Reaching Deeper for Savings

You may be able to squeeze more out of your IT budget than you realize.

You’ve outsourced, you’ve consolidated data centers, you’ve decided that the usual three-year PC refresh cycle can be stretched to four years. All well and good, but what else can you do?

“Given the current economic climate, you have to be willing to think a little bit differently about things,” says Joanne Kossuth, vice president for operations and chief information officer at the Franklin W. Olin College of Engineering in Needham, Massachusetts.

Although IT departments continue to apply proven cost-cutting approaches, here are seven relatively new and innovative techniques that CIOs such as Kossuth are using to shrink their tech-related spending.

Offshore Insourcing

Instead of hiring third-party offshoring firms to develop software or handle other IT tasks, some companies, such as BlueStar Energy Services, are continuing to do the work themselves, but far away. They are creating foreign IT subsidiaries that tap into the same highly skilled, lower-wage technicians that the offshoring giants have based their business models on.

In 2006, BlueStar began to replace the bulk of its IT infrastructure with open-source technologies and to shift development work overseas. After weighing the options in Brazil, China, Ukraine, and elsewhere, it decided on Lima, Peru, based in part on real estate costs and infrastructure reliability, not to mention the chance to tap into a highly skilled IT labor pool at roughly a third of the cost of U.S.-based employees.

While that approach may sound out of reach for all but the largest companies, BlueStar was able to go global for very little money, and now reaps substantial rewards. For less than its initially budgeted $70,000 in start-up costs, the company was able to bring on a project team of seven developers, train them in the company’s software methodology, and open a facility with high-speed communications links. The facility grew to 20 people by the end of 2007 and now boasts a 51-person crew — for a monthly expense of $110,000.

“From a financial perspective, this talent is extraordinarily competitive in terms of ROI,” says BlueStar Energy CFO and executive vice president Robert G. Ferlmann. “We have found that the investment made in this group has resulted in greater performance throughout the entire company.”

In developing the wholly-owned subsidiary BlueStar Energy Services S.A.C., BlueStar has saved millions of dollars in real-estate and labor costs compared with opening a U.S.-based development facility, says Tom Keen, BlueStar’s chief technology officer. In addition, he believes the systems that have been developed to support the company’s NextStar e-commerce and billing engine have helped differentiate it from other energy providers.

Another bonus: the Lima staff is in the same time zone as Keen’s Chicago IT team of 12. “There’s something to be said for being able to pick up the phone and not have the person on the other end be half asleep,” says Keen.

A New Approach to Shared Services

Many large companies are “trapped” by the high fixed costs of hardware, software, and network equipment investments used to run their IT operations, says Gartner senior adviser Howard Rubin. As one all-too-conspicuous example, Rubin points to big investment banks, which invested tens of millions of dollars to add servers and storage during boom times, only to see utilization rates for these machines plunge as business dried up.


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