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Managing the changing costs of hybrid IT

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Managing the changing costs of hybrid IT

Quentene Finnegan | Senior Vice President, Global Head of Consulting Services, Dimension Data

Quentene Finnegan | Senior Vice President, Global Head of Consulting Services, Dimension Data

The muddy waters are getting muddier

Most organisations don’t really understand their IT costs. They understand IT budgets and line items, but they don’t take other costs like overhead allocation, HR and training costs, and process change costs into consideration.

This lack of clarity is getting cloudier. Now that every mature organisation’s IT is actually hybrid IT, costs are even more complex and unclear.

Hybrid IT makes it harder to get a true picture of costs, and the cost structures it brings are so different from traditional IT, that it’s almost impossible to get a like for like comparison.

Trying to track shifting costs

Physical equipment
With hybrid IT, you can expect some costs, like physical equipment purchase, to fall. You can coincide moving a workload to the cloud with the end of life of some physical equipment to avoid the capital cost of refresh.

Cloud services
You should expect the cost of cloud services to rise, especially as lines of business make their own shadow IT purchases – and they might not have included support, management, and security costs in their business case.

Networking
As organisations access more services remotely, networking costs rise. You can mitigate this by optimising your mix of connectivity. But hybrid WAN gets very complex very quickly, and you need an experienced partner to avoid losing all your potential benefits in management overhead – not to mention the added complexity and new skills required to support software defined networking.

Security
Securing hybrid IT is complex and different from traditional IT – so costs may rise in this area too. In a recent study of hybrid IT we carried out through 451 Research, we found that 80% of companies buy managed security for hybrid IT to cope with the complexity. Have a look at my colleague Chan’s blog on hybrid IT security for more on this.

Capex to opex
There’s a lot of interest in consumption-based pricing. It suits organisations which want to match costs closely to variable flows of revenue. But it’s very hard to tell how it compares with traditional costs on a like for like basis, especially as new services offer kinds of value the old ones didn’t.

Hidden costs
There are many kinds of hidden cost with hybrid IT. The cost of exiting existing leasing contracts for hardware or enterprise software licences; the costs of consultancy and data migration services; of reskilling and training… Your management overhead may grow if you have many new vendors to deal with. And managing corporate policies, data governance, and regulatory compliance across a hybrid environment may also increase the burden.

Strategies for controlling hybrid IT costs

Companies are adopting a variety of approaches to manage these shifting costs – here are a few of the main ones.

Strategy 1: Control the number of suppliers you deal with.

Many organisations are attracted to the prospect of consolidating their costs into a smaller number of strategic suppliers as they adopt hybrid IT. This is borne out by the 451 study which found that 62% of hosted and cloud spend is on managed services. But don’t imagine you can abdicate responsibility – a successful managed service is a partnership, not a problem shift.

Strategy 2: Explore risk and reward contracts.

If a supplier is proposing a change, but can’t prove definitively at the outset that it’ll be in your interests, why should you accept all the risk? At Dimension Data, we’re open to exploring any kind of risk and reward model. But remember, risk and reward contracts involve benchmarking and benefits realisation analysis that more predictable constructs don’t require, and these extra costs and time need to be factored into the deal.

Strategy 3: Partner with a highly-automated service aggregator.

Automation plays a huge role in managing hybrid IT services efficiently and hence controlling costs. You need an automated, integrated service management platform with built in metering and billing to manage hybrid IT services cost-effectively. Platforms like this are time-consuming and expensive to develop, so it’s a good idea to partner with someone, like Dimension Data, who already has one.

Focus on outcomes, not technology

In my experience, companies see transition as an incremental cost. They’ve got their server farms and data warehouses, and it’s all working – yet now they’re being asked to change. In the 451 study, 53% of organisations cited cost of investment as their biggest barrier to using hosted services.

So, unlike some consultancies or vendors, we never start with a blank sheet of paper… We recognise that all mature organisations have existing investments which haven’t yielded their full ROI yet.

We usually start with a strategic discovery workshop in which we find out what is the business problem you’re trying to solve, and work back from that to construct a technology service that will deliver the outcome you’re trying to achieve.

We’ll always be realistic about cost to change, return on investment, and prioritisation. Any organisational change – because that’s ultimately what extending hybrid IT is – needs to be undertaken carefully, not overnight in a big bang.

Dimension Data has been listed as one of Gartner’s top 10 fastest growing consulting firms for the second year in a row, based on annual growth rate for 2015-2016.

My top 3 tips for managing hybrid IT costs

To counterbalance all the hype around hybrid IT, my advice is stick to simple, sensible principles:

1. Find a partner you can trust, someone you’ve worked with before
2. Choose someone with tried and tested processes and methodologies
3. Remember that change carries a risk, so factor it in, and ask your partner to share it.

Success factors for managing hybrid IT