5 Cost-Saving Tactics 80% of CIOs Don’t Know About

Don’t think hardware maintenance is a strategic decision? Here’s why you’re wrong.

The fundamental challenge in IT is balancing investment in functions that “keep the lights on” with strategic projects that grow and improve the business.

Columbia Business School professor Rita Gunther McGrath argues that about 50 percent of IT budget should be spent on innovation, but the vast majority of CIOs are falling far short in this regard.

A Forrester Research survey found that 72 percent of IT budget, on average, goes to Core IT functions. Other estimates are higher, with upwards of 80 percent of funds allocated for mundane things like file restoration and systems rehabs.

This situation was of less concern when lines of business had no option but to seek IT’s assistance in achieving their every technical desire. With the emergence of cloud offerings, however, Shadow IT is undermining the CIO to a disturbing extent.

Widely reported are Gartner’s predictions that by 2020, 90 percent of IT budgets will be controlled outside of IT. Just as bad is CEB’s forecast that IT departments will shrink by as much as 75 percent over the same period.

CIOs are battling for relevance amidst a self-perpetuating cycle. As IT fails to make the lines of business happy, investment moves into the shadows, leaving IT increasingly hamstrung. Unless extra budget is granted—and usually, it is not—CIOs must find another way to secure funds to make Fast IT happen.

Against this backdrop, incremental savings in IT expenditure are of incredible value. CIOs who achieve even a small shift in funding from Core IT to Fast IT can expect significant competitive and career advantage.

Third party maintenance of IT hardware is one of few flip-of-a-switch changes available to achieve this goal. In fact, finding the right IT maintenance partner reaps benefits in five different ways.

#1 Achieving a Perfect Match between Hardware Lifespan and Refresh Rate

To extrapolate implications from an obvious statement, consider that original equipment manufacturers (OEMs) are in the business of making and selling hardware—of course. Sexy equipment gains new customers and sales results move the needle on stock price.

Support contracts are a sideline, a high margin one but not the focus of any OEM. Maintenance coverage is there to support the sale of new systems, and contracts are structured accordingly.

Take this line of thought to its logical conclusion and it means OEMs behave in direct opposition to customers’ best interests. They strategically overprice post-warranty support to make new, warrantied hardware appear more financially alluring. Unless customers look beyond the manufacturer, they are left to choose the lesser of two unattractive evils:

  • Upgrade equipment before it reaches the end of its useful lifespan just to avoid the exorbitant OEM support costs; or
  • Continue to pay a high price for OEM support for years to ensure a reasonable ROI on the hardware investment.

Forcing CIOs into such a lose-lose corner has been an OEM coup. When the average useful lifespan for hardware ranges from seven to 10 years but the average refresh cycle is three to five years, it is clear customers are sending some 50 percent or more of their hardware value—and often millions of dollars—straight out the door with every upgrade.

Indications are IT leaders realize they are being outmaneuvered. Among CIOs, 85 percent would like keep legacy hardware for longer. But 80 percent don’t realize there is an alternative to expensive OEM support.

CIOs in the know can, therefore, beat the competition simply by working with a quality third party maintenance provider. Unlike the OEMs, these alternative companies do not use support contracts to recoup R&D costs or to compel hardware purchases. As a result, their maintenance services are generally priced 30 percent to as much as 70 percent lower than OEMs’ post-warranty contracts.

This gives CIOs something most have never had before—the power to rework their refresh cycles to match the useful lifespan of their hardware. In doing so, they cut capital expenditures and finally squeeze every dollar of ROI out of existing IT investments.

BOTTOM LINE: Third party maintenance puts an end to overpriced support contracts and unnecessary hardware upgrades.

#2 Eliminating Some Risky Business

Take those old records off the shelf—and smash them if you still think working with a third party maintenance provider is risky.

Not so. Working without one is fraught with far greater chance of catastrophe—yet many CIOs feel they are left with no alternative. For the 80 percent of IT leaders unaware of third party maintenance, choices boil down to OEM support or nothing at all.

CIOs can be forgiven for occasionally keeping legacy equipment in service without the backing of a maintenance contract. Given the prices OEMs charge for extended support and their habit of declaring end of support life, sometimes going contract-free appears to be the only cost-effective way to keep needed legacy equipment.

Unfortunately, the move comes with substantial risk. It can be difficult to maintain an independent parts inventory in case of component failure. Even harder is retaining systems and network administrators with robust knowledge of every piece of hardware in the environment. All too often, complex problems arise and the individual with the best understanding of the affected gear is no longer with the company.

The lack of parts, personnel, or both can lead to extended downtime, which itself costs the business. And if a resolution cannot be achieved, IT is left to attempt expensive solutions, purchasing overpriced parts wherever they can be found, hiring experts on the fly, throwing internal resources at the problem until it is solved, or scrapping the system and making an emergency purchase.

None of this will help CIOs achieve their budget goals, but there is a third way. By using an alternative provider, CIOs gain a long-term support commitment to the hardware, enhance risk avoidance, and save money on maintenance contracts.

Features likely to appeal to the risk-averse include:

  • Preventative maintenance and systems health checks to reduce downtime and service calls
  • Remote monitoring to keep expert eyes on systems at all times—and prompt an intervention at the earliest sign of trouble
  • Immediate response to support calls without an escalation procedure or severity level-based waiting period
  • A local account engineer with experience supporting the same variety of hardware, software and firmware that is in the client environment
  • On-site and/or locally stocked spare parts, all quality certified

BOTTOM LINE: Third party maintenance reduces the risk of downtime and its costly impacts.

#3 Bringing a Welcome End to the Contract Juggling Act

Few IT organizations buy everything from a single vendor. Most use hardware from a number of different OEMs—which means managing a multitude of OEM support contracts.

But every additional contract means more complexity and greater overhead devoted to negotiating terms, setting SLAs, monitoring renewals, and making sure coverage matches the equipment actually on the floor.

CIOs can stop juggling. Third party maintenance providers with multi-vendor support capabilities can put everything under one agreement. That means there is a single document to look to for every coverage detail, a single renewal date to mark on the calendar, and a single point of contact to make when a piece of the environment changes.

And those are just the benefits in procurement. Things get even better when it comes to service calls.

With third party maintenance, internal staff no longer needs to waste time figuring out what the particular OEM covers and how their process works. A single call to a familiar organization gets troubleshooting started right away.

Third party maintenance also ends the finger-pointing among OEM engineers when a problem involves integrated systems. Rather than worrying about which product acted up and trying to shift blame to a different vendor, third party maintenance engineers simply identify the issue and fix it.

The end result is quicker problem resolution, less downtime, and more staff resources available for other purposes.

BOTTOM LINE: Third party maintenance eliminates the time and attention spent managing multiple contracts and simplifies problem resolution, which reduces downtime and staff resource wastage.

#4 Enjoying 32 Support Flavors and Then Some

Customization can be beneficial. Yes, CIOs often cringe at the word after years of watching budgets creep up every time a line of business requests another “small tweak” to out-of-the-box applications. With hardware support, however, customizing coverage to IT’s specific needs can substantially reduce costs, and third party maintenance providers are more flexible than the OEMs in this regard.

Most OEMs offer support in only a few flavors. Usually that’s a basic vanilla package, a budget-busting premium service, and a mid-level option that isn’t the compromise position the customer is actually seeking.

Third party maintenance providers are a veritable Baskin Robbins by comparison. Most companies will offer the ability to tailor individual service selections. The IT organizations can, therefore, stop paying for features they don’t want and won’t use.

The customization process happens on an array-by-array, server-by-server, switch-by-switch basis across the infrastructure, supplying maximum control over spending. And the single contract means it’s easy to alter coverage when elements of the environment change, so IT is less likely to ride out an existing agreement rather than go through the hassle of updating it.

While they may seem like small points, fine-grained adjustments to coverage on each piece of equipment, along with support that evolves alongside the data center, add up to major savings.

BOTTOM LINE: Third party maintenance eliminates the costs of unwanted support features and out-of-date coverage.

#5 Getting the Real Story

When most information about system lifespan and new hardware selection is coming from the OEM, CIOs are at a distinct disadvantage. The OEM will almost always say a new piece of hardware is a better solution than what’s in place, and they’ll work hard to sell the most tricked-out product in the line-up. This can lead to overspending.

Third party maintenance providers provide a helpful counterbalance. Knowledgeable engineers can assist in evaluating how well existing hardware handles current workloads and charting when an upgrade would be prudent. They can also recommend solutions, such a virtualization, to extract additional value from older systems and devise hand-me-down strategies to shift mission critical hardware to lab, remote office, and disaster recovery operations.

When it comes time to replace, TPMs can also help navigate a full range of options, from the latest and greatest products to the slightly older but still sufficient. With this input, CIOs can find where budget and requirements overlap.

This unbiased input supplied generally results in longer hardware lifespans and less spending on replacement systems.

BOTTOM LINE: Third party maintenance recoups lost ROI in paid-for hardware systems and halts overspending on replacements.

The Third Party Maintenance Math

How do these five sources of savings add up to competitive advantage for your IT department? Consider the budget devoted to maintenance functions and imagine reallocating a significant percentage of the funds currently going to:

  • Downtime-related impacts
  • Post-warranty support costs
  • Hardware upgrade investments
  • Maintenance-focused staffing expenditures
  • Administrative costs of contract management

While you’re at it, go ahead and add the soft benefits, the convenience of single-contact, single-contract support, the peace of mind of 100% component coverage and expert engineering assistance, and the extra breathing room come budget time.

When you’ve completed the analysis, it will be clear why leading CIOs are using third party maintenance to strategically reduce Core IT costs and shift investment to Fast IT.

Because it works.

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