Slicing Through IT Costs

 
 
By Cary Westmark  |  Posted 2008-03-31
 
 
 

CARY WESTMARK, vice president of technology at Troon Golf, the management company of some of the largest and best golf courses around the world, has discovered over the course of his career that hitting a hole in one with non-IT executives means presenting fiscal arguments, not technology jargon. In this essay, Westmark lays out his personal strategies for evaluating IT priorities against the corporate bottom line.

Most enterprises spend between 5 percent and 10 percent of their gross revenue on information technology products, services, staffing and support. It’s a staggering amount of money, when you think about it: For a $100 million company, the IT tab could reach $10 million.

IT pros—from system admins to CIOs—love all the gadgets, applications and code they get to play with. They love to talk about the cool factor of the latest software release or new firmware upgrade. Non-IT executives, on the other hand, couldn’t care less. They equate IT to plumbing: It’s like the pipes you buy when constructing the building; you spend money on them only when they spring a leak.

This isn’t necessarily a knock on non-IT executives. After all, they shouldn’t be expected to understand the internal workings of IT or the best ways to manage information systems. These executives focus on the overall success of the business, managing from a higher level and keeping a close eye on the bottom line.

For IT professionals to be successful, they must understand what motivates their line-of-business counterparts and learn to speak their language. Key phrases that IT pros should incorporate into their vocabulary include “cost savings,” “expense avoidance” and “improving the bottom line.” In other words, they must think about their company’s strategic business and revenue objectives first, and the coolness of their technology second.

Proving the value of IT is the most difficult side of this equation since technology becomes commoditized almost as quickly as it’s installed. Many companies do capitalize on technology to give them a strategic advantage in the marketplace, but that advantage often dissipates as their rivals adopt the same technology, rendering IT merely a cost of doing business. Hence, the plumbing analogy.

But information technology can create efficiencies and reduce operating costs, and that is where IT professionals can become heroes in the eyes of their business compatriots. The key is to present business executives with a strategic vision for IT without bogging them down with technical details. Unfortunately, that often proves more difficult than shooting an eagle on the back nine.

Based on my 20-plus years in IT management, I’ve gathered some low-hanging fruit that’s worked well for me—and should work for you too.

Promoting TCO

Let’s start with total cost of ownership (TCO) for computer hardware. Most non-IT executives view hardware as a one-time capital expense, and they fail to understand the necessity and the benefits of a strategic replacement program. The hidden costs of powering, operating and maintaining a piece of hardware often outstrips the purchase price. For example, according to some studies, the cost of powering a storage server is three times the purchase price over the life of the device.

Maintenance and operating costs increase dramatically after a device has exceeded its planned life expectancy—usually three years. By demonstrating how technology costs increase over time if an organization doesn’t retire and replace devices, IT professionals stand a better chance of gaining support for a strategic replacement program.

In the late ’90s, before Troon Golf introduced a strategic technology refresh plan, our facilities spent an average of $800 per month on support. Eight years and one hardware refresh plan later, the monthly average support is down to $300—a saving of roughly $50,000. Throw in cost savings from increased user productivity, less downtime and reduced data loss, and you’ll realize that TCO can be optimized through a planned refresh strategy.

Standardizing IT

Standardize, standardize, standardize. I can’t use this word enough in front of executives. Most of them see standardization as a way to make IT jobs easier. That’s partly true: The more standardized the technical environment is, the easier management becomes. That means fewer tools and human resources are required, which results in lower costs.

However, in my opinion, standardization can have its greatest impact on the bottom line. Through standardization, you reduce costs by minimizing complexity and buying software and hardware in bulk. And standardization often produces greater operational efficiencies, since maintenance and training are more easily executed.

Executives don’t need to know the logic behind strategic IT issues such as standardization. What they do need and want to know is that a technology initiative will improve performance and lessen the burden on the corporate balance sheets.

Troon Golf began its standardization efforts in 2001, and about 65 of our operating facilities now work within the set standards. For those properties, we’ve been able to leverage a support team of just four technicians. Contrast that with the 20 facilities that don’t work with our standards, each of which has its own IT support person or team. The leverage in standardization is roughly one-fifth the human resources required.

Managing Licenses

Software license management is a challenge that plagues nearly every enterprise. Most companies either use expired/unlicensed software (out of compliance) or are over-subscribed (more licenses than are needed). Neither position is good, since expired licenses expose a company to fines for using unlicensed software, and over-subscribed licensing means that a company is paying for software it isn’t using.

The first key to strategically managing software licensing is to ensure that you have a solid system in place for procurement, deployment, license tracking and compliance management. Second, make sure that you, or someone on your team, is experienced in reading software license agreements, so that you can assess the appropriate number of licenses and decide whether software maintenance programs are in your company’s best interests.

An interesting statistic that I often tout is that 100 percent of the operating facilities for which Troon Golf has taken over management have had a software licensing issue. You heard me correctly: Every operating facility that we have taken over either has used unlicensed software or has been over-subscribed. The good news is that we have implemented a solid software license management process—including procurement, deployment and compliance management—to ensure that all our properties are minimizing expenses and risks.

Almost all software has an annual fee to cover technical support, patches and enhancements for that application, but not all software maintenance programs are required. If maintenance is an option, make sure you understand the alternatives, as there may be a more financially suitable solution for your company.

For example, at Troon, we forgo the Microsoft Software Assurance option (Microsoft’s annual software maintenance program), primarily as a way to reduce expenses. The assurance program is maximized for organizations that change their software standards every two to three years, and we have found that it’s less expensive to just buy ad hoc support and repurchase our software licenses every four to five years. We estimate that this saves our facilities approximately $50,000 annually in software maintenance costs.

Whatever your strategy is, develop it, document it and present it to your executive team in a way they will understand: Keep it short and focused on cost savings.

 

Evaluating Outsourcing

Managing labor costs is one of the biggest challenges an IT manager will face over the course of his or her career. Enterprise management puts a lot of pressure on technology organizations to outsource to save money, but IT managers should make any outsourcing decision based on the unique operating environment and requirements of their organization.

When evaluating outsourcing options, there are two rules of thumb that have brought me success. First, if the job will require more than 700 hours of effort during a calendar year and will last at least 12 months, then hire a permanent staff member. The overall cost will be less, and you will get more productivity hours for less money. Second, if the role supports a strategic technology initiative, such as a custom-built application, it will be in your best interests to retain in-house expertise.

There are many situations in which outsourcing makes sense, but be sure to thoroughly assess all the needs and weigh the various options. A mix of in-house and outsourced employees may work best for your organization. At Troon, for example, we have a mix of 75 percent full-time employees and 25 percent contractors.

As an IT manager, it’s your responsibility to plan strategically, so prepare your staffing plans carefully before presenting them to executives—and always keep a focus on the bottom line.

Examining Application Development

Application development is another area that requires careful examination before deciding on a strategic direction. If your organization’s core competency is not application development, you should minimize the amount of customized programming you implement.

Applications such as company Web sites and small databases won’t cost too much to outsource. However, larger applications, such as customer relationship management (CRM) and enterprise resource planning (ERP) systems, are expensive to customize and support—even with in-house resources.

The strategy that works for me involves using off-the-shelf products whenever possible, even if it means shifting business processes to fit those applications. We use shrink-wrapped applications that require almost no customization for 90 percent of our business applications. The few exceptions are our company Web site, our affinity program (Troon Rewards) and our CRM system, which are all developed and maintained in-house, as they are specific to our company and operations.

Planning the data center

Of course, the topic on everyone’s mind these days is data center management. Should you collocate or run an internal data center? That question, as well as many others, requires a careful assessment of the business environment, long-term goals and the requirements of the data center. Collocating can generate a significant cost saving for organizations that require high-availability systems but don’t have a proper internal data center already built.

I have found that collocation often works the best for larger enterprises, e-commerce organizations and telecommunications companies. For smaller companies, the cost of collocation can be prohibitive, so less sophisticated internal data rooms will suffice.

As a smaller organization, Troon has found collocation cost-prohibitive, so we built an adequate computer room with appropriate environmental controls in our corporate offices. That facility costs us only about half of what a single year’s collocation fees would cost.

Admittedly, these are just a few of the issues IT professionals will have to discuss with their executive team, but addressing in a meaningful way all the technology items that affect the company’s bottom line is a practical impossibility.

In my experience, the best approach is to put the plans with the most significant financial impact in front of the executive team. Remember that most non-IT executives have one thing on their minds: improving the bottom line. So keep your presentations brief and focus on fiscal conservation.