Data Centers

Cutting costs in IT the creative way

Whether it is cutting costs or increasing revenues, I think the key to doing both is to try new ways of doing our IT business through collaboration and cooperation. Most of us have going through the "easy" exercises when it has come to cost cutting and I think it is time to think out of the box and employ partnerships to find new and innovative ways to solve an age old problem.

It's has been a long time since the heady days of the year 2000 when funding for IT projects seemed to magically appear from nowhere. In fact, after the bust that followed long after, most CIOs and IT managers and directors I know will tell you that their budgets never recovered from the bust. The economy may have upturned, but the corresponding revenue never seemed to return. Thus many IT shops operate on razor thin margins - just enough capital to keep the wheels on the operation. Now we are most likely headed into an economic downturn. In fact, many of us are already there. What do we do now when we are asked to cut and there is nothing left to cut? It's time to get creative.

Outsiders often look at budget management as some kind of rocket science, but it really is no different than managing your household budget. In order to stay above zero in your funds balance, your expenditures cannot exceed your revenues - in other words, what is going out cannot exceed what is coming in - simple as that. So in a downturn, we are told by management that what is going to come in is going to be less than what is going out - clearly a formula for being in the negative. So we need to either increase what is coming in, or reduce what is going out. Let's focus first on what is going out.

First let's talk about salaries and benefits. They make up a huge portion of our budget - but I don't want to talk about layoffs. We know that cutting people reduces our expenditures, however many of us do not have any fluff positions - so cutting people will have to mean a reduction in services. And I don't want to talk about traditional outsourcing and off shoring here either - you have heard enough of that and know how they work. Let's talk about something that is different - creating a cooperative.

In the organization that I work in, we are part of a data center cooperative. Multiple organizations share the costs to manage and maintain a data center that services all the members. Some of the members, which may shock you, are actually in direct competition with one another, others are in related industries and some have nothing in common with the others. The original data center employees came from the initial founders of the data center and are employees of the largest customer (the host.) This was done for convenience, but the center could have easily been turned into a 401c3. Non profit you say? Absolutely! That's the beauty of the cooperative.

The cooperative is managed by the customers through a governing board made up of the customers that hit a certain % of total revenue. These board members then govern the operation (which has an executive director) to operate in a fashion that provides excellent service for a minimal cost. The goal is to operate and thus charge customers the minimum amount needed to cover costs with just a tiny amount of overhead in which to have an equipment replacement/emergency fund.

The result is that we have a top notch data center that provides excellent service for a price that no commercial vendor can touch and just as importantly, each organization could not run as cheaply on their own. More importantly, as the center grows it actually drives the costs DOWN for the rest of the members - very sweet.

So think about this for a moment. Do you run your own data center? Are there businesses or other entities that you could collaborate with to create your own cooperative? It does take some level of trust; however this is not a huge leap of faith. Everything is covered via contracts and SLAs so the level of risk is actually very low.

The same concept can be applied to many of the other services that IT provides, from programming, to audit, and even help desk. One just has to be creative in their thinking and an honest collaboration partner in order to make this work. It is an old concept - cooperatives have been around for a very long time - but you don't seem them in IT that often - which is a shame because you should.

Again thinking about cutting costs in nontraditional ways - take a look at what your IT organization does and more importantly WHY it does it. Here are some examples:

(A) Do you run a 24 hour facility? Do you employ operators to stay on site at night in order to handle problems? How many issues do you REALLY have at night and how many of those could be handled by someone remoting in after they have been alerted? Perhaps you can go to a lights out operation and mitigate the risk through automation? It's worth looking at.

(B) Do you do enough of an activity that it pays to actually run it in house or would you be better off paying someone else to do it based on usage? Or flip this around - do you currently pay for an outsourced service that would be cheaper to bring in house? This just happened in my organization regarding collaboration tools. We worked a deal on a product that we were purchasing such that the vendor practically gave us their collaboration suite of tools. The hardware to run it was a drop in a bucket compared to what we were paying and the expertise to run it was the same expertise we were going to have to acquire for the main product we purchased.

(C) Are you requiring too much redundancy? Those of who cut our teeth in the mainframe era have the expectations of 99.9999 uptime and multiple redundant systems. But are all of the systems you are running really so important that they require that level of performance? Do you HAVE to have real time fail over for a system or is that just something you do as part of business? Sometimes we take our habits of perfection and apply them to systems/situations that don't require such stringent guidelines. We should seek to provide the appropriate level of service and redundancy for the function - no more - no less.

(D) Are you a small company that can't seem to get the same deals that the big dogs do? Form or join a buying consortium. Pick a product that you all use - for example Microsoft tools - and get enough of you together to put out a joint purchase request that will make a reseller pay attention.

Lastly, let's flip things around and talk about increasing the money coming in. I always mention this but I think this is often scoffed at by commercial entities - obtaining GRANTS. There is a great deal of money out there to be had from the government and charitable organizations. Many of the granting institutions just ADORE public/private partnerships. Participating in a grant, particularly a partnership, can increase revenue coming in or allow funds to be written off for tax purposes. In either case it can be a win win situation for all partners.

Whether it is cutting costs or increasing revenues, I think the key to doing both is to try new ways of doing our IT business through collaboration and cooperation. Most of us have going through the "easy" exercises when it has come to cost cutting and I think it is time to think out of the box and employ partnerships to find new and innovative ways to solve an age old problem. Tell me what new and innovative ways to save money or increase IT revenue have you employed in your organization. I am sure there are others that read this blog that would love to benefit from your experiences.

16 comments
jagadish.rao
jagadish.rao

Interesting concept but how do you manage Compliance with Data Protection Act, Audit / Identity governance?

john.brooks00
john.brooks00

The IT department is "overhead" and not income generator. therefore you really need to slim down the operation. Here's how: 1. Keep enough licenses to run lean. 2. Use open source when ever possible. 3. Push off expenses to the users when ever possible, like get rid of the BES server, and force personal cell phone ownership then pay them a predetermined monthly rate. 4. Replace your system adminstrators at least every 6-11 months, hire new ones for less than the one you just let go. Then have them document everything. 5. have your budget ready, secretly remove 15% for a cushion. That way it looks like you have saved the company a lot of money.

reisen55
reisen55

From the comments I have read, outsourcing per se is not the real topic of this original article, but it took a life of it's own. So my thoughts.... Outsource: helpdesk support is a long known bad thing and to think that tech reps half a world away, reading from a scripted page can diagnose and troubleshoot complex Windows problems in 15 minutes when literally each and every computer is "different" due to service patches, software, add-ons and user stupidity, is reckless. Remote control helps a bit. But level one support is lousy. Outsource: Programming. This area is more prone to outsourcing internal people outside and probably works better than other areas (below) IF you have talented programmers on the other end. Often, this is not true and these distant staffers do not have the firms best interest at heart. They are given code to write and that's more or less it. Outsource: DataCenter - tell me how somebody in Bangalore can change a tape cartridge at 3am to restore data??? Tell me how any off-site tech rep in Bangalore can haul a laptop home for 3 days for a total restoration of everything? Employee Loyalty: IT professionals are the most loyal of all corporate employees, and all of us may remember working horrendous weekend hours for server upgrade and moves. But when we are outsourced, our loyalty shifts ever to slightly at first to our new employer who does not have the client interests at heart (never does) but rather Service Level Agreements and THE CONTRACT. Firms like CSC and ACS will do anything to keep those two factors in line, particularly THE CONTRACT and that is entirely different from in-house staff. We're dedicated and don't need to be told that. SOLD DOWN THE RIVER: We are treated as slaves when we are outsourced, feeling that management does not appreciate our efforts and considers us only suited for internet surfing and playing games. Why? Well, everything is working fine!!!! So, when outsourced and all internal staff is gone and Bangalore comes in, everything starts to BREAK DOWN!!! I have met past customers who honestly believe that a network infected with virus, porn and malware is the norm!! That there is nothing that can be done about it. INSANE.

kirkpatj
kirkpatj

A cooperative makes so much sense. Very few companies can afford a tier 1 data center. If you are supporting multiple organizations (like an outsourcer), it really can pay off. I worked for a company a few years ago that was having problems meeting its financial targets. We asked our vendors to either freeze their prices and reduce them by 5%. We were able to save $1M during that year. Would it work now - I don't know - but the worst case is, you get a "No."

LocoLobo
LocoLobo

isn't this outsourcing in another flavor? In your example the data center employees work for a customer. Do they represent the data center first, then the customer? Or do they represent their boss who pays them? Either way as the data center grows they probably become a separate organization. Then basically the members of the cooperative are outsourcing to the data center at that point. Or it looks that way to me. It's still an intriguing idea. One worth looking into for many organizations. The advantage over traditional outsourcing is you have some control over the quality of the service with a cooperative. The disadvantage lies in expecting competitors to cooperate over the long term. How do you handle conflicts within the org?

reisen55
reisen55

Information Tech departments are well aware of their own value and responsibilities in the corporate structure, and usually do a good job on cost management. American MANAGEMENT however views IT as a back-office operation and that is where outsourcing comes in. Too many fine departments have been smashed to pieces and jobs sent to Bangalore in the holy name of SAVING MONEY. The Chairman of ACS, Lynn Blodgett, has said that even as American workers stay smart, the salary and benefit economies offered by Bangalore cannot be resisted. I.E. American workers are dead at the door. And do companies really SAVE anything? Oh the salary is cheap and the bennies are cheap, but down the road productivity goes through the floor. A major insurance firm in Manhattan outsourced in 2004 and a year later, to cust costs, terminated 140 floor and server support staff. Result: chaos. 30 days to get a new computer 90 days to get a new email address 200 servers infected by worms....true Poor service and helpdesk support. THIS IS SAVING MONEY???????????????

Ed Woychowsky
Ed Woychowsky

You can't make a blanket statement like that. What if your company develops software? What if your company is web based? What if IT offers solutions that are unavailable through other means? Also, word will get out that you replace systems adminstrators every 6-11 months, how do you think the talent pool will take that?

Ramon Padilla Jr.
Ramon Padilla Jr.

I have to agree it is a flavor of outsourcing but with some very distinct differences. First, the core of the data center staff was created from combined staff of the original cooperative members. No one had to lose their job, they just mostly changed location. As for the cooperative members, disputes are handled by the policy board. Disputes do happen, but over all they are handled in a collegial way. After all, the center is not for profit so most of the disputes revolve around rebates to the customer, the amount of money to retain as reserve, etc. Again, even as competitors, customers realize that the center is the best deal in town and while they may grumble about minor issues, they stay because they get quality as low pricing.

Nice Techie
Nice Techie

The company that runs the marine corps network

christopher.young
christopher.young

Why not lower costs by selling and buying the custom development? Owners of development can recoup by putting their assets in the market, and buyers can get those assets at a quarter on the dollar. This is both beneficial to individual company as well as the industry! It really is a win-win in my estimation. Best regards, Chris Young B2BSX

mark9009
mark9009

Yes. Outsource, cut employees, take the bonus, leave and repeat at another company. Guys, this has been going on for years and rewarded those who pushed it with big dollars and titles. The same IT directors, CIOs with beancounter backgrounds, no IT trench experience and a nearsighted perspective to "keep the wheels on" today and let the next guy worry about it. Happens all the time and these wizards continue to get job offers and feel no repercussion. Do the CEO's learn from this or is this stupidity ever publicized? Nope. These people quote how much money the company saved....never the backend fallout. It's been going on for years (even pre-2000) and will continue. Maybe it's time for a website to document and publish names. Later, my pager just went off, the CFO can't understand the help desk guy from asia supporting his blackberry.

tuomo
tuomo

I have seen this same in many large corporations personally. Worst, a long time ago, was exploding from 32 to over 400 developers had to be hired in months when a stupid decision was made, a year later all gone. Percent wise it is huge. Now, you only have to look one large HW company on phones, etc - they have this tendency. One day 5000+ people there, outsource it and the jobs are gone, again and again. Must cost "a little" repeating it over and over? But we all know that reorganizing is always good for company, don't we? Back to topic, most, not all, tasks in IT are much more economical handled inside. The creativity needs people who know the business, infrastructure, each other, work on same time zone, etc. There is no talent / skills shortage currently but there will be if the companies keep this flip/flop going. Creativity gives returns, benefits, cost savings, etc - it doesn't come from arbitrary or imaginary cost savings.

ScottComingThrough
ScottComingThrough

Completely agree with this. I work in IT and I DREAD having to call HP or Bell for support because you get routed to overseas helpdesks. 9 times out of 10 they have no idea what you are talking. It's horrible and truly the WORST service i've seen out of any industry. I'd trust my local coffee pooring register monkey with my server troubleshooting before i'd trust any of these poorly trained overseas workers. As my local tattoo artist says "If you want walmart prices, then you'll get walmart quality!" It seems to hold true for everything. God help us when China starts to build outsourced IT shops.

minda
minda

I would say you're missing one essential element here: Creativity needs people who know the infrastructure, each other, but most importantly, the business itself. At an outsourced company, the tech workers will know each other. They may even get to know your company's infrastructure. Much less likely they'll get to have a good understanding of what your company does, and what its mission and priotities are. That's a powerful way for in-house IT people to offer greater value than outsourced ones. But it means making the time and effort to learn the business, as well as an IT role, and it means having a business culture that allows IT people to mix with non-IT people and learn about non-IT areas. That's a rarity. Minda Zetlin The Geek Gap www.geekgap.com

Patrick_m
Patrick_m

Yes it does seem to be that way I work for a company that is a "Buy not Build" shop for there software needs. And so far I do not see how that helps save money as you have to spend Hundreds of thousands of dollars on consulting fees we have actually had some people leave the firm just to be hired back as a consultant at a largly increased wage. So as you may tell I am not a fan of outsourcing. The article spoke of a co-operative setup for the Data center I had one in place when we were just a "low income Bussiness" so to speak but that went by the wayside when we were purchased. I am all for saving money but it would appear that the larger the comapny is the harder it is to sell cost saving ideas unless it is going to save millions.

jagadish.rao
jagadish.rao

There are number of customers - most importantly, users - who are very happy with the services provided by offshore service providers. The critical difference is to know if your organisation took the Managed Services route or the body shopping [staff augmentation] route. The latter is slippery and has always had a lot more attrition in any country.

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