IT budgets, FNC’s included, are no small amount of annual spending that a company must prepare for. When talking about technology companies (and I am), these budgets can easily consume north of 10 percent of annual revenue, so it is no surprise that IT budgets are always scrutinized for savings. What is a company to do when innovative employees are pushing tomorrow’s technology with yesterday’s budget? Below, I discuss what trends we are seeing the industry move toward and how FNC is reacting to them.
1) No surprise here, but moving services to the cloud is, and will continue to be, a big IT trend. (By the way, FNC moved services to the cloud for our clients way before it was cool). There are substantial upfront costs that can be saved, or at least differed, by placing your services in the cloud. The savings comes from consuming services as you go. Therefore, you pay for services as you consume them. The cloud keeps your budget agile by shifting fixed investments to variable expenses and moving items from the capital to operating budget.
Let’s take a look at an example: If I need to setup a website, or any online application for an enterprise client, then they are going to expect it to be up 100 percent of the time. And since I only produce revenue while this site is operational, I want it to be up all the time as well. That means I need to buy multiple servers, have redundant cooling, redundant power, redundant connectivity and Internet as well as enterprise-class storage. In FNC’s case, we are housing sensitive data, so we need to have all this housed in a secure location. I also need to have someone spend some serious time getting all this set up. Guess what? I just spent $1 million and signed multi-year contracts with multiple vendors. Do I want a disaster recovery solution also? Then make it $2 million.
I just paid for all the infrastructure to run the site up front. Sure, I can expand later to meet our needs, but I essentially just paid for everything today, although all the resources won’t be fully consumed for years (or maybe never). Are you starting to see the value of the cloud? Little to no startup cost and then I pay for what you consume, not what I might consume two years from now. Instead of spending $600,000 on a new Tier 1 storage array, I spent $118 on the data I stored that month.
Don’t pack up and move everything offsite yet. You might already have an investment in current resources, so make sure to run the numbers first. If you’re just starting out or have a new initiative you are working on, then the cloud might just be for you.
There are more details I could discuss, but if you see the value in paying for what you consume instead of paying for what you might consume, then you understand why the cloud is hot right now.
2) Virtualization is another trend IT departments are using to increase the efficiency of their budgets. Like cloud computing, this trend dates back many years. Virtualization’s roots date back to the IBM mainframe days when one (or multiple) large computer ran everything for a company. Now, after years of distributing applications among many servers, the industry has come full circle — back to having few servers for many applications.
Today’s virtualization takes advantage of newer, more powerful processors and servers that can hold massive amounts of memory. This allows companies to use a single physical server to host multiple “guest” operating systems and applications. Just several short years ago the trend leaned more towards isolating applications so that 20 applications might need 20 separate servers. With virtualization, that can be reduced to just one server. Not only does this save on server costs, but it creates additional savings by using less space, less cooling, less power, less network connectivity and reduced administrative costs. During a recent trip to IBM’s EBC, I saw an Intel presentation showing that servers use an average of four percent of their processing power. Can you imagine using only four percent of your office space, but paying for all of it? Virtualization takes advantage of this waste by letting multiple applications consume this otherwise idle power.
3) BYOD. No, don’t bring your own beer to work; bring your own device. This is a trend that will be interesting to watch. We can blame, or praise, this trend’s rise on the fact that consumer devices are a lot cooler than business-class devices. We might even put this squarely on the shoulders of Apple’s iPhone. Not too many years ago, we were all walking around with BlackBerry smartphones, perfectly happy. We had our corporate email and could clumsily get to a website if needed. Then Apple released the iPhone and we saw our friends and family using apps, checking scores and taking selfies. Jealousy ensued. We got an iPhone, but still carried the BlackBerry for corporate connectivity. Finally, we realized that carrying two phones was weighing us down and we did not have enough charging ports in our car for both, so we started to revolt. Now iPhones, iPads, Android phones/ tablets and the again-emerging Windows Phone are all over your office. Go ahead and give yourself a pat on the back for making it happen. Your employer might thank you too. Many have started to adopt the stance of embracing your device instead of fighting it. This can eliminate or reduce the device cost for the employer, and gives the consumer/employee the device that he or she really wants.
Where is this going next? To the mobile worker. Many mobile users are tired of using their clunky business-class laptop at work or on the road and then going home to their sleeker consumer laptop. Anyone picturing their MacBook Air right now? And as tablets grow more powerful and tablet docks grow in popularity, the days of the corporate laptop might be numbered. See how Cisco is adopting BYOD here.
4) One trend I’ve personally witnessed is the increased cost to continue to use the hardware and software that we already own. This was a pretty easy trend to spot because maintenance renewals on current hardware and support on current software took up the greatest portion of FNC’s IT spend for 2013. Software companies and hardware manufacturers like selling you a product once, but they love the revenue from that product to continue year after year. These “keep the lights on” expenses are difficult to avoid and hit IT companies particularly hard. For me, these are the hardest transactions to complete because I find it difficult to continue to pay to use something I’ve already paid for.
Many companies will offer lower prices on the front end or build in discounted support to help them get their foot in the door. Then, just as the system becomes an integral part of your organization, you get a call telling you to pay up…again. If the software or hardware is mission critical or revenue producing, then most of the time you don’t have much of an option.
You can’t avoid these costs altogether, so it is best to do your homework to be prepared when they arrive. Here are a few tips FNC has found to help reduce these costs…
Buy long-term maintenance upfront: You can usually negotiate reduced rates when you make the initial purchase. This helps you know total project cost upfront and eliminates unknown and uncontrollable support costs in the years ahead. This is easier to do with hardware where the product’s end of life is fairly easy to estimate.
Coterminous maintenance: When multiple pieces of hardware or software have been bought over time (like if you slowly fill a server room with servers as different project accumulate) see if the vendor will let you “co-term” the maintenance so that subsequent purchases’ maintenance expires all at the same time. When renewal time arrives, you have buying power to help negotiate the total cost down.
Play hardball: You already have the software or hardware, but you don’t have to keep it…or at least there is no reason your salesperson needs to think you have to keep it. Sure, revenue from maintenance is something hardware manufacturers and software developers rely on, but the margins are huge, which means there is a lot of room to negotiate.
Look elsewhere: Third-party support providers are more prevalent in the market than ever. They can offer the same support and reliability as the original manufacturer, and usually do so at a fraction of the cost. While recently comparing costs for a disk array that has maintenance due soon, we saved 81 percent (more than $100,000) by going with a third-party support contract.
Be proactive: Everyone in sales is working extra hard toward the end of their fiscal quarter or year to make their numbers look good. Call them up well before your support expires and ask for a discount if you agree to new support before the end of the accounting cycle. They will almost always cut you a deal, and most of the time you don’t have to pay until your current support ends.
Other trends I have seen in IT budgeting include tying budgets to key economic indicators (this could be good or really, really bad); rolling budgets (budgeting every month…ahhhhhh); increased focus on energy efficiency; increased utilization of open-source (is your staff trained?); midstream budgeting “corrections” and mobilizing your workforce (really, how does this save money?).
What trends do you see that can save, or at least contain, IT costs?
Robert Mason, Procurement, Vendor Relationship Manager