For Canadian firms seeking to cut costs in these difficult times, re-negotiating vendor outsourcing contracts can be one of the best places to start, says an industry analyst.
“It’s the highest gain, lowest pain area,” noted Robert Garmaise, senior vice-president of research and strategy at London, Ont.-based Info-Tech Research Group.
Items that can be renegotiated or scrapped altogether could range from insurance contracts to rainy day funds – “anything that’s nice to have but not really necessary.”
Garmaise was speaking on IT Cost Reduction in 2009 at IT360, a day-long conference and expo held in Toronto last week.
“We talk to hundreds of clients each month about different aspects of their programs, and through that we’ve developed best practice advice in the cost-reduction space.”
Some of these practices, he said, have been extrapolated from in-depth reporting based on surveys.
While flagging economy is forcing Canadian businesses to slash costs by 10–20 per cent, Garmaise cautioned that this should be a well thought out process, “not just slash and burn.”
The analyst offered attendees 10 IT cost reduction ideas that he said had worked well for a broad range of Info-Tech customers.
No. 1: – Pay less for new PCs
Review PC specification process – Firms often over-specify their hardware, Garmaise noted. “For instance, most employees would not need to use many of the capabilities of a $1,200 desktop.”
He urged businesses to base their new PC purchases on tougher criteria regarding the capabilities employees really require. “All features and functions are generally not required for all users.”
Some Info-Tech clients, he said, use a two-tier purchase method – where pricier, higher-quality, higher-capability PCs are bought for power users, and more basic machines for the rest. “Cascading is another technique. It involves buying the same type of PC for everyone, but offering power users the new stuff.”
Remove warranties – Foregoing warranties is yet another way to save big time on desktop costs, Garmaise noted. Typically, he said, standard warranties on new PCs range from 1 – 3 years, and represent a cost of $100 – $150 per unit.
“So say a new PC costs $750 of which the warranty cost is $150. By foregoing the warranty on seven machines you could buy an additional PC. For desktops this can be a big saving.” But while this is a smart approach for desktops, Garmaise doesn’t recommend foregoing warranties on laptop purchases.
Consolidate purchases – Smaller shops, the Info-Tech analyst said, could realize huge savings by aligning with a regional or industry buying group. “You could pull your purchases together to get better bargaining power.” Buying needed PC hardware in one go, rather than spreading it out also helps for the same reason. “But for this you need the ability to forecast annual need, as well as to ensure adequate storage space.”
Shop around – In the Canadian market, he said, HP, Dell, and Lenovo are strong players in the PC desktop space – and most Info-Tech clients buy from one of these three. Garmaise said it’s possible to drive a hard bargain by comparing, researching and even playing resellers off one another.
Avoid leasing – While leasing works well for printers, with PCs it’s a different story, he said. “We don’t favour leasing PCs because it locks you into a warranty and a three-year term – and saddles you with financing costs, to boot.”
No. 2: – Reduce the number of PCs you buy.
A three-year refresh rate for PCs isn’t appropriate today when firms are in cost-cutting mode, said Garmaise. “Five to six years is the new average.”
But to make a longer refresh cycle work, he said, IT departments need to take steps to avoid machine degradation. “Re-image every year, as sometimes degradation has as much to do with software as hardware.”
He said the businesses should also look very carefully at the cost-to-serve involved in small hardware tweaks, such as RAM upgrades – and schedule these intelligently.
Also determine your ability to purchase the machines off lease, he said. “At the end of three years, a nice migration path would be to buy a third of your equipment back.”
No. 3: – Don’t forget about laptops
Overspending on employee laptops could be a huge cost drain. The goal should be to limit laptops to less than 20 per cent of the workstation fleet, Garmaise said.
“Many get laptops, not because they’re required, but because they’re desired.”
He said many firms have written or unwritten rules that executives and managers should be outfitted with laptops. “This is a mistake. Instead, the decision should be based on whether the employee is really mobile.”
Even for sales staff, he said, there are cheaper alternatives, such as Netbooks for mini processing and authoring, and smart phones for checking and responding to e-mail.
For laptop care, the Info-Tech analyst recommends “locks, procs and docks” – multiple locks, having acceptable use procedures in place and ensuring users have proper docking stations, at the office and at home. “And one PC, per user should suffice.”
No. 4: – Let EA lapse
Microsoft Enterprise Agreement is one of those contracts you would generally want to let lapse, Garmaise said. “The agreement only pays off if you’re frequently upgrading — at least every four years.”
“You get better interoperability between different Office versions in OpenOffice than in MS Office, according to many users.”
No. 5: – Virtualization made free … almost
Many of Info-Tech’s clients are already far down the road of virtualization, noted Garmaise, “and the results are fantastic.”
Virtualization has brought these firms dramatic cost savings in areas such as server acquisition: (40–75 per cent), and ongoing maintenance (25 – 50 per cent).
For shops with 15 servers or more, virtualization technology is a must, Garmaise said. While VMWare is still the leader in this space, he said, Citrix and Microsoft are making a much stronger showing today.
No. 6: – Cancel CISCO SmartNET
The Info-Tech analyst strongly recommends cancelling support for all edge network equipment — including services such as CISCO SmartNET — which covers same, or next-day service.
“This is not needed, and is much too expensive — SmartNet costs roughly 15 per cent of initial hardware fees, for units that rarely fail.”
For organizations deploying voice over IP, though, he recommends keeping SmartNet in place.
No. 7: – Optimize Print usage
Eliminate personal printers, Garmaise said, as print security software today completely does away with the need for dedicated devices – even for HR or Finance.
Colour printing costs 10 times more than black-and-white, he noted, and so should be restricted strictly to external facing documents.
Simple best practices – such as setting print jobs to be double sided by default, and adjusting the density setting to 5 per cent – can have a big impact, sharply cutting consumables’ costs.
Garmaise also recommends exploring online document management and collaboration tools such as DekiWiki or SharePoint.
As far as possible, he says, ink jet printers should be eliminated because of the associated high cost of consumables.
“Use multi-function copiers for any location that generates more than 20,000 images per month.”
Low cost lasers should be avoided, he said, as their supplies constitute 90 per cent of printer TCO.
“Also, explore fleet outsourcing and managed service options, he said, as these could work out to be quite economical — 8-10¢ for colour and 0.8-1.0¢ for B&W.
No 9: – Manage software assets
Software asset management (SAM) includes frequent audits of types of licenses, usage, eliminating functionality overlaps, and so on.
Although businesses adopting such practices can save a firm 30 per cent or more, Garmaise rued that SAM “is an area IT leaders don’t even have on the roadmap.”
He said IT shops should keep on top of stuff such as redundant or seldom used apps (ensuring these are decommissioned), license compliance, overlaps in functionality and more.
IT, he said, should also optimize the number and complexity of unique user images.
No 10: – Dial down help-desk SLAs
Many of those polled by Info-Tech felt help desk SLAs should not be the focus of cost reduction initiatives. “We disagree,” said Garmaise.
For business-critical issues, or where major systems or many users are affected the goal should be 100 per cent resolution within 2 – 4 hours, he said.
But the same stringent requirements need not apply to Level 2 issues (also business critical, but affecting minor systems and some users) – and even less to Level 3 issues – that are important, but where acceptable workarounds exist.
We’re seeing organizations dial this down significantly, he said. “Anything Level 3 or below – you can change what the service level is. For all the stuff that needs to get done dial down some of the less value add stuff.”
Four key areas
Info-Tech research reveals that Canadian firms’ cost-cutting strategies and practices broadly fall into four areas:
a. Staffing and salary changes — Few of our clients are doing this, Garmaise said. While this is a “high pain” area, the gains could also be significant. Staffing changes include everything from changing use of consultants and contractors, moving some full-time positions to part time, layoffs, retirements, a freeze on raises, or eliminating or decreasing bonuses. These may be required when cost-cutting targets are large, the Info-Tech analyst said. “Changes here often deliver the expected cost reductions, but at some expense to morale and IT operations.”
b. Project portfolio mgt (PPM) –This involves optimizing business processes by re-prioritizing capital expenditure and projects. While the negative impact of PPM is often minimal, its potential for producing major, ongoing cost reduction is also limited.
c. Discretionary spending cuts — This includes cutting down on items such as training, conferences, team building and non-monetary benefits. “It’s one of the early (almost reactionary steps) our clients often take,” said Garmaise. But he warned that cutting or eliminating such expenditure is fraught with risks –and seldom produces the level of savings IT expects.
d. Vendor and outsourcing management
This option – which includes things like renegotiating contracts, and changing the outsourcing mix – should be pursued to the hilt, Garmaise said.
“It has the fewest negative effects on morale, IT operations, and the business, while offering organizations huge opportunities for cost savings.”