Tuesday, June 13, 2006

Why Consolidate?

Existing IT investments ought to be rationalized. As quoted in the previous posting, Peter Drucker on Managerial Courage, "Every product, every operation, and every activity of a business should be put on trial for its life every two or three years."

Consolidation of existing systems and technologies should be expected to yield some decrease in headcount or operating costs. Reduction in TCO (Total Cost of Ownership) is often cited as the primary driver for consolidation. By analyzing the global spend and identifying vendor consolidation opportunities, substantial savings should be possible. Of course, other benefits, too, should accrue, such as increasing systems management capability or improving service level management.

IT asset inventories in most large enterprises are, most likely, highly incomplete. An inventory, ideally, will show both asset age as well as information about interdependencies, such as what hardware a particular piece of software runs on, or what other software components it requires in order to execute properly. Hardware assets need to include current and historical utilization statistics. For example, you can't consolidate additional services onto hardware that is already running close to its maximum capacity.

Before embarking on a consolidation project, it's vital to understand the financial implications related to matters such as scale-based license pricing or asset depreciation policies. For instance, consolidating assets that have not yet been fully depreciated could incur a cost instead of a savings.

When building a business case for consolidation you will typically want to show how facility costs, headcount, annual maintenance fees, etc., will be reduced. You should also explain such intangible benefits as simplifying the organization's overall enterprise architecture, or providing the opportunity to establish strategic relationships with key vendors.

The bottom line is that consolidation is one of the most critical aspects of any IT organization's enterprise architecture blueprint. For each IT asset, the question periodically should be asked, "If we didn't already own this, would we now go ahead and purchase it or develop it?" And, if the answer is "no," the next question should be: "How do we get rid of it and how fast?"


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