IT Focus Area: strategy
July 16, 2015
The Savvy CIO's Guide to Cutting IT Costs in the Cloud Era
Editor's Note: Sirius and Forsythe are now one company. Sirius acquired Forsythe in October 2017 and we are pleased to share their exceptional thought leadership with you.
There’s a hard truth about IT budgets: business units aren’t spending on internal IT.
According to a study by Canopy, U.S. companies are the worst offenders when it comes to buying unauthorized IT services. They spend an average of $35 million per firm per year on shadow IT. Meanwhile, global shadow IT spending is expected to grow 20% this year.
This is because business units believe internal IT is too slow and expensive. Many would rather purchase apps from third-party cloud providers to quickly satisfy their business needs.
IT organizations must change this perception to prevent shadow IT, serve the business better and protect intellectual products and confidential data. However, many have fallen too far behind and have a long road ahead.
For years, IT organizations have said “no” to cloud services. Now that they want to enable the cloud, many can’t get the capital budget to build an infrastructure for it. Since users are getting cheaper and faster services elsewhere, oftentimes business units don’t see the value in giving IT the budget to build a cloud infrastructure to support the business.
7 ways to cut IT costs
IT organizations that want to survive are collapsing silos and thinking like private cloud providers. They’re moving to hybrid data centers that include a mix of legacy, on-premises private cloud and public cloud infrastructures. This helps them say “yes!” to innovation and quickly meeting customer demands.
A key part of this shift is reducing costs internally to run a more efficient IT organization while serving the business better.
Here are seven keys to controlling IT costs:
1. Spend more to spend less.
“Dead-stopping” your spend may be more dangerous than spending. It’s wiser to curtail your IT spend slowly, so you don’t make yourself prone to failures. Shutting things off without doing your due diligence will cost you more that you save.
IT organizations can start with an assessment. What infrastructure, apps and personnel do you have? What do you need? What equipment can you remove to save on upgrades and maintenance?
After the assessment, find ways to spend smarter — as opposed to cutting costs across the board. For example, it may be determined that it’s less costly to upgrade to new infrastructure than keep your existing infrastructure. This may result in denser, more efficient equipment and allow you to save up to 75% on maintenance.
Think of reducing IT costs in the same manner as maintaining an automobile. Yes, tune-ups may be costly, but the automobile may be more efficient and use less gas—saving you money down the road. Additionally, the maintenance cycle often uncovers needed repairs, which are performed on a "schedule" instead of during an emergency failure.
2. Rationalize your network infrastructure.
Many organizations operate networks that are decades old. Over the years, these networks have been enhanced to support new services, but their basic architecture has not changed. These dated networks are costly, prone to failures and difficult to manage.
Often, IT has opportunities to drive operational efficiency with new network architecture. Review the network infrastructure and ask, “Should we continue to maintain it?” “Would it make more sense to replace it with new, less costly or higher performing equipment?”
3. Create an asset maintenance strategy.
Many IT organizations don’t have a clear view of their assets. Between contract sprawl, conflicting manufacturer data and frequent personnel changes, it may be difficult to track everything.
However, gaining control of your hardware maintenance can lead to huge savings. Creating an asset maintenance strategy can show you when you should refresh an asset, get rid of it or move it to a third-party maintenance contract.
To aid in capital expense (CAPEX) conservations, many IT departments decide to move assets from capital CAPEX to operational expense (OPEX) budgets. For example, the traditional IT economy is a hardware-based CAPEX economy, while the cloud is a software-based OPEX economy.
Moving to an OPEX model means your IT organization will need less capital to run your cloud infrastructure. This can help your IT organization be more agile and competitive. Even when constructing CAPEX networks and infrastructure, it is often beneficial to build a ‘depreciation model’ that mirrors your OPEX plans. You may use this to demonstrate the lower cost of building internally.
4. Rationalize your applications.
A Netskope study revealed that enterprises use an average of 508 apps. With all of these apps, it’s easy to lose track of what you have and the hidden costs that come with them.
Even when "self-supporting," the cost of application ownership is still formidable. For example, home-built apps require staff to support them, and cloud apps may call for additional security measures.
Inventory all of your applications that have been built, are maintained or are in use. How are they helping support the business? What is their value when compared with their costs? Are there any that may be eliminated, consolidated or replaced with Canned Off-The-Shelf Applications (COTS)?
Rationalizing your apps can help identify redundancies. This often identifies opportunities to consolidate apps and align them with the overall business strategy. This will also free up your budget for more strategic IT initiatives.
5. Converge the data center.
Today’s IT demands are increasing, while IT budgets and staffs are decreasing. Converging your data center can reduce your costs and help IT organizations do more with less. It reduces the need for staff and support to maintain technologies. It also increases efficiencies and helps bring services to market faster.
6. Modernize your security.
Most organizations use security products from multiple vendors. And with the rise of IoT, the number of disparate IT systems within enterprises is growing exponentially. With all of these tools from all of these vendors, it can be hard to get a clear view of your IT security.
Security is also becoming much more important to the business. The more disparate systems IT organizations have, the harder it is to ensure everything remains secure.
Opportunities to consolidate IT security tools must be sought. This will not only save money, but also improve performance and provide a clearer picture of the risks. Modernizing tools will also help take a proactive approach to IT security, as the new devices will help you quickly respond to threats.
7. Understand the hybrid dynamics.
Operating a hybrid data center can potentially save IT organizations millions of dollars when they analyze systems and develop a strategy for workload placement. When deciding where to place workloads, consider their use cases and costs.
For example, many IT organizations move apps to the cloud to cut costs. However, as an application grows, the public cloud might become cost-prohibitive. It may be best to manage it better and more cheaply internally.
The key to unlocking CAPEX and OPEX for the cloud
Taking the steps outlined above often unlocks the CAPEX needed to fund cloud projects. Putting the house in order through assessments and rationalization also unlocks the yearly OPEX many IT organizations need to remain competitive.
A large, dated infrastructure costs significantly more in electricity and maintenance than a new, hybrid, cloud-enabled data center. Rationalizing and replacing an old server, network and storage infrastructure may yield something that is better and faster.
Perform an infrastructure assessment to cut maintenance costs and unlock OPEX for hybrid and cloud services. Then it becomes possible to build a cloud infrastructure. This allows dynamic movement between data centers and typically eliminates shadow IT, redirecting spend into the data center, and deploying public cloud services intelligently.
What opportunities do you have to optimize your spend, take advantage of the cloud and better serve the business?