Squeeze
play: CIOs look to rein in IT spending
By
THOMAS HOFFMAN
Content Type: Story
Source: Computerworld
Having spent the past two years
paring back staff, consolidating servers and storage equipment, renegotiating
vendor contracts and conducting selective outsourcing, CIOs
are struggling to find new ways to reduce costs without cutting into the muscle
of their IT operations.
"We've done all those things, and yet
management still wants us to cut costs further," says a CIO at a
Midwestern bank who requested anonymity. "I just don't know where else to
cut."
In their quest to come up with even more
ways to keep a lid on costs, dauntless IT leaders are exploring everything from
barter agreements with vendors to reselling services and joining purchasing
consortiums for volume price discounts on equipment.
Take Wyndham International Inc.'s chief
technology officer, Mark Hedley. Like many IT executives, Hedley has taken
advantage of the cutthroat competition that the economy has stirred up in the
telecommunications sector and has reworked the hospitality firm's private
branch exchange, data and voice networking agreements, thus paring $850,000
from the Dallas-based company's annual telecom budget.
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Diane Bunch, senior vice president of information
services at Tennessee Valley Authority |
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Now Hedley is considering shifting
Wyndham's private frame relay to the public Internet as a way to further reduce
data communications costs by as much as 50% annually. But he must weigh the potential
money-saving benefits of doing so against the security, stability and
reliability issues involved with moving to a public network infrastructure.
He and his team are also evaluating a number
of even more novel ways to cut IT costs. Among them is the possibility of
offering hardware vendors hotel rooms in return for computer equipment.
"Trading the value of a guest room for
the value of equipment is very doable for us," says Hedley. Last summer,
he and his team began evaluating which IT projects might be a good fit for
these types of barter arrangements, but he declined to discuss them further.
And while he also declined to name the vendors he has discussed this option
with, Hedley says the potential for establishing such deals is "very real."
Shared Savings
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John Bielec, vice president of information resources and
technology at |
Many organizations have centralized
their IT operations to help rein in costs over the past few years. But some
global firms, such as Madison, N.J.-based Wyeth, a
$14.6 billion pharmaceutical company, have taken centralization a step further
and shifted to a shared-services model in regions where they've determined that
it's efficient and cost-effective.
As a holding company with various
businesses, "IT was decentralized, and there was no need to standardize or
have a shared-services function," says CIO Bruce Fadem.
Since 1998, Wyeth
has been migrating to a shared-services model under which its various
businesses and geographic divisions share IT applications and infrastructure
and their costs across the organization. Having completed the transition in
"In 2003, we're doing the tough work,
taking those relatively small businesses and working through the political
battles" to migrate them into shared services to
further reduce costs, says Fadem.
Still, there are limits to applying the
shared-services model to all of Wyeth's international
entities. In
The cost savings generated so far under Wyeth's shared-services model vary greatly by the level of
IT investment in each region and by other geographical differences. Fadem estimates that the approach has led to 10% to 15%
cost savings in most regions. Once the European piece of the puzzle has been
completed, "we'll be able to implement services like [regional] enterprise
systems that we couldn't have done otherwise," he adds.
Cleaning the Attic
Some CIOs see the
increased cost pressures they're under as an opportunity to clean house and get
rid of some unneeded or rarely used applications. That's precisely what
Tennessee Valley Authority (TVA) has done in conjunction with its migration
from Windows 95 to Windows XP, which began in October 2001.
Since then, the Knoxville-based public power
company has eliminated 2,300 of 4,700 desktop applications, databases and other
software, which in some instances included multiple versions of the same
application, says Diane Bunch, senior vice president of information services at
TVA. The ability to avoid future PC capacity upgrades is one area of cost
savings resulting from the move, since fewer applications mean reduced CPU and
storage needs, says Bunch.
The house-cleaning exercise also gave TVA an
opportunity to renegotiate site licenses for software that it will continue to
use. For example, a reworked contract for a project scheduling package should
save the company $40,000 per year, says Bunch. "We're working on several
other licensing agreements, and $10,000 here and $5,000 there in cost savings
can add up to significant cost avoidance," she says.
Pennies on the Dollar
A growing number of companies are taking
advantage of used equipment that's still flooding the market from failed dot-coms and other businesses. Through online auctions, Corning
Inc.'s Life Sciences division in
As a result,
Power in Numbers
A big-dollar software licensing agreement
with a major vendor was placing a drag on Drexel University's IT budget, so
John Bielec, vice president of information resources
and technology, found himself in search of ways to bring those costs down.
Research on the topic led him to a Middletown, Conn.-based educational
purchasing consortium called the North East Regional Computing Program, which
Drexel joined last year. By doing so, Philadelphia-based Drexel was able to
lower its annual software licensing fees with the vendor in question, thanks to
special rates for consortium members.
Says Bielec,
"There's always power to negotiate if you have volume."
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