Gartner Offers Cost-Cutting Tips For Midsize CIOs

Midsize companies should look at creating cost-cutting teams, pay more attention to reducing maintenance support costs and reduce their networking spending, said Terrence Cosgrove, senior research analyst at Gartner, during a breakout session titled "System Management on an IT Budget" at Everything Channel's Midsize Enterprise Summit in Miami.

Reducing enterprise costs is the second most important business expectation for midsize companies this year, according to Gartner's 2009 survey of 1,500 midsize CIOs.

In a sign of how the economy has changed CIOs' priorities, reducing enterprise costs finished as only the ninth most important expectation in last year's survey, according to Gartner.

Meanwhile, reducing the cost of IT was the third most important CIO strategy in 2009 and it didn't even finish in the top 10 last year.

"A CIO thinks IT has to do everything better, faster, cheaper and become more aligned with the business. The concept of doing more with less has been the anthem of IT operations for the last 10 to 15 years. What's unique now is that fiscal constraints are so much greater and pressure from business is so much stronger. It puts you in the position that IT has to change its way of thinking with respect to infrastructure and operations," said Cosgrove, who laid out tips to help IT organizations lower their costs.

The most important business expectation for midsize companies was improving business processes, but was not a focus of Cosgrove's talk.

Cosgrove detailed several ways that midsize companies can contain costs. To start, organizations should create cost-cutting teams that include representation from all major platforms -- PCs, servers, networking, storage, as well as a financially qualified professional, Cosgrove said.

"A finance person will help because sometimes if you reduce costs in one area, you can increase costs somewhere else. We also recommend someone with a legal background, especially for renegotiated contracts," Cosgrove said.

Reducing hardware maintenance costs can save money through a number of means, Cosgrove said. Gartner has found that the cost of hardware maintenance has increased 5.5 percent over the last year, but the providers' ability to meet service-level commitments has decreased 4.5 percent.

"A lot of clients find support cheaper on a time and materials basis than a subscription," Cosgrove said. He cited one example of a midsize company that saved $10,000 per year by discontinuing maintenance on four-year-old switches, scanners and some printers. The company moved from a 24x7 support contract to a 9-to-5 maintenance window, he added.

Next: Networking Ripe With Savings Opportunities

Networking, which represents 10 to 30 percent of IT spending, is ripe with cost-cutting opportunities, Cosgrove said.

"Moving from frame relay to an IP-based backbone system like VPN will save a lot of money. One midmarket company cut their WAN [costs] by 30 percent by moving to broadband VPN," he said. "Also, make networking contracts more competitive. One of our clients, a health-care company, cut their phone costs from $45,000 per month to $23,000 per month by opening their renewal to multiple telecom carriers. Even if you have no intention of moving away from your provider, we recommend opening it up to make it more competitive," he said.

Another cost-cutting measure currently employed by many midsize companies is virtualization. Still, Cosgrove points out, most organizations can do more in that area. At last year's MES shows, Gartner ran a survey that found that 64 percent of servers in attendees' IT environments were still physical. There are three issues critical to virtualization success, he said: controlling sprawl (even "VM-sprawl" Cosgrove said), improved ISV licensing and training.

"There's a wide variance around what ISVs will support in a virtual environment. Eventually, ISVs will figure out a way to monetize it to run in a virtual environment, but it's very inconsistent today," Cosgrove said.

CIOs also should understand the total cost of IT support, which can be eye opening, Cosgrove said. For example, it costs between $12 and $20 for a Level 1 call center contact, but moving to a self-service model can reduce that amount to $2 to $10, he said.

"Most organizations are at 65 percent first-contact resolution. We think 75 percent to 80 percent is good. A one percent increase in first-contact resolution represents a 0.64 percent increase in customer satisfaction," Cosgrove said.

Finally, Cosgrove also advised that midsize companies hold off on moving to Office 2007 because Office 14 will be available in the middle of next year. "Office 2003 will still be supported for the next five years. You're in a really good position to see what Office 14 is like," he said. The cost to migrate from Office 2003 to 2007 is between $900 and $1,600 per user, he added.

Most midsize companies also won't see true cost savings by moving to OpenOffice.org or Google Docs because too many users will still need Microsoft Office, he said. "We don't recommend moving to OpenOffice.org unless you're absolutely sure your works don't need Microsoft Office," he said.