Reduce Information Technology Complexity, Costs with Consolidation

Redundancy kills when it comes to IT: It can add waste while snuffing out opportunities to innovate. Think of redundant ERP installations. Extra data processes. More applications to manage than are necessary. They all add up to uncontrolled costs that can hamper an IT organization’s ability to maximize IT’s potential, according to a recently released research paper by Forrester Research.

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The remedy is IT consolidation, which creates cost savings and organizational benefits. Lead author Alexander Peters and coauthors say there are three basic approaches to IT consolidation: standardizing applications and business processes, centrally locating resources and staff and eliminating redundant hardware systems and software packages.

Standardization. This approach makes assets and processes look alike—for example, creating and distributing standard desktop images or implementing a unified set of systems tools and processes across the enterprise—and leads to simplification and risk reduction. The result is typically a 3 percent to 7 percent savings of baseline costs (the total cost to acquire and operate a computing system over its planned lifetime).

Centrally located resources. In this approach, equipment, applications, facilities, staff and other appropriate resources are moved together. Examples include moving scattered smaller data centers to a central corporate center and moving staff to a center of excellence. Relocating fragmented IT functions may save about a 5 percent to 10 percent on baseline costs through efficiencies and economies of scale. However, capital investments for moving facilities and staff, upgrading the infrastructure and project management are usually high.

Eliminating redundant capabilities. Cutting redundant capabilities such as hardware, software, and duplicate staff functions is the most difficult approach. Reducing redundancies can be painful and expensive, particularly for those related to staff reductions. This approach reduces costs and risks and has a potential savings of 25 percent.

Peters writes that IT organization consolidations—despite their potential savings—require capital investments that may reach 10 percent to 25 percent of the IT budget, or possibly more in some cases. To reap the potential savings, IT must: plan consolidation as a strategic initiative; use functions that can be resourced, monitored, measured and charged for as a framework to guide consolidation; and manage consolidation as an IT transformation program. To read more on the report, see “Best Practices: Adopt the Discipline of Consolidation.”