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$78 Billion. What does that number represent to you?
If you are the Federal Government, that number represents your fiscal year 2010 spend on supporting your IT assets. The government’s costs of operating its IT infrastructure are higher than it needs to be—in some cases by more than a factor of two. At least 20-30 percent of that spending could be eliminated by reducing IT overhead, consolidating data centers, eliminating redundant networks, and standardizing applications.
IBM had a similar problem a decade ago. We were a operating a fragmented and clunky IT infrastructure that was hindering our financial and strategic growth. Over ten years, from 1998 to 2007, we cut our IT expenses as a percent of revenue in half, from nearly 7% to 3.4%. Here is how we did it:
(1) Reduced data centers from 155 to five
(2) Consolidated 80 web hosting centers to six
(3) Consolidated 31 networks into one
(4) Went from 16,000 applications to fewer than 5,000
Within four years, IBM reduced its total IT expenses by 54%. The benefits of optimization include significant cost savings, improved IT flexibility and performance, and improved business flexibility.
It’s not just IBM that recognizes that IT infrastructure consolidation is a source of significant savings for the federal government. Recently, the Technology CEO Council (Chaired by IBM’s Sam Palmisano) released a report that highlighted the potential for IT savings. The Federal Government’s own Chief Information Officer, Vivek Kundra, and OMB Deputy Director, Jeffrey Zients, have spoken of the need for more efficient allocation of IT resources and consolidation of sprawling IT infrastructure.
Some departments and agencies have already started to realize savings.
The Office of Management in Budget late last year announced that – after a decade of effort – 26 federal payroll systems had been consolidated into four systems used by nearly all agencies, for a projected 10 year savings of $1.1 billion. The four providers are:
It has been our experience, (and verified by the Gartner Group) that these types of efforts generally deliver a 20-30 percent reduction in costs. Achieving sustainable cost savings across the government will require a new approach to the management of IT infrastructure, applications, management, and support. In addition to achieving cost savings, rationalizing the use of IT can have profound positive business impacts and enable improved long-term performance and efficiency.
Over the next week we will be diving deeper into some IT Infrastructure themes including data center consolidation and cloud computing. Please be sure to check back and provide your thoughts and comments to the discussion.
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David Abel is Vice President and Partner with IBM Global Business Services for Public Sector Systems Integration. In this role, he leads an organization which develops solutions and systems addressing client needs across the Federal government, State & Local government, healthcare and education industries.