I had the pleasure to recently sit down with Robin Purohit, vice president and general manager for HP Software and Solutions, to examine how CIOs are managing their IT budgets for 2010. During the economic recovery, the cost-containment conundrum of “do more for less” — that is, while still supporting all of your business requirements — is likely to remain the norm.
So this discussion centers on how CIOs are grappling with implementing the best methods for higher cost optimization in IT spending, while also seeking the means to improve innovation and business results. The interview coincides with HP’s announcements this week at Software Universe in Germany on fast-tracks to safer cloud computing.
“Every CIO needs to be extremely prepared to defend their spend on what they are doing and to make sure they have a great operational cost structure that compares to the best in their industry,” says Purohit.
The 25-minute interview is conducted by me, Dana Gardner, principal analyst at Interarbor Solutions.
Listen to the podcast (25:02 minutes).
Here are some excerpts:
Robin Purohit: Well, just about every CIO I’ve talked to right now is in the middle of planning their next year’s budget. Actually, it’s probably better to say preparing for the negotiation for next year’s budget. There are a couple of things.
The good news is that this budget cycle doesn’t look like last year’s. Last year’s was very tough, because the financial collapse really was a surprise to many companies, and it required people to very quickly constrain their capital spend, their OPEX spend, and just turn the taps off pretty quickly. …
[Now] they need to be able to prepare to make a few big bets, because the reality is that the smartest companies out there are using this downturn as an advantage to make some forward looking strategic bets. If you don’t do that now, the chances are that, two years from now, your company could be in a pretty bad position. …
There are a couple of pretty important things to get done. The first is to have an extremely good view of the capital you have, and where it is in the capital cycle. Getting all of that information that is timely, accurate, and at your fingertips, so you can enter the planning cycle, is extraordinarily important and fundamental.
When you are going to deploy new capital, always make sure that it’s going to be able to be maintained and sustained in the lowest-cost way. The way we phrase this is, “Today’s innovation is tomorrow’s operating cost.”
When you do refresh, there are some great new ways of actually using capital on server storage and networking that’s at a much lower cost structure, and much easier to operate, than the systems we had three or four years ago.
In the past, we’ve seen mistakes made, where people deployed new capital without really thinking how they were going to drive the long-term cost structure down in operating that new capital.
This is where we really see an opportunity: To help customers put in place IT financial management solutions, which are not just planning tools — not just understanding what you have — but essentially a real-time financial analytic application that is timely and accurate as an enterprise resource planning (ERP) system, or a business intelligence (BI) system that’s supporting the company’s business process.
New Business Agenda
Companies want to see the CIOs use capital to support the most important business initiatives they have, and usually they are associated with revenue growth, by expanding the sales force, and new business units, some competitive program, or eventually a new e-commerce presence.
It’s imperative that the CIO shows as much as possible that they’re applying capital to things that clearly align with driving one of those new business agendas that’s going to help the company over the next three years.
Now, in terms of how you do that, it’s making sure that the capital spend that you have, that everything in the data center you have, is supporting a top business priority. It’s the most important thing you can do.
One thing that won’t change is that demand from the business will all of a sudden strip your supply of capital and labor. What you can do is make sure that every person you have, every piece of equipment you have, every decision you are making, is in the context of something that is supporting an immediate business need or a key element of business operation.
There are lots of opportunities to be disciplined in assessing your organization, both in how you spend capital, how you use your capital, and what your people are working on. I wouldn’t call it waste, but I would call it just a better discipline and whether what you’re doing truly is business critical or not.
If you don’t get the people and process right, then new technologies, like virtualization or blade systems, are just going to cause more headaches downstream, because those things are fantastic ways of saving capital today. Those are the latest and greatest technologies. Four or five years ago, it was Linux and Windows Server.
It also means there are more things and more new things to manage. If you don’t have extremely disciplined processes that are automated, and if you don’t have all of your team with one play book on what those processes are, and making sure that there is a collaborative way for them to work on those processes, and which is as automated as possible, your operating costs are just going to increase as you embrace the new technologies that lower your capital. You’ve got to do both at the same time.
Say that you’re a new CIO coming to organization and you see a lack of standardization, a lack of centers of excellence, and a lot of growth through merger and acquisition, there is a ton of opportunity to take out operating cost.
The Right Governance
We’ve seen customers generally take out 5 to 10 percent, when a new CIO comes on board, rationalizes everything that’s being done, and introduces rigorous standardization. That’s a quick win, but it’s really there for companies that have been probably a little earlier in the maturity cycle of how they run IT.
A couple of new things that are possible now with the outsourcing model and the cloud model — whether you want to call it cloud or Software as a Service (SaaS) — is that there’s an incredibly rich marketplace of boutique service shops and boutique technology providers that can provide you either knowledge or technology services on-demand for a particular part of your IT organization.
The cost structures associated with running Infrastructure as a Service (IaaS) are so dramatically lower and are very compelling, so if you can find a trusted provider for that, cloud computing allows you to move at least markets that are lower risk to experiment with those kind of new techniques.
The other nice thing we like about cloud computing is that there is at least a perception that is going to be pretty nimble, which means that you’ll be able to move services in and out of your firewall, depending on where the need is, or how much demand you have.
Dana Gardner is president and principal analyst at Interarbor Solutions, which tracks trends, delivers forecasts and interprets the competitive landscape of enterprise applications and software infrastructure markets for clients. He also produces BriefingsDirect sponsored podcasts. Follow Dana Gardner on Twitter. Disclosure: HP sponsored this podcast.