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 Posted: Thu 11:04, 10 Mar 2011 Post subject: Cutting IT Cost and Enhancing IT Infrastructure — |
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The bankruptcy of Lehman Brothers triggered by America subprime crisis in 2008 set off a world-sweeping financial crisis. In the past two years, I have observed from my audit and training job in BSI that cutting IT expenditure has been deemed as the top priority by the majority of Chief Information Officers in foreign enterprises. According to surveys conducted in Western and Asian countries, the percentage of companies which cut their IT expenditure has soared from 13-19% to more than 50% after the break out of financial crisis, with the cutting rate as high as 30% in a few enterprises. Though China is not in the heartland of the crisis, it can not keep intact from this globally contagious recession, as 40% of enterprises cut down their IT investment, 52% stick to their previous investment level, and only 8% invest more.
However, CIOs find themselves caught in dilemmas now. During the mass IT deployment, which started in 1999 and completed in 2006, CIOs made efforts to cut down the ubiquitously exorbitant IT budgets. In the following years, they also kept a firm control over IT cost. Now, some CIOs are pondering over how to enhance the competence of IT infrastructure and how to implement flexible budget on new projects. The cutting down of IT investment will inevitably lead to a new problem: how to satisfy the needs of other departments? After all, they are in increasing need for IT resources to boost business.
At first glance, cutting IT cost and enhancing IT competence are unattainable at the same time. However, if enterprises can have a good control over fixed IT cost and cut it reasonably, money will be saved for the development of new technologies and innovations. In this way, even if the total IT investment decreases,[link widoczny dla zalogowanych], a sound IT infrastructure will be laid down for the future development of the enterprises.
No doubt, CIOs must grow to be experts in getting twice the result with half the effort. However, how to achieve this goal? CIOs must have broad vision and cast their sight on more territories other than flexible budget. In fact, fixed IT cost constitutes a significant part of total IT cost. CIOs should work out good ways to consistently and forcefully cut it down. Two channels are highly feasible in this regard.
Firstly, optimize existing IT system, so as to bring down cost
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Secondly, redeploy IT infrastructure, so as to obtain maximum return.
Only in this way could enterprises consistently develop IT technologies, promote innovations and drive growth.
Enterprises�� efforts in cutting down IT costs can be divided into three levels:
First level: minimize IT infrastructure (quickly reduce IT cost)
Second level: optimize IT infrastructure (bring the existing operation system into full play)
Third level: redesign IT infrastructure (reduce IT configuration cost to win competition edge)
Among countless ways for IT cost deduction, what mentioned in the graph above are the most common ones.
If a company is struggling for survival, its top priority in IT infrastructure is to cut down cost immediately. However,[link widoczny dla zalogowanych], if a thriving company is trying to consolidate its competition edge or enjoying a quick growth, then it should use money saved from efforts of the first level to enhance its IT infrastructure.
The first level: minimize IT infrastructure �C quickly reduce IT cost
According to my observation in my audit work, lots of IT resources are left unused in many enterprises (for example, deserted facilities, resource with a use rate of less than 15%). For these enterprises, an imperative is to find out and get rid of these unnecessary fixed and flexible costs. The traditional technical solutions to decrease cost include: closing down redundant systems, terminating valueless projects, renegotiating maintenance contracts,[link widoczny dla zalogowanych], and reducing IT service to departments with less IT demands. In this stage, the first remedy step is to carry out an audit on IT cost, IT capital and IT projects of the company.
For example, one provincial telecommunication company has successfully saved 2.8 million yuan by adopting power supply management software which is capable of turning off the company��s 6000 pcs automatically at night. This method, with immediate effect, will inspire the enthusiasm of CIOs and encourage them to solve more complicated problems with more passion, including evaluation on the combination of application systems and projects, as well as renegotiation of contracts.
For each step towards the minimization of IT infrastructure, CIOs often set the cost deduction target at 10% - 20%. The saved cost will be devoted to amelioration efforts, so as to achieve maximal return. Well-conceived plan and clear-cut criterions are required for the usage of the saved money.
It is especially worthy of attention that during this stage, some management teams are only concerned with deduction of cost as they often prefer to postpone the expected IT investment to the next season or fiscal year. However, such postponement is meaningless to help their enterprises to save cost in the long run and achieve the desired target of saved cost.
The second level: optimize IT in structure by enhancing usage rate and competency
All aspects of IT operation, including hardware, software, network and service will get involved in this level. Suitable options for cost deduction in this level include:
Use lean client termination, and concentrate investment on innovation of network, server and application;
Reduce purchase cost in virtue of purchase management;
Limit the quantity of software, OS, and application versions, so as to realize the standardization of software and hardware;
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Integrate and virtualize data center, adjust server and storage equipment, enhance the usage rate of existing resource, as well as work out and execute long-term strategy.
For each step towards the optimization of IT infrastructure, CIOs often set the cost deduction target at 15% - 40% and a time schedule covering several months to two years. For instance, one Internet company carries out server integration and virtualization after capacity management. Thanks to the effort, the company successfully decreases the servers in demand from 12000 sets to 3000 sets, and therefore save 0.5 billion yuan on a yearly basis.
In addition to bringing down cost, efforts in this level will lead to simplified systems and operations, so as to help enterprises cope with changes in a swift way. Through deduction of computing components (in an effort to improve the ratio between human beings and computers), CIOs can enhance the supervision on IT resource, decrease the number of servers out of management and systems being neglected, and improve service level. Since personnel, facilities, business flow and suppliers will all go through certain integration, the stability, reliability and safety of business systems of enterprises will get notably enhanced, as the old scene of enterprise with several hundreds of systems under the supervision of several experts will change into the scene of enterprise with several systems under the maintenance of several hundreds of experts.
At last, the all-round optimization efforts will prepare enterprises well for entry into the further advanced stage �� redesign of IT infrastructure, and bring more profits for the enterprises.
The third level: secure long-term advantage through restructuring of IT infrastructure
Efforts in this level include redesigning of IT flow, operation mode, IT structure and outsourcing service, in a bid to permanently cut non-flexible cost and enhance eligibility of enterprises. In this stage, enterprises are endeavoring to establish a kind of permanent and sustainable low-cost structure, so as to underpin the development of enterprises in a more powerful and efficient way. Enterprises that are concerned with strategic cost deduction will realize a 15%-45% cost deduction after having their business flow redesigned in a reasonable manner.
During this stage,[link widoczny dla zalogowanych], CIOs will focus on pursuing a delivery mechanism for redesigning schemes and management methods on resource, service and purchase. In addition, redesigning of business flow supported by IT infrastructure is one of the significant missions during this stage.
Take IBM for instance. After restructuring of IT infrastructure, IBM successfully cut its data centers from 620 to 125 ones and its business systems from more than 1000 to 166. What��s more, its inner request for service and request for simple alteration have changed into self-help service. After integration, IT Support Center outsources most of its work to outside service providers. As a result, IBM has witnessed a 14% increase in the productivity of staff and impressive decline of investment and maintenance cost on software and hardware.
Different from the above mentioned telecommunication company, IBM has gone through years�� investigation and research before adopting the above mentioned solutions. Firstly, IBM spent one year to comb its existing business flow and systems, and test the feasibility of such solutions through models conducted in labs. In the following year, IBM was engaged in trial operation to prove the value of such considered solutions before introducing them to its branches across the world. To guarantee a sound implementation of such solutions, senior executives in IBM laid down new policies and standards as well as gave in-depth training and wide-spread publicity among staff. All of these meticulous efforts paved a way for the smooth progress of such innovation.
How to obtain sound and brand-new IT service delivery modes, e.g. on-demand service, ��software service��, cloud computing,[link widoczny dla zalogowanych], etc. is also a key mission during the stage. The newly introduced self-help transaction system for service requests alone set about 120 IT support technician free from heavy workload. During economic downturn, CIOs pay great attention to the delivery mode of IT service, with 37% of CIOs deeming that such delivery mode is one of the aftermaths of economic recession. Enterprises which have gone through the first two stages will be more prepared for mounting to the third stage and bring the full advantages of such new products into practice.
Though Boards of Directors of many companies have come to a clear understanding that the restructuring of IT infrastructure is a very significant strategic target, they still put an end to some of major projects when their enterprises are confronted with direct economic pressure. Therefore, only with deep contemplation, sound management, and sufficient self-raising fund would CIOs intend to resume their efforts in promoting such far-reaching missions.
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