Cutting back on total cost of ownership

In today`s business world of diminished budgets, companies are looking to do more with less, which is why there is such a strong move towards reducing an organisation`s total cost of ownership (TCO), which in turn should lead to a higher return on investment (ROI).

"The IT market is entering its third evolutionary stage - the era of 'pervasive computing` - and the time has never been more opportune for business to realise its goal of reducing TCO," says Tim Pope, operations director at First Technology Cape.

He believes the first phase of the business IT evolution was that of vendor-driven mainframes, where vendors controlled the market and told customers what their needs were and how they needed to be met.

This was followed by the client-server era, which saw technology becoming more accessible and understandable, with businesses looking for the best, the latest and the fastest technologies, while ignoring operational and business concerns.

"The problem with this era was that too many businesses became victims of the various prevalent fads and trends when, in reality, they should have been taking charge of their own IT destinies, in order to focus on reducing their TCO."

As the industry enters the third era in IT evolution, it appears as though organisations that focus correctly will never have a better chance to reduce TCO.

Outlining the way business can reduce its TCO, Pope says that - since most organisations use a variety of specialist vendors - these vendors must set out the precise service they offer, the service`s value proposition and illustrate how this will enhance the company`s bottom line.

"This process will ensure that management has a thorough understanding of the focus and contribution of each component within the IT system, while also bringing to light which systems overlap, are obsolete or fail to deliver true business value.

Business must take charge of its own IT destiny, and in so doing, reduce TCO.

Tim Pope, operations director, First Technology Cape

"Once this step is complete, it is necessary to consolidate and standardise. Equipment standardisation cannot be tackled without careful evaluation of its complete lifecycle, rather than just the once-off capital costs."

Furthermore, many companies set themselves a "best-of-breed" technology standard, only to find they can`t afford the costs involved.

"Buying a 'best-of-breed` product or service assortment does not necessarily guarantee a fast, efficient and cost-effective business solution. It could result in a technologically latest and greatest grouping of mismatched systems that are likely to overlap and duplicate each other anyway," continues Pope.

"Business value should take precedence over gadgetry and 'best-of-breed` labels. By focusing on the value, organisations can finally take control of their IT systems and spend, allowing IT to take its rightful place as a valuable business tool."

"There is often a tendency for businesses to concentrate on the direct-cost element of TCO, since it has an immediate impact on the budget and is easiest to observe," says Rhys Taylor, sales and marketing director at PreWorX.

"The problem is, the hard-to-measure indirect costs - such as labour, productivity and downtime involved with each PC problem - can, according to research done by Gartner, contribute up to 60% or more of the overall TCO."

This means that the greatest portion of the costs often escapes the attention of improvement and cost-cutting exercises driven by management.

"The activities that make up the bulk of indirect costs are ones that take users away from productive tasks and have them trying to provide IT support and advice to colleagues while maintaining their own systems," says Taylor.

Brian Bogaard, GM of Acer Africa, agrees, saying peer-to-peer training is one of the intangibles that impact an organisation`s profitability.

"Too often in an office environment, staff are pulled away from important functions in order to show another staff member how to perform a relatively simple task, thus negatively affecting productivity."

He says organisations often fall into the trap of purchasing PCs for staff, rather than notebooks, because of a mistaken belief that the TCO for a notebook is much higher.

"While it is true that notebooks do have certain cost drawbacks - the fact that they are mobile means there is more risk of damage, as well as more time spent offline - they justify their costs in other ways.

Enterprises that do not consider the indirect costs affecting TCO are missing the biggest opportunity to save money and improve enterprise productivity.

Rhys Taylor, sales and marketing director, PreWorX

"Apart from the simple fact that working from home means that there is less peer-to-peer training and that the staff thereby become more proficient on the systems by themselves, the creation of this 'virtual office` cuts down on physical costs to the company," says Bogaard.

The physical costs can be anything from desks and chairs to office space and its related expenses, since the staff are either working on the move, or from home.

"There are other intangibles too, since the fact that the workers now no longer need to commute to work improves morale and thereby also productivity."

Taylor believes that focusing on indirect costs and improving the intangibles, like staff morale, can only prove to be a win-win situation for an organisation.

"In a business unit of 2 500 users, a reduction in indirect activities of only 30 minutes per user per month can result in a significant saving in overall TCO of more than $600 000.

"This means that enterprises that do not consider the indirect costs affecting TCO are missing the biggest opportunity to save money and improve enterprise productivity."

"There are four things that drive an organisation`s efficiency: its people; the systems it uses - for example, a mainframe environment; its business processes; and its documents," says Kevin Spinks, GM, Corporate Consulting, Lexmark.

"When it comes to reducing costs, the first three often get focused on, but it is very seldom that printing even gets a look in, which is strange when one considers that Gartner has said printing costs take up an estimated 1% to 3% of an organisation`s turnover."

He believes that too much focus is put on the electronic side of business when companies look to reduce costs.

"Business doesn`t usually look at the printing side, because unlike IT, it`s just not 'sexy` enough. However, it is a massive impact area, and it is one that has hardly been looked at up to now, so it`s a huge opportunity to save costs."

Too often, says Spinks, an organisation has all the latest technology in IT terms, like servers and PCs, but as often, the printer is 10 years out of date and on the verge of breakdown.

"Just as a company has an IT manager who is aware of problems in his department and what action needs to be taken, so companies should have a print manager to focus on controlling the vast amounts of paper generated by modern businesses."

He believes that - despite the move towards a "paperless office" - even more paper is generated in organisations today.

A study by XPLOR showed that e-mail has increased printing volumes by around 40%, while another by AIIM discovered that the average $1 billion corporation generates 88 million sheets of paper per year.

"What business has failed to realise is that printing and IT can work hand-in-hand. After all, virtually all documents are available in e-format these days, so it makes sense for companies to use electronic methods of document delivery to reduce costs.

"Instead of using the traditional method of document delivery - printing it out, couriering it off to the correct address and waiting for a receipt of delivery - a business can simply scan in the correct document and e-mail it to the recipient," says Spinks.

Printing may not be as sexy as IT, but it`s an area where huge cost savings can be made.

Kevin Spinks, GM, Corporate Consulting, Lexmark

"Using this method, the process can be reduced from somewhere in the region of three days to something more like 10 minutes. Purely in terms of the reduction in time, think how much money this will save an organisation."

He says that in equipment terms, companies also often buy based on what`s cheapest.

"This is wrong, because they should buy based on the value that can be added to a business. The cheapest option may work in the short-term, but the bottlenecks created by a breakdown will negatively affect an organisation`s turnover.

"People should take a long-term view and work out the value to be added by a certain product. For example, getting value for money by purchasing a piece of equipment that provides fax, scanner, copier and printer capabilities will save the company costs in the long-term.

"Unfortunately a problem cannot be addressed until a business knows it exists, and printing at the moment is one that seems to have slipped below the radar screen, although we are working to change that."

A Gartner report states that the single most constructive action corporations can take to shave TCO is to reduce the number of operating environments within the enterprise.

The answer to this unwieldy technology sprawl, simply put, is less is more. Fewer servers, storage devices and operating systems will result in less complexity, more efficient system manageability, and lower TCO.

According to Allan Currie, director of the Systems and Technology Division at Unisys Africa, downserving - the replacement of many disparate and small machines with a more manageable number of larger, centralised servers - can open the door to achieving mainframe reliability on a Windows software architecture.

"Downserving on to more powerful machines allows much higher resource utilisation by evening out the peaks and troughs of demand between different applications and greatly simplifying disk configuration."

Brett Parker, enterprise group director for Microsoft, agrees. "Server consolidation is a key to driving down TCO - why have 10 NT servers when you can operate from a single data centre?

"Other areas that help to reduce TCO include the availability of technical skills, how readily available training is, the cost of maintenance and support, and cost of - and speed to market - of the deployment and support of the architecture.

For a business, it is important to focus on reducing long-term operational costs, and the best way to do this is through a storage-centric focus.

Noel Northcott, executive director, SmartStor

"Every time you reduce time for the customer, you save them money."

Currie says one of the problems that downserving can address is the way that, in the past, companies simply added more servers to grow processing power.

"There is a huge drawback to doing this, because as the number of servers increase, so support costs and systems complexity rise exponentially, as planners attempt to manage multiple distributed servers, control multiple distributed databases, handle capacity, bandwidth and latency problems and wrestle with the lack of a common, replicable system image."

He believes that by adopting a mainframe mentality for a Windows-based architecture, this can be changed.

"A joint architecture canaddress this issue, allowing for much simpler and effective failover or disaster recovery, as it involves duplication of only one enterprise server, as opposed to a large number of widespread single application servers."

Noel Northcott, executive director, SmartStor, says that with most companies moving towards a constant approach to business - known as 24/7/365 - their exchange server has become vitally important.

"The general problem with servers is that there is low disk utilisation, meaning that companies are paying for services they don`t actually use. Centralising the disk not only increases utilisation, it also means it can be protected better.

"When there is downtime, not only does data recovery become a major cost, but - in the 24/7/365 era - it also affects revenue. A company like Amazon.com would lose a lot of business if it found itself offline for any lengthy period," says Northcott.

"For a business, it`s important to focus on reducing long-term operational costs, and the best way to do this is through a storage-centric focus - we`ve come a full circle from the days of mainframes - and we have now moved beyond client servers and are heading back towards a centralised storage approach."

"There are three levels to look at when focusing on TCO," says Patrick Kuwana, the Winslow Consulting Group`s regional director for Africa.

He says the first of these levels consists of determining the physical and financial makeup of the organisation`s IT infrastructure.

"These are the physical IT assets a company has, such as hardware, software and all costs of running a data centre, such as power usage and the physical data centre footprint costs.

"The second level is the 'soft` IT issues, which includes the cost of people, training and maintenance. In other words, the recurring costs to keep the IT department operational and delivering on its objectives to the organisation`s internal and external business customers.

"Finally, there are the intangible issues. These are difficult to quantify, as they include things like the stability of the architecture and the cost of downtime," says Kuwana.

He says that for a company to effectively work out its TCO, it needs to work with a partner that understands all the factors involved, and has the sophisticated tools and methodologies to analyse these three levels.

"An infrastructure audit that analyses and works out the relevant costs for all three of the levels can then be used - in conjunction with the right software tools - to break this information down into an organisation`s various cost centres. Effectively, it becomes a business analysis tool."

The point is to show a business its TCO by its internal divisions or functional areas, rather than only focusing on its overall IT TCO. This promotes business accountability.

Kuwana says what a lot of organisations don`t realise is that getting an understanding of TCO is only half the issue - the big question is then what do you do with this information?

"The next step is for the organisation to use this analysis tool to make sound business and financial decisions. It becomes the base from which to measure any critical IT investment or restructuring decision, such as systems consolidation or outsourcing.

"A company`s TCO will show where it is at the present moment. By using this information correctly, a business can then work out what its ROI will be on any given future project," he says.

Valentin Kisimov, solution crafter at T-Systems South Africa, agrees with this, saying that in terms of TCO, businesses certainly need to take future growth into account.

"It`s no good only focusing on where you are at the present moment when looking at TCO. You also need to understand where you plan to be further on in the future."

A lot of companies don`t realise that getting an understanding of your TCO is only half the issue - the big question then is: what do you do with this information?

Patrick Kuwana, regional director for Africa, Winslow Consulting Group

He says businesses need to choose the correct partner to work with them to achieve their goals, and especially to help them get a continuous picture of their costs and where their money is going.

"When measuring your TCO, it is first necessary to look at what technologies are available, in order to work out what will best suit the business` needs.

"The big problem in today`s corporate world is that there is no worldwide methodology for working out TCO - everyone has their own opinion on the subject. For example, working out TCO must take into account the lifecycle of a product, which in itself is different for the same product in differing industries," notes Kisimov.

"Ideally, an organisation must work out a pattern which will allow a variety of technologies or applications to be added in, removed or modified, dependent on how their business needs change."

"Very few people would want to own a car with its chassis built by one manufacturer, its engine by another and its gearbox by yet another, but that is exactly what has happened in many organisations` IT departments," states Stefano Mattiello, MD of Sun Microsystems SA.

"Too many people have 'bolted` different operating systems and applications together, as their business has grown and its needs have changed, and now they have this unwieldy mishmash of systems that cannot possibly operate at prime efficiency."

He says this is where standardisation comes in. To truly be successful, an organisation needs a consistent architecture, with a single vision across the entire platform.

"Companies need to optimise their systems, and it makes sense - if a business is going to standardise - to do so using open systems. To return to the car analogy, if you can drive one, you can drive them all, you don`t need to be retrained, and with open systems there is no need to retrain staff."

Mattiello believes that the trap a lot of organisations fall into is in focusing too much on the cost of entry into a specific system, without taking into account the cost of exit.

"Cost of entry is only a tiny part of TCO, the cost of exit is far more important. How many companies out there are throwing money at maintaining a system purely because the cost of changing that system is prohibitive?

"The beauty of open systems is that if you are unhappy with a particular product or vendor, you can easily change to another, which is the whole point of having a low cost of exit."

He believes that too many IT purchases are a knee-jerk reaction - companies are buying equipment piecemeal from a variety of vendors to suit their needs at that specific time.

"This is wrong," says Mattiello. "It is very important to develop a blueprint for the organisation`s architecture, and there must be a strategy to guide you.

"If a business has a host of different operating systems, not only are there costs involved in trying to get these to work together, but there are also major costs in terms of the personnel with the skills to manage these systems."

The point of developing a strategy, he says, is that many businesses already have what they require, but because of the disparate operating systems they use, no one is even aware of this, which inevitably leads to unnecessary purchasing of equipment - simply because they`re unaware that what they already have is capable of doing the job.

"As long as an organisation has the correct strategy and vision, it can provide the same level of service at a fraction of the cost. All that is required is consolidation and standardisation to get the optimum from the systems that are already in place.

"While I am advocating standardisation, I`m not talking about scuttling the entire ship and making wholesale changes to the systems already in place; all I am suggesting is a slow migration to an open system.

"In other words, as something needs to be replaced, make sure that you standardise in order to optimise your systems."

Mattiello adds that the major advantage of an open system is the low cost of exit, which in turn makes standardisation much easier.

"I`m not suggesting that a company buy everything from one vendor, just that whatever it buys can interface with its other systems, share information and co-exist happily. Through a simple process of standardisation, a business will see massive reductions in its total cost of ownership."

All it takes is strategy and vision and one can provide the same level of service at a fraction of the cost.

Stefano Mattiello, MD, Sun Microsystems SA

TCO is undoubtedly a complicated issue, which is why so few organisations have truly got to grips with it.

The issue is also clouded by those factors that are part of TCO, but that are often overlooked, particularly the indirect and intangible costs - such as downtime and staff morale - and the fact that cost of entry may be low, but the cost of exit could be far higher.

It appears as though the key areas for businesses to focus on are centralised servers, which allow for both increased disk utilisation and better protection, standardisation of operating systems and applications, and making sure that less noticeable areas, like print, do not slip beneath the radar screen.

Only when companies begin to focus upon the many and varied topics that make up this complicated issue - and act upon them decisively - will TCO progress from being the current IT buzzword and take its place as a meaningful business proposition.