Interfaces (APIs).

Step 5 is Public Cloud. Outsourcing to the Public Cloud can be done at several different levels that are broadly categorised as either IAAS, PAAS or SAAS. The following diagram illustrates the respective scope of what is being outsourced to an external cloud services provider at each of the 3 levels.

Examples of suppliers:Applications (eg. CRM, Gmail, Yahoo mail)

Virtual desktop

Communication Software as a Service

Games SAAS

Social media (eg. Facebook)

Runtimes eg. Java

Security & Integration

Development tools Platform as a Service

Web Servers (eg. Tomcat) PAAS

Operating systems (eg. Windows, Linux)

Databases (eg. Oracle, mySQL, SQL)

Servers

Virtual Machines

Server Hardware Infrastructure as a Service

Storage (hard discs) IAAS

Load balancers

Firewalls

Network

Software as a Service (SAAS)

Platform as a Service (PAAS)

Infrastructure as a Service (IAAS)

Utilising a Data Centre for IAAS physical server infrastructure

Outsourcing to the Public Cloud by directly purchasing IAAS Space and/or Racks within a modern Data Centre can result in huge cost savings. You should insist that your Data Centre supplier is accredited to Tier 3 or 4 standard by the Uptime Institute, is carrier neutral, has an actual uptime track record of 100% over the past 12 months, has 24X7 monitoring and security, has clearly defined and simple processes, is financially secure and has a power usage efficiency (PUE) ratio of less than 1.2. The majority of older data centres will have a PUE of at least 2.5 which translates to much higher fees to you and higher impact on the environment. The latest generation Data Centres that utilise Bladeroom technology, fanless server designs, increased density and the latest generation CPU’s that are designed specifically for power consumption reduction are massively more efficient and cheaper than what an organisation can typically achieve with their own private data centre. The end result can mean as much as a 43% saving per year in energy costs. Refer to the following Metronode site for details of potential savings: http://www.metronode.com.au/our-design/benefits/financially-sound/ .

One of the major benefits of consuming services from the public cloud is that if you have currently got a private data centre that is inefficient and well behind latest practices, then buying from the public cloud enables you to take a major leap forward to virtualisation without spending significant effort or dollars yourself. If you already have a high degree of virtualisation then public clouds can still offer significant value via load sharing and automation. Infrastructure deployment times can be reduced from weeks to hours.

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Utilising a SAAS supplier

If you for example use SalesForce as your CRM then that application is hosted in the public cloud and where the data resides is not something you need to be concerned about directly, but instead you need to focus on an SLA that covers all your requirements that may include location of data storage being local for sovereignty reasons, performance times, data restoration times, etc. This greatly simplifies the services that your IT team need be concerned about, increases agility and eliminates capital expenditure.

Conclusion

Anyone accountable for leading an IT team should first focus on aligning the activities conducted within the IT group on what matters to the business and eliminate any work or money being spent on projects that do not clearly add value to the business. This is best achieved through service based frameworks such as ITIL. Once this has been achieved then the next step is to establish adequate governance to reduce risks and ensure IT is complying with their directives. An effective governance framework will both reduce risks and enhance performance. Once both service based IT and governance is in place then there are a range of innovative initiatives such as virtualisation that can slash costs by at least 25% overall without any impact on the scope or quality of services supplied to the business.

Sean Chamberlin is a senior IT Manager and expert in leading transformation/turnaround projects. He has managed IT, Marketing & Finance teams, being qualified in all 3 disciplines, in addition to being an accredited Enterprise Architect. His experience includes working for the largest company in the world (Exxon Mobil), the largest Telco in Australia (Telstra) and one of the largest global chartered accountancies (Ernst & Young). He has also worked for 4 start-ups before founding the management consultancy ‘Strategy Implemented’, becoming the inaugural CEO.

Sean is currently employed by Nextgen Group establishing their Business Intelligence, Inbound & Outbound Marketing capabilities.

www.nextgengroup.com.au

sean@chamberlin.biz

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