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.

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