Cost saving for IT infrastructure management

By Rama Murthy Prabhala and Rahul M. Joshi | Tuesday, January 12 2010

In these trying economic conditions, CIOs must utilise all available strategies and avenues to deliver more with less.

Much has been said about best practices in IT management to tide over the economic downturn. Under ever-increasing pressure, many CIOs are now looking at IT Infrastructure management as an effective means to drive business transformation. While most organisations are keen to join in, there are some strategies that may be employed to get quick wins.

The sheer pace of change in the technology space has allowed organisations to outsource key activities that would have otherwise consumed crucial internal resources. Management of IT Infrastructure is one of the areas that can be outsourced to a third party. Studies indicate that up to 80 to 85 percent of management activities can be done remotely thus offering an opportunity to decrease costs*.
* Source: "Remote Infrastructure Management Services: Igniting India's leadership", NASSCOM-McKinsey report 2008

In the past, IT Infrastructure management usually consisted of asset-based transformations. However, with the emergence of solutions such as cloud computing, SaaS and utility computing models, enterprises can now offload their IT assets by subscribing to IT service components without having to actually acquire hardware. This has proven to be useful especially at a time when almost every other day a new technological acronym is born.

CIO Strategies for Improving Productivity and Rationalising Costs
As hard pressed CIOs continue to focus on boosting productivity while reducing costs, large projects may not be financially viable at this time. However, all is not lost since there are proven strategies available for CIOs to address the challenge of supporting the business with a reduced IT spend. We recommend a three-phased approach to tackle the issue of cost optimization, innovation, and business-IT alignment to achieve the overarching objective of a lean and efficient IT driving business growth.

Before implementing these strategies, CIOs need to do a robust risk assessment and benefit analysis to determine how these will impact the organisation. Rather than being swayed by the hype surrounding some of these strategies, they need to gather information and evaluate the impact carefully.

Many of these strategies assume that the organisations have capabilities to undertake such transformation programs. However, it is necessary that CIOs do a realistic capability analysis and if required, moderate the goals. CIOs will need to prepare a detailed roadmap on how to acquire the required capabilities. A prudent selection of partners and trusted vendors can significantly hasten the process of acquiring the capability.

A critical element is to balance tactical objectives with long-term strategic objectives. While the downturn has forced many CIOs to cut deeply into the organisation costs to gain tactical advantage, it is also imperative that they not compromise on the long-term strategies and put the organisation at risk during the upturn.

We believe that by following this three step approach where each step builds on the other, CIOs can deliver the promised benefits to the enterprise. CIOs need to consider realistic benefits that can be achieved through the strategies.

Short Term: Cleanup
Defer discretionary spending - This is relatively easy to achieve, but care must be taken in identifying the projects that are to be shelved. While application upgrade projects are underway, CIOs should scrutinize the benefits of these projects and defer implementation of these upgrades if they are not critical for business. CIOs should review all projects and prioritize them depending on the cost-benefit outcomes. It is also recommended that future direction and growth be accounted for while doing the rationalisation exercise.

Decommission little or never used applications - CIOs should consider rationalisation of applications as a strategy for reducing costs of IT operations. Elimination of redundant applications is a must in cleaning up the application inventory and reducing support costs. Such a move is an extremely useful lever while dealing with organisations that have grown through M&A or that are organised based on lines of business.

Application portfolio based view of support costs - CIOs need to re-evaluate the cost of managing application portfolios and adjust the service levels based on the utility and criticality of these portfolios in consultation with business partners. One approach for achieving this is to build an inventory of applications, classify the applications maintenance and support needs based on core, sunset and new generation applications and then build appropriate support models with relevant service levels. This allows IT to reduce service levels of up to 30 to 40 percent of application portfolios leading up to 20 percent reduction in costs.

Medium Term: Reduce Complexity
Consolidate support, platforms and technologies - After elimination of redundant applications, it is prudent to consolidate the application infrastructure and support. Strategies for consolidation could include:

• Shared Services - Setting up a shared services model for application support and maintenance activities: Implementation of a mature shared services model leads to support staff rationalisation that can help in releasing the work force and re-deploying them to strategic projects. Retraining the support staff will help increase productivity and application per person ratio.

• Infrastructure consolidation - Consolidation of application infrastructure and leveraging virtualization wherever appropriate helps drive down data center costs.

• Enterprise Architecture consolidation - CIOs need to use this opportunity to assess the application platforms and build long-term and near-term strategies to consolidate and guide the organisation toward next generation architecture. This will enable CIOs to be ready for the upturn and position them to support fast changing business demands.

• Consolidation of application support - After the standardisation of processes, IT managers should look at consolidation of support and maintenance both within and across application portfolios. We have observed savings of 5 to 10 percent in overhead as well as operational costs due to consolidation.

Why not open source? - Open source products can be considered a feasible alternative to proprietary products. There are positives and negatives to this, based on the criticality of the use for which an open source product is being implemented. The adoption of open source products is recommended after taking into consideration the maturity of the product and its supportability. Lack of available support is a major hindrance to adoption. CIOs need to make a decision on the correct time to implement these products in their environment. Based on the available data, niche implementation of open source in the Web and middleware platforms has delivered more than 25 percent reduction in licensing costs for customers.

Standardise IT processes and operations - CIOs can bring in service management best practices; apply six sigma and lean principles to streamline the process of maintenance and support. Typically, organisations may achieve ˜ 5 -10 percent savings in operational costs due to standardisation of processes through improved productivity. These savings vary depending on the nature of the operations.

Automate Manual IT tasks - CIOs need to automate routine activities to reduce manual effort and achieve higher process maturity in operations. Some activities that are natural candidates for automation include reporting, weekly and daily application check, alert monitoring, problem identification etc. We have seen organisations achieve ˜ 10 to 20 percent savings due to automation of processes. Companies must investigate the cost benefits of implementing Run Book Automation (RBA) solutions for operations. RBA tools have matured over the past couple of years and have helped organisations realize substantial savings on operational costs. A task based automation approach could lead to benefits of up to 8-10 percent within the first three months. We have seen this consistently work well across 40 varied IT environments with varying degrees of maturity.

Process control - There is a need to evaluate the change and release management processes of applications, infrastructure, etc. CIOs need to implement stringent change control mechanisms to curb unauthorized change, which lead to unavailability of business applications and productivity loss. IT organisations could save ˜ 5 -8 percent in unplanned costs and better compliance to federal regulations and de-risk the IT operations by achieving process control.

Long Term: Business Innovation
Assess alternate delivery models - CIOs need to consider alternate delivery models to get faster cost benefits. Some of the delivery models that can be successfully deployed include:

• Transaction-based pricing models for support and maintenance.
• Pay-as-you-go models.
• Catalog-based pricing models.
• Unit of Work (UoW)-based pricing models have delivered an immediate cost benefit of up to 15 percent reduction in OPEX to customers who moved from traditional time and materials (T&M) and fixed price (FP) model.
• Managed Application Operations Models.
• Cloud computing: Source e-mail and office productivity applications through the cloud.

The above strategies have been used well as transformation levers in banking and healthcare verticals. Our experience suggests that significant upfront benefits can be achieved by choosing strategies that can be implemented without significant change management to begin with. For example, a leading investment bank saw a 15 to 20 percent reduction in TCO due to consolidation of service desk and movement from a T&M to a UoW model. The second phase is a strategic initiative that could involve multiple levers like automation, consolidation of technology and standardisation of processes.

In the case of healthcare customers, rationalisation of technology and software licenses lead to a reduction of ˜ 5 percent TCO to the IT organisation. Platform consolidation and automation can lead to a further savings of more than 10 percent in the next six months.

While the above mentioned strategies are capable of achieving significant cost savings in the short and medium term, it is important to have frameworks in place to sustain these activities. Many organisations tend to look for immediate returns through IT transformation - however, most are unaware of the level of effort and investment that is required to sustain the rewards. As is evident from Figure 1, most of the strategies mentioned above will plateau after sometime.

A key point to remember is to document the business value of the strategies mentioned above. While some strategies may bring immediate cost savings, others may not - but they will be crucial nevertheless. For example, building a framework around Configuration Management Database (CMDB) may require a significant one time effort - but the rewards are visible when a platform migration is underway.

In conclusion, it is important that in these trying economic conditions CIOs utilise all available strategies and avenues to deliver more with less. They must use this opportunity to build a strong process and technology foundation to prepare their organisation for the next upturn.

About the authors
Rama Murthy Prabhala is a delivery manager with Infosys Technologies. He specialises in program management of large application and infrastructure programs with focus on banking and capital markets and manufacturing sectors. Rahul M. Joshi is a principal consultant with Infosys Technologies. He specialises in IT strategy and provides consulting in the area of complex IT transformation programs.

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