How to cut 70 percent of your IT budget in one year

78 Comments

I’m not the first to jump on the latest technology. Even after working in high-tech for more than 20 years, I am still a late adopter. But if you can prove to me that a new technology will save me or my company money, I’ll make the switch in an instant.

In 2008 the company I work for, Precise (a developer of application performance management systems), was spun out of its parent company Symantec and into a private company. Suddenly, we had 1,000 customers to support, and a limited IT department. Symantec offered to sell us licenses for SAP and other enterprise software packages that we had been using. But in our new structure, we needed applications that were scaled down and easier to support. We ditched the world of licensed software and annual commitments to large capital expenses on equipment — the traditional way of doing IT — in favor of cloud, SaaS and virtualization.

As a midsize company with more than 200 employees, it was a tectonic shift. But after a year-long migration of our IT infrastructure and applications to the cloud, we shaved more than $2 million, or 70 percent, from our annual IT budget. Here’s how we did it.

Our first priority was to find a solution to support our customers, so we chose Salesforce and NetSuite for the front and back-office solutions. It took a single data analyst a mere five hours to migrate all of our data from SAP to the new systems. For customer support, we chose Drupal and for marketing we chose Marketo — both of which were seamlessly integrated using WebSphere Cast Iron Cloud Integration.

Next up, we had to deal with the Microsoft Exchange servers that we’d inherited from Symantec. Microsoft Exchange can be a bear to support with a slim staff, so we opted for Google Mail instead. The e-mail migration took about five days, and later we also moved from Microsoft SharePoint to Google Sites for collaboration. The cool thing is, employees don’t have to do everything on Google. They can still access their favorite Microsoft Office applications, such as Excel, or use Outlook front-end if they wish.

We also went through a major server virtualization project in engineering — chopping off about 60 percent of our server expenses — and switched to AT&T fiber for networking and adopted VoIP for telephony.

None of the technologies that I’ve mentioned are new or even groundbreaking. But the fact that we could adopt all of them in a short period of time, integrate them using a single data analyst and realize such financial benefits is astounding. Even five years ago, small and midsize companies couldn’t afford state-of-the-art technologies to run their businesses. That’s all changed — and the playing field for IT sophistication has leveled out.

Not only is using newer, Web technologies more affordable, but they’re also more reliable. That’s been the case at Precise, at least. We haven’t had any issues from moving to a SaaS environment. We didn’t spend a bunch of money on hordes of consultants to get everything in place. It really was that simple. I give credit to our former IT director, Sharon Cohen, for choosing the right strategy and the right partners — that’s key.

Our transition to the cloud means that today we spend less time managing all the plumbing and more time working on our own products. We’re even looking at deploying cloud-based systems for R & D. And let’s not forget, we are saving more than $2 million per year. That’s the kind of money companies of our size, which comprise the bulk of the U.S. economy, can really put to good use. We can use those savings to hire strategic new employees or bring new features and services to our customers. For midsize companies, there’s no doubt:  rip out your on-premise software apps, go SaaS and adopt the cloud across the board.

Zohar Gilad is the executive vice president at Precise, a developer of application performance management systems. Before joining Precise, Zohar held senior executive positions at Mercury Interactive, which was acquired by HP in 2006.  

Image courtesy of Flickr user AndyFitz.

78 Comments

Brian Coverstone

Wow, sounds like this company was so bloated to begin with, anything done would have saved money.

I work for a company with around 100 employees and support about 10,000 external users, and we spend a TOTAL of about $500,000 a year on IT. That is a mere 1/6th of this company’s budget. And we have been nothing but state of the art for almost 10 years.

We have created our own “cloud” for our customers at this cost. Plus our SLA is higher than most standard clouds at 99.99%.

It can be done.

Moty

Great article.
If you also combine this with refurbished hardware you are even better of. Every workstation, laptop server and communication is much cheaper this way. http://www.alltrade.co.il is a possible partner I recommend.

YaRight

If you any IT employees who are actually IT people. Outsourcing to whoever, whereever, on whatever is a bad move. No matter what a sale person sells you the person is disconnected with his\her IT staff. Build your own team and infrastructure. I didn’t even bother reading the article. The heading is too good to be true. I got a $3000 watch I can sell to you for $200 bucks. Its a better deal.

Greg Tellone

I agree the cloud has lowered IT costs. We’ve also seen it open time for CIOs to deal with more business strategy and less day-to-day data support. Choosing to implement a cloud backup/disaster recovery solution alone saves SMBs billions a year when outages happen. @continuitycentr

Bram

Ah, right. I guess, mr. Gilad, you also did research who owns your data now?
Who can have a look at your company data, whenever they want?
And of course, you’ve also taken that since these cloud services are so big, they are very interesting for and under regular espionage attacks from foreign governments? And that these governments actually use the information they obtain? (see wikileaks for examples).
If you have taken that into account, and have said ‘yes’ to the extra risks, I guess the savings were worth it.
But I have to say, you make it sound much easier and way less risk full than it is. Companies need to do proper research and risk assessment before they move their data (which, for many companies is their most valuable asset) onto someone else’s servers.

Scott

The claim that a data analyst migrated SAP to Saleforce in 5 days is beyond ridiculous to the point where your credibility and competence should be questioned.

Gull1bl3

Shave 2 million now and pay through the nose later.

Once you are a captive customer with no longer the skills to administer servers … the once dirt cheap cloud will be dark and over you head.

Enjoy now but be ready to go back to inhouse IT. The mainframe story is just a hint … cheap at on stage IBM is now cashing in on idiots that could not migrate their apps back.

Bill Miller

To add to the savings, utility providers offer rebates to companies for hosted virtual desktops on a monthly, per user, subscription basis. It makes no sense for a company to buy IT assets anymore when solutions are here that are more secure, enable greater mobility, and are more efficient while saving around $600 a year per computer.

Larry Velez

Zohar, we are the IT department for many companies between 10 and 200 employees. We are moving them in this direction all the time. The key thing that I think you had at your company was complete buy in from the management team and clear direction to the entire company that “this is the direction we are going in” and if anyone is not ready to fully embrace this direction, then they might not be in sync with the company’s goals. This is much easier at a just-spun-out company but can be done at an established company. The only times we have seen a cloud-centric roadmap not succeed at a company is when it is not made crystal clear to every employee that this change is critical to the company’s goals and that there is no turning back and that anyone who is not going in the same direction as the company needs to speed up right away and express their concerns.

I think not enough companies give IT the respect your team gave it and it shows in your results and in the bottom line.

Jay

I have questions about the claims of “shaving 70% of our IT budget”, since no actual budget data was offered. Did the savings come simply from reduced licensing and maintenance, or did you fire all of your technical staff, since one data analyst can do it all? It seems telling that you no longer employ your IT director who did such a great job for you.

Bub

LOL What a joke. So, 70 “savings” (in the first year!) is the NET savings? No way. Replace a lot of top-tier apps with completely non-comparable junk, sign up for never ending monthly and yearly subscriptions, and lose all control over troubleshooting. Great idea.

Gytis Liutkus

“It took a single data analyst a mere five hours to migrate all of our data from SAP to the new systems.” — very very very very hard to believe

Gal

Q: Why a marketing guy would tell an IT story?
A: Because they sell cloud services.
So shallow and pathetic

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Alyssa

Good article! For small businesses the Cloud is a great tool that we should be leveraging. Our company just migrated to Office365 ourselves and so far the move has been great, I am not sure how comparable it is to the Google apps, but thanks for sharing your experience!

Kasper Hovgaard

The main reason why a lot of both private and public customers are unable to move to pulic cloud based solutions is in fact: Legislation. At least in many European countries any company dealing with data that contains personal/sensitive information is only allowed to use private clouds, because they have to be able to account for: Who has access to the data? Where exactly the data are stored? Google or any other public cloud can’t provide those answers, so that is actually why public clouds aren’t an option for the time being. At least not as long as long as the legislation remains the same… That’s a goldmine for Microsoft obviously, and I wish things were different.

Siddhartha SenGupta

Agree with Joe Wood. Zohar Gilad, where is your e.g. 5-yr cash flow projection? If you transfer CapEx to OpEx, first year you would certainly be making merry. In any case, what is the % of IT expenses to total expenses in your company? If in the range of 5%-10%, you are saving 3.5%-7% Qr1 Yr1. Will be delighted to hear of figs for Qr2 onwards for assets, liabilities & OpEx off your balance sheets. Does IT find a mention in your Qly & Annual figs?

Grant

Saving $2mil per year which is 70% of the previous IT budget. That is $2.7mil for around 200 staff $14285/staff/year. I have 120 staff and have spent around $50K on IT and Telephony this year. We are EMC\VMware\MS partners running an Office365 trial but I reckon I could save $2mil doesn’t matter what I did

Dee

Good job on the technical article. I came to read about 70% cost savings, but all I got was a list of technology implemented. Where is the cost savings? Like the guy above said, time value of money. What is the cost savings in 5 years. In which areas did you save costs? Was it cost savings or cost deferral? And what SAP systems was it and how did it only take 5 days to migrate when other companies spend months migrating data? How did you deal with change management/project management? ERP/SCM etc… I know most people just write in a rush but a comprehensive, coherent, contextual, and concise article would really help the readers better understand your story.

Dee Mane

Good job on the technical article. I came to read about cost savings, but all I got was a list of technology implemented. Where is the cost savings? Like the guy above said, time value of money. What is the cost savings in 5 years. In which areas did you save costs? Was it cost savings or cost deferrals? Please rewrite/repost…. Maybe get your accountant to help you come up with the numbers.

Paul

Also missing: Up front costs. You might be saving $2M/year (though realizing 70% savings by moving to the cloud seems dubious), but what did it cost you to get there?

Darren Cohen

I am glad the data went so easy over to your new CRM in “just five hours”. However, how many hours of training, and work slowdowns were caused by this quick changeover? I have my business on Salesforce, not knocking the service. However, let’s be honest here any change like that in a company of decent size takes considerable training time. The same goes for your migration of Exchange to Google Apps. While us computer types prefer this, those that are used to Outlook and scheduling their meetings etc like that for years are going to have quite a learning curve. Why not use a hosted exchange service like Intermedia or even Office 365?

I also am hesitant to use cloud services for data storage, and I relay that to my clients as well. First of all speed of access is a concern, but secondly the way laws are changing everyday I would not trust my corporate data to a cloud provider. My choice is to backup in house file servers to the cloud instead as a backup solution only. Basically the new tape storage.

Aram B.

Isn’t SFDC and NetSuite both CRM systems? I didn’t realize Drupal (content management platform) also offered customer service apps? Or, is it used as a community site. Why wouldn’t you use SFDC module to track and manage customer service as well?

SMB5657

I have to comment on what precipitated the need to switch. It had nothing to do with cloud vs traditional licensing. It was a decision a freshman business major could make. Let’s see build a huge complicated IT infrastructure or consolidate into a service oriented architecture and pay as you go. It’s strictly a numbers game when your business is forced to operate as a new start up. My experience comes from the service bureau environment, providing back end billing services for cable, Direct Broadcast Satellite, credit card and telephony businesses where our customers came and went based on the “newest” provider in the space. Could be an in house solution or another service bureau product. It simply comes down to dollars and timing.

Carol-Anne Welsh

Without an actual breakdown of cost savings, the article pays lip service to what we are all having drummed into us, that IT costs are cut by adopting the cloud. I have looked into going to the cloud for my firm, I have yet to receive a competitive quote. Also, in my line of business our client’s data must be secure and hosted within the EU – google cannot provide these assurances.

Grant

No mention of desktop virtualization? The savings could be even greater by using a virtual desktop solution like @v3systems…

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