Top 10 Ways to Reduce IT CapEx and OpEx Costs
October 3, 2011 Jenny Thomas
“Without reducing headcount” would be the best way for that headline to end. And although the analysts at Gartner, who just released a report with this cost cutting action list, don’t come right out and say that, most of us would associate reducing costs with the possibility of rolling heads.
But keep your chin up, because most of the 10 actions that Gartner has identified for reducing IT infrastructure and operations (I&O) expenses by 10 percent in 12 months, and as much as 25 percent in three years have nothing to do with personnel. (Why did Gartner have to create another abbreviation: I&O? The rest of us call it capital expenses, or CapEx for short, and operational expenses, or OpEx.)
Gartner analysts said that due to priority conflicts and resource constraints, few I&O leaders said they have implemented 50 percent or more of the total cost reduction opportunities these 10 key actions offer. However, depending on where an organization is now, fully implementing these 10 cost-cutting suggestions can provide significant savings.
So let’s breakdown the list and see where Gartner suggests companies can cut back.
Action 1: Defer non-critical key initiatives–This one seems pretty obvious, but it’s easy to see where big arguments can get started over which projects need to happen now, and what can wait a few more months. To help decide on what to do, Gartner recommends companies ask: Does this initiative strongly support a high-priority business initiative that needs to be completed in the near term? Will it lower I&O cost structure in the timeframe required? Does it lower risk by upgrading I&O to prevent major outages or severe performance deterioration?
Action 2: Re-examine networking costs–When it comes to I&O spending, the data center and the network take the biggest bite. According to Gartner, nearly half of the network expenses go to telecom service providers, so network managers need to hold their feet to the fire to ensure that their contracted rates are as low as they can go based on market prices. Steps should also be taken to optimize network costs by refining the design and sourcing of networks.
Action 3: Consolidate I&O–There was a time when the rise of distributed computing and other trends drove the decline of large data processing sites. Today, data centers are becoming more important, and Gartner expects this trend to continue throughout this decade as server rationalization, hardware growth, and cost containment drive the consolidation of enterprise data processing sites into larger data centers.
Action 4: Virtualize I&O–Servers run at very low average utilization levels; typically less than 15 percent. Virtualization software increases utilization by four-fold or more, which means for a given workload that can be virtualized, a company can reduce the number of physical servers by four. Conservatively, this means hardware and energy costs are each reduced by more than 50 percent. As with consolidation, virtualization can be applied to many I&O platforms: Unix servers, storage, networking, and client computing.
Action 5: Reduce power and cooling needs–The costs of mechanical and electrical equipment, not to mention the price of power, means the CFO is looking at the electric bill even if the CIO technically is not responsible for it. More energy efficient and environmentally friendly server, rack, and data center designs can cut power use, reduce space requirements, and save money.
Action 6: Contain storage growth–Computing, networking, and storage capacity are all growing at double-digit rates annually, with storage growing the fastest by far. Gartner predicts that by 2016, enterprises will install 850 percent more terabytes than they plugged in during 2011. Throwing terabytes at the problem is no longer a viable solution. New approaches need to be adopted, including the use of storage virtualization, automated tiering, and storage resource management tools.
Action 7: Push down IT support–End user and enterprise support is about 8 percent of total IT spending, says Gartner analysts, and most IT organizations have at least four tiers of support, each with a different cost point and level of expertise. To cut back, organizations need to drive those support calls down to the lowest tier that can resolve user issues.
Action 8: Streamline IT operations–Gartner calculates that I&O accounts for approximately 50 percent of the total enterprise IT headcount. It’s hard to imagine there are many IT departments left that haven’t been slashed to the bone, but Gartner is saying to continue to “streamline” duties where possible. Gartner recommends implementing ITIL, which is an IT service management framework. According to the analysts, the goal of ITIL is to improve service management and quality, but it has been known to reduce operating expenses (in other words, headcount) as well.
Action 9: Enhance IT Asset Management (ITAM)–ITAM is a tool that can help determine the life of certain assets, defer upgrades, and eliminate or combine software licenses, as well as help to replace certain maintenance service contracts with a time-and-materials approach.
Action 10: Optimize multi-sourcing–Sourcing is not a topic to be taken lightly. The decision is not as simple as whether to outsource or in-source; separate sourcing decisions can be made for virtually any I&O component, system, or function. The key decision criteria Gartner recommends are: controlling those aspects that are of strategic and critical importance to the business, playing to the strength of available staff, defining clear lines of demarcation, keeping the number of vendors involved to a small, manageable number, and determining what makes solid financial sense.
“I&O represents approximately 60 percent of total IT spending worldwide, so with IT budgets remaining tight, it’s no wonder that I&O cost-cutting pressure continues to be intense,” said Jay Pultz, vice president at Gartner. “When it comes to I&O cost reduction, best results can be achieved by implementing as fully as possible the 10 key cost reductions we have identified.”
Pultz will be offering additional insight on I&O technologies and strategies at the Gartner Data Center & IT Operations Summit, November 28 to 29 in London, and at the 30th Annual Gartner Data Center Conference, December 5 to 8 in Las Vegas.