Earlier this year, Brian Klingbeil, Managing Director of Savvis EMEA, commissioned an independent global market research project to understand how IT leaders from mid to large enterprises in the U.S., UK and Singapore are handling the economic downturn, the challenges and priorities they are facing, and how their organisations intend to use technology to meet their objectives in preparing for recovery in the current business climate.
To begin with, 51% of IT heads felt their business is doing ‘well’ or ‘very well’. North America more positive than their regional counterparts, with 57% stating that their company was doing well or very well despite the economic downturn in comparison to 46% in Singapore and 48% in UK.
These IT leaders whose organisations are ‘doing well’ have taken a number of key measures to enable their companies to succeed during the downturn, demonstrating forward-thinking and understanding in using technology as a strategic tool. Their flexible approach to organising their company’s IT?and their IT infrastructure?puts them in a better position to power their business through the downturn and be better equipped for recovery.
According to the research, the top five strategies companies are adopting in maintaining their success throughout these challenging times are:
- Reducing cost
2. Aligning business plan with market conditions
3. Getting ‘lean and mean’ and ready to be aggressive in the marketplace
4. Sticking to strategy with contingency plans for market fluctuations
5. Managing stakeholder expectations
Ask ‘what does IT enable?’ instead of ‘what does IT cost?’
While over two thirds of all IT leaders are under pressure to do more with a reduced budget, fewer of the IT executives whose companies remain buoyant in the downturn feel this pressure. Instead, they are directing their efforts at more strategic activities, enabling their business to deliver competitive advantage and gaining efficiencies throughout the company. A key component of this is the adoption of an outsourced IT infrastructure model.
Whether evaluating the potential of outsourcing, comparing one service provider to another or simply determining the scalability of IT costs over time, it is worth using a value-based approach. This means not just asking ‘What does it cost?’ but also asking ‘What value do I get for my money and what internal costs am I therefore able to eliminate?’ Conducting a comprehensive analysis on the answers to these questions allows you to normalise alternatives and make a choice based on the total cost of ownership and not just the direct cost from a vendor.
While it is unavoidable that companies may feel the crunch during the recession, a key learning from these findings is to be open to exploring service models in order to deliver competitive advantage to your business, driving efficiencies and synergies and exploring technologies like virtualisation, utility compute and cloud computing as ways of driving cost?and organisational efficiencies.
It is also important to work hand in hand with your reputable suppliers as it can be a powerful way to increase efficiencies and reduce costs. Understandably, IT leaders may be reluctant to tap into the expertise of their service providers, but it is important that you get objective advice from a reputable provider and build a trusted relationship so that you can get a fresh perspective during such times of economic uncertainty.
Stay ‘lean and mean’ to compete in your market
Of those IT leaders whose companies are doing well in the current economic climate, the majority said that their main focus in driving efficiencies in 2009 will be to reduce infrastructure costs. This is in contrast with those companies that are struggling as their primary focus is to reduce staff levels. While reducing staff levels is also a priority for companies that are doing well, these organisations are also exploring a utility service model, which allows them to scale their infrastructure up and down in line with the demands of the business and will be getting up to speed with emerging enterprise cloud computing solutions.
Taking advantage of virtualisation, utility compute and enterprise cloud computing are important ingredients towards reducing infrastructure costs and gaining efficiencies and future flexibility. The key is to look for a service provider who can work with you to develop a roadmap that will enable you to maximise your cost-efficiencies by increasing the utilisation of your IT infrastructure. The roadmap should be flexible and allow you to move as much, or as little, of your infrastructure into an outsourced environment as is appropriate.
Using virtualisation and utility compute typically result in server and device consolidation. For example, using high availability pooled failover blades, virtual firewalls and virtual load balancers instead of dedicated devices reduces device counts dramatically in a highly redundant environment. These reductions result in less capital spend, lower power consumption, lower maintenance costs, fewer human resource support requirements, fewer software licenses and other cost reductions.
Capex versus Opex?the new and improved funding of dilemma
Nearly 60% of IT budgets are focused on operating expenditure and the remaining on capital. Given the current economic climate, it is not surprising that over half of IT executives are placing the greatest emphasis on operating expenses whereas 25% is placed to capital expenses and 22% on overall cash outlay this year. IT executives in the UK and Singapore are allocating as little as 20% and 15% respectively to capital expenditure in 2009. As capital is at the moment difficult to secure, alternative approaches to executing strategies must be explored.
IT infrastructure outsourcing can be an attractive proposition: there is no capital expenditure as you have no equipment to buy. Essentially you’re buying IT as a service on a subscription basis. Typically companies that fully in-source their IT infrastructure spend a lot of money on capital expenditure; they buy equipment and build to peak demand and then wait for the business to grow into the capacity that they have created.
If you’ve bought infrastructure in-house, you’ve already written the cheque. However, it doesn’t have to be a no-win situation. You can find a service provider who’s flexible enough to take that equipment from you and deliver some short-term cost savings. The real key to this is finding a provider who can define an infrastructure migration path that will yield the greatest cost benefits and efficiencies over time.
During such challenging times, it is important to maintain focus on the longer term, while still dealing with the day-to-day tactical issues, pressures and cost efficiency initiatives that so many leaders are immersed in right now. History tells us that the economic recovery will come, though it may take some time. When it does, your organisation should be well positioned to succeed.
The word of caution is that if you eliminate spend on longer-term strategic projects and anything that is not a tactical priority, you may survive this year but could miss out on the recovery. The key is to continually look for ways to reduce costs whilst redirecting your spend towards those activities that give you a competitive advantage to differentiate your business in the market place.