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Information Technology

IT consolidation and
the bottom line
By Richard M. Melnicoff, Marc E. Snyder and Rockwell Bonecutter

There are few more ready means of improving earnings


per share than the consolidation and rationalization of
IT systems, hardware, networks and other infrastructure.
In fact, this isn't about technology at all: It's a business
decision with profound balance-sheet implications.

Once upon a time, there was a company committed to running its business better by giving
managers the IT systems they needed. Given the economics and the technologies prevailing
at the time, executives knew that rolling out new systems built on a distributed, server-
based computing model would be the most cost-effective way to do this. They were even
more pleased that managers in the company’s five divisions could incrementally add new
servers to meet growing processing demands or when new offices were established.

Fast-forward 15 years: Today, the and network all these servers? infrastructure consolidation and
company has accumulated more Unfortunately no one really knows. rationalization. In fact, there are
than 1,000 servers (some of which Top management has limited insight few more ready and material means
were swept up during the acquisi- into the total amount spent on its IT of improving earnings per share
tion of a number of new businesses), systems. Decisions about replace- than infrastructure consolidation
consisting of a veritable rainbow ments and most other technology and rationalization of operating
of technical platforms and propri- investments were made lower in the systems, hardware and software,
etary variations. These servers are organization (a common enough processing and storage, networks
spread over more than 50 locations. practice at the time), and now all and facilities.
About half are housed in data cen- this IT infrastructure is scattered
ters, many of which (though not over the books and budgets of dif- Infrastructure consolidation requires
all) have an assortment of backup ferent divisions. no additional customer channels, no
power sources and security and new products, no new revenue
operations staff. The rest reside in The good news is that over the past streams or increases in gross mar-
closets or sit beside workers in 15 years, product designs and con- gin, and no reformulations of core
various offices. figurations and systems manage- value propositions. It is based
ment technologies have changed to entirely on internal policy changes
How much does it cost the company such a degree that it is now possible and program execution. In fact, it
to run, back up, maintain, upgrade to reap significant savings through isn’t really a technology decision at
Information Technology

all; it is a fundamental business But the business case for adding it


decision with profound bottom- up—for assessing the aggregate busi-
line implications. ness impact, or acting upon it—has
simply seldom been made clear.
Infrastructure consolidation
represents a right-under-the-nose Moreover, until recently, analytic
opportunity to boost both income tools powerful and sophisticated
statements and balance sheets. Annu- enough to gather the information
alized earnings-per-share returns for to build the business case did not
IT rationalization commonly range exist. The C-suite has generally
from a half-cent to one cent. We (and rightly) chosen to focus
have seen such initiatives reduce business improvement initiatives
annual IT infrastructure costs by on top-line growth, or on other
anywhere from 15 percent to 40 more traditional cost-reduction
percent, and capital spending during methods. Those leaders have
the next refresh cycle by 15 percent assumed IT managers were getting
to 30 percent—no small change the best overall bang for their IT
given the fact that IT spending infrastructure buck—which they
today can account for more than indeed were, given the economic
50 percent of the capital outlay of dynamics and technologies
many large companies worldwide. that have been the norm until
relatively recently.
So if the business case is so clear,
why hasn’t there been a stampede For their part, IT managers have
of infrastructure consolidation been seeking better pricing from
initiatives? You can chalk it up to— vendors, more optimal designs
in varying degrees—fear, uncertainty and improved performance tech-
and doubt. nologies. Not only has the pursuit
of broader, cross-business consolida-
tion and rationalization simply
For most executives, these are uncharted waters; been beyond their mandate; it has
been made virtually impossible,
there is little or no precedent for this kind of given organizational barriers
and disincentives.
nontraditional, one-off project.
In some organizations, a legacy
of underdelivery on cross-business
It is well enough understood that initiatives has complicated the
the shift to the distributed, server- equation and produced a C-suite
based computing model has been reluctance to fund these initiatives.
accompanied by a parallel decen- If IT has not consistently been able
tralization of IT decision making. to deliver the value promise of
It is less commonly understood limited infrastructure initiatives,
that the shift has also frequently the reasoning goes, how can it be
brought about a decentralization expected to deliver on a consoli-
of perspective, particularly dated enterprise-scale initiative?
financial perspective. And just how disruptive is this
going to be to my business? For
The financial information has most executives, these are uncharted
always existed—in dozens of separate waters; there is little or no precedent
departmental IT budgets. Before you for this kind of nontraditional,
know it, this adds up to real money. one-off project.
74 www.accenture.com/Outlook
When computing infrastructure becomes an intelligent force
With a compelling business case for infrastructure consoli- Phase 2: Infrastructure virtualization. What does it mean
dation in hand (see story) and given a green light to proceed, to “virtualize” a data center environment? Here’s an analogy
where does a CIO begin, and what long-term plan can best from the world of astronomy: Put one radio telescope in
provide guidance? Paris, another in Moscow and a third in Rome, and, in effect,
you create a virtual telescope as big as the triangular area
Accenture’s recent research into the IT infrastructure programs bounded by those three cities. With data centers, we can put
that lead to high performance has shown that companies a virtual layer between an IT organization’s applications and
encounter several predictable barriers along the way to data its hardware so that a mix of disparate servers appears as
center or infrastructure transformation. In some cases, for a single set of computing resources.
example, the focus of the infrastructure initiative is too narrow;
a program may take place within technology silos, which ulti- Why is that important? Because on top of this virtualized
mately undermines efforts at integration and standardization. platform, organizations can install software products to help
manage and provision hardware resources and continuously
Communicating with key stakeholders within the organization balance and consolidate workloads. They can move applica-
about the status of their IT investments is critical to the suc- tions among various processing resources within their data
cess of any infrastructure consolidation program. But CIOs centers to optimize performance across the enterprise.
often encounter difficulty finding the accurate and timely
information needed to initiate the transformation and then Phase 3: Dynamically provisioned data centers. The final
keep it going. Often, the left hand of business doesn’t know transformation phase fully exploits commoditized, virtualized
what the right hand of consolidation is doing, so ongoing and system resources. Here, companies develop their capacity for
immediate business needs may undermine the transformation “predictive operations”—utility computing capabilities that
program. As one CIO told us, “We believe the worst of the enable companies to measure, analyze, and anticipate busi-
[infrastructure] proliferation has passed. . . . But the last ness performance and application availability issues, and then
10 years created complexity, and keeping up with innovation request just the IT investment that’s needed. When you turn
meant having a little bit of everything.” your coffeemaker on in the morning, you need only enough
electricity to do that; you don’t want to be hit with a million
Companies that achieve the greatest benefits from an inte- gigawatts of power. In much the same way, dynamic provi-
grated and consolidated IT infrastructure are those that estab- sioning says, “Here’s what I need; give me that, but no more.”
lish and follow a long-range infrastructure transformation plan.
The ultimate objectives are to enable a company to quickly Prediction and automation give companies the capability to
take control of its IT costs, and enhance its system security. Cost affect changes within their IT infrastructure to meet business
savings in the early transformation phases can actually under- demands and requirements for scalability, availability and
write longer-term improvements that will drive additional value. reliability. The data center of the future is not only more
Co-sourcing and outsourcing options should also be considered. cost-effective. It’s a responsive, intelligent entity giving
companies the exact computing resources they need, when
Our research, including discussions with CIOs, has validated they need them.
a three-phased approach to creating the data center of the
future—an approach that goes beyond cost savings to gener- —D. Neil Gissler
ate business value from IT infrastructure investments.

Phase 1: Consolidation and rationalization. A company’s ini-


tial focus must be on consolidating and rationalizing servers,
storage, and licenses for applications and systems software.
It’s actually possible to proceed through an orderly checklist:
servers and mainframe, desktops and workstations, central
operations, network and local support. Not only do the sav-
ings pile up; the nimbleness of the entire IT organization—its
capacity and its ability to serve business needs in a timely
manner—is greatly enhanced as well.
Outlook 2005, Number 3 75
Information Technology

Nor was it unreasonable for many In some cases, the C-suite has not
IT managers to have been skeptical been sufficiently apprised of the
of infrastructure consolidation business opportunity due to more
exercises, particularly in organiza- parochial disincentives operating
tions with no track record of suc- in the IT management ranks. Infra-
cessfully transforming the business structure consolidations do carry
effectiveness of IT. First, as mid- perceptions of risk—particularly
range computing has evolved from political risk—common to most
attractive option to industry stan- large-scale, far-reaching IT initia-
dard, the conceptual tide (and expe- tives. They can entail job reassign-
rience base) within IT has flowed ments, reducing the size of local
in the opposite direction, away organizations and cultural disloca-
from the center. Second, most enter- tion. They ask IT executives already
prises charge their senior IT execu- concerned about their organiza-
tives primarily with operations tion’s ability to directly manage
management and project delivery. close-at-hand infrastructure to place
Integrated, stakeholder-based finan- confidence in a model in which
cial perspectives are welcome but physical assets may be far removed
not required. or run by someone else.

Measuring the savings


Measuring the savings
In each layer of the infrastructure, there are
are opportunities
opportunities to
to make
make changes
changes that
thatreduce
will will reduce
costs.costs.
TotalTotal IT costs can costs
IT infrastructure be cutcan
by as
be much
cut byasas25 percent.
much as 25 percent.

Infrastructure Example Sample cost-reduction Typical %


layer components opportunities IT cost reduction

Network • LAN/WAN • WAN Migration to IP-VPNs


• Voice/video • Voice/video/data convergence 10-20
• Remote/Internet • Carrier renegotiation/RFP
• Use of managed services

Platforms • Data center • Data center consoilidation


• Legacy systems • Server/storage consolidation 20-35
• Intel/uni servers • Outsourcing/out-tasking
• Storage

Enterprise-enabling • E-mail consolidation • License/maintenance fees


infrastructure • Intranet/KM • Eliminate duplicate services 20-35*
• Middleware/EAI • Corporate data architecture
• Database

Application-enabling • Component frameworks • Component reuse


infrastructure • Application server • Development/training costs 15-25*
• Development environment • Development infrustructure
and tools

Security • Risk assesment • Reduced outages 5-10 **


• Security architecture • Loss prevention
• Enterprise security • Single sign-on
• Managed services

Operations • Performance planning • Contractor rationalization 15-30*


management • High availability • Outsourcing/out-tasking
• Service-level • Reduced outages/downtime
management • Automation

* Additional savings may be recognized in other areas of IT


** Savings may be much higher in terms of loss prevention
SOURCE: ACCENTURE ANALYSIS

76 www.accenture.com/Outlook
Therefore, perhaps the biggest imped- In our marketplace conversations, sitions, and large-scale technology
iment to IT infrastructure rationaliza- we do encounter IT organizations consolidation solutions.
tion is behavioral. This is about turf that understand the benefits of
and about governance—about fear on infrastructure consolidation, but see rockwell.bonecutter@accenture.com
the part of divisional managers and it only as an incrementally imple-
their IT organizations that ceding mented adjunct to their existing dis- D. Neil Gissler is the global managing
control of their servers will under- tributed model. We would suggest partner for the Accenture Data Center
mine their ability to run their opera- market developments have made Technology and Operations practice.
tions. Senior management has been that viewpoint increasingly obsolete. Mr. Gissler, who has more than 18 years'
loath to push such initiatives when experience working with Fortune 500
divisional managers warn that their corporations, has led a large number
ability to deliver on commitments
About the authors of data center rationalization projects
may be jeopardized. Richard M. Melnicoff, a partner in the focusing on server consolidation and
Accenture Strategy service line, leads tiered storage solution implementation,
IT infrastructure rationalization the company's Strategic Information as well as on standardizing operational
can be done, however, and, with Technology Effectiveness (SITE) group processes and tools in the energy,
proper planning, done in a rela- in North America. He has worked utilities and retail industries. He is
tively straightforward and pro- extensively with clients in the high- based in Chicago.
grammatic way. And given the tech, communications, pharmaceuticals
significant earnings-per-share and other industries. In addition to d.neil.gissler@accenture.com
upside, it is well worth the effort. 15 years of consulting, Mr. Melnicoff
Ten years into the mid-range com- has 10 years of industry experience
puting revolution and two to three in executive and marketing roles at
years (by our estimate) into the high-tech companies and IT service
current era of centralized support providers. He is based in San Francisco.
and shared services, we believe
there is a sufficient pool of market- richard.m.melnicoff@accenture.com
tested experience to point to the
right ways to go about this for Marc E. Snyder is a partner in
predictable success. the Accenture SITE group. His work
focuses on IT transformation and
There are reliable contingencies for optimization. He has more than 25
the unexpected, methodologies for years of both domestic and interna-
the proper care of “mission-critical” tional experience helping clients assess,
capabilities, and proven execution plan and implement changes to reposi-
roadmaps. IT organizations can now tion and rationalize IT both pre- and
selectively complement their own post-merger. He is based in Wellesley,
competencies to minimize risk, and Massachusetts.
scale or accelerate their efforts (see
sidebar, page 75). marc.e.snyder@accenture.com

The consolidated view of IT expen- Rockwell Bonecutter, a Columbus,


ditures does bring surprises. In Ohio-based partner, leads the Accenture
some cases, the deep mining out North American Data Center Technolo-
of budget information produces gies practice. With more than 16 years'
the impression that consolidation experience, Mr. Bonecutter has enabled
has actually increased IT costs. In IT business solutions and performed
fact, the “new numbers” are the operational data center assessments for
result of transparency and the sur- several Fortune 100 companies. He is
facing of costs previously buried a recognized leader in the areas of data
in departmental line items across center management, assessing technol-
the enterprise. ogy impact for IT mergers and acqui-
Outlook 2005, Number 3 77