IT Centralization Efforts Moving Beyond Hardware

By Allen Bernard

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As far back as the late 1990s many global CIOs realized they were spending far to much money on maintaining their infrastructures, said Mary Turner, a vice president at Summit Strategies. But, back then, when money was available for all manner of "business critical" technology needs, such as the new wave of ecommerce possibilities sweeping the nation, it didn't seem to matter.

After the dot-com crash, however, when budgets dried up, CIOs no longer possessed the luxury of inflated IT budgets. Instead, they found themselves having to get the most out of their current IT architectures. That's when the realization hit home that maintaining 57 different financial systems and 14 call center applications was draining resources and mitigating the ability of IT to deliver on the value promised by so many software solutions such as CRM.

"I knew CIOs even in 1998-'99 who knew they were spending way too much money on maintenance and were frustrated even then," she said. "But in '98-'99 you could still get the money if something was 'business critical'. What's happening now is CIOs of all sizes are understanding (centralization) is more than just tactics, that they really need to have a whole strategy around how they move to more of a shared, dynamic utility environment."

IT Sprawl

For many CIOs the first steps along this road were to centralize and standardize their infrastructures and applications. At Hewlett Packard, for example, after the Compaq merger, the company was maintaining 145 different instances of SAP. Today, the company is using just one outsourced to it's Managed Services division and accessed remotely by the company's far-flung global empire, said Joe Hogan, vice president of marketing for HP Managed Services.

"The first thing you've got to do is standardize on an architecture," he said. "The second thing you really have to do is consolidate. Once you consolidate things, that gives you the ability, in one central location, to begin to go ahead and use the (excess capacity) of the server base you've consolidated and clustered up."

For Xcel Energy, a $9.5 billion power provider in the Western US, the truth hit home after the merger, which formed the new company, and the electric crisis of 2002, said Mike Carlson, Xcel's director of Business Transformation. In fact, Carlson was hired specifically to help Xcel rationalize its IT infrastructure.

The first thing Carlson did was install a $1.6 million global storage area network (SAN), which now saves the company $5 million per year in maintenance costs. But that was just the start. Business units that once handled their own IT independently now get most computing needs fulfilled by a centralized IT unit run by IBM. If one of its four divisions wants more than just the standard offerings, that unit's divisional CIO must make a business case for the deviation.Beyond Hardware

But centralization is moving beyond just rationalizing infrastructure and data centers into a shared services, or utility computing model. Companies are spending a great deal of time and effort to standardize policies, processes and data definitions. For too long, "employee" in one region of the world meant different things to different divisions. This next step in the process is where many companies find themselves today, said Craig Lawton, vice president in charge of Boston Consulting Group's Americas IT Practice.

Over the past year BSG has been working on a survey on 13 global corporations to find out just where along the consolidation path those companies are. While the findings are still being digested, early results indicate many of these companies are already far down the consolidation path from an infrastructure standpoint. Call and data centers, servers and mainframes, are being centralized but the next steps are just being taken. The next wave is to standardize business processes and transaction level functionality in an attempt to achieve more value, he said.

"There's no question that people are again saying 'I'm starting to focus on the growth part of my business and I'd sure like to take all the transaction stuff and everything else and make those as efficient and effective as I can, which hopefully will free up money over time to be able to spend more money on unique solutions that will fuel my growth."

These findings are further supported by the number of BSG's customers over the last six months asking for insights into just how to make this happen, said Lawton. Those numbers are up.

What started an exercise in cost cutting is now full-fledged attempt to realize the value that IT can bring to an organization. There is a move afoot, once again, for example, to attain the single customer view that will lead to better service and, hopefully, more sales, Lawton said.

Middleware to the Rescue

And while cost was the first driver of this process, the middleware products that have become available from vendors such as HP Managed Services, Mercury Interactive, BEA and Tivoli, to name few, have enabled the move to transaction-level standardization and virtualized compute environments that facilitate on demand or utility computing architecture, said HP's Hogan.

Today, IT managers, whose infrastructures are connected, can control and provision IT resources in ways that allow them to react, in real-time, to changing business needs across the enterprise, said Carlson.

Without such products, Xcel's Carlson, could not have acquired the metrics to support his ongoing argument for consolidation to the business units within Xcel -- which were loosing autonomy and control to centralization, he said.

"With the middleware and the architecture solutions that our partners are bringing; I guess I'm convinced, we're able to demonstrate on the original investment promise we're making," he said. "Ultimately, for us to maintain the support of consolidation, we've got to be able to continue to demonstrate the cost-to-value and, without that middleware capability to view what's going on, to simplify it, etc., the costs are just going to keep going up because the business model changes; certainly every year were picking up something we didn't plan on the year before."

An IT Strategy, Please

The next step for many companies is define and implement a overarching IT strategy that is driven by business needs instead of departmental desire, said Turner. And while the trend to consolidation is just underway, an overall plan that looks at IT from a business perspective is what companies of all sizes will need to implement if the value and benefits IT promised just a few years ago are to be fully realized.

"Just as a third-party service providers, for years, has been able to say 'you want this, you pay more', I think that same discipline needs to come into the enterprises so CIOs really do become service providers to their internal users," she said. "If the CIO is ever really to have control, they're going to have to be able make the cost of what the users want visible to them. Then it's a business decision."