Keeping Up With IT During Recession
Table of Contents
Introduction ... 3
What is Cloud Computing? ... 3
Importance of robust IT Systems ... 4
Benefits of Cloud Computing ... 4
Lower Expenses: capital and operating costs ... 5
Lower Up Front Costs... 5
Faster access to features ... 6
Reduce financial risk ... 6
Higher Quality: Enterprise Class Technology and Uptime ... 7
The Bottom Line... 9
The United States is undergoing one of the worst recessions since the 30s. During any downturn, managing a Zero‐based budget is not only important but a prudent course of action. This requires business executives to take drastic actions to manage expenses and to cut costs. According to Gartner, a number of clients “have already completed one or more waves of IT cost‐cutting during the current fiscal year and are under pressure to cut costs even further”. The result is an average decline in IT budget of 4.7%, most of which came during the first quarter of 20091.
Cutting expenses is a necessary evil that cannot be easily avoided. However, cutting IT expenses is often difficult since one cannot easily scale down IT infrastructure; for example, the company has to continue to pay for ongoing maintenance fees for software licenses. Thus a company, faced with a difficult option of losing the maintenance contract or delaying its future investments to maintain competitiveness, generally chooses to delay investments. The Gartner FEI study shows that 66% of organizations have deferred new projects, while one in six companies have stopped existing ongoing projects1.
There is a better alternative: Cloud Computing. Cloud Computing allows you to easily manage your IT budget during economic boom and busts, leaving more of your IT budget for strategic technology investments that provides the company competitive advantage. The rapid advance in technology has made this approach easily accessible to companies of all size. HyBridge IT, a leading provider of cloud computing services to small and medium size companies, offers a full range of IT services at a fraction of the cost.
What is Cloud Computing?
Information Week calls Cloud Computing the ultimate recession technology. The fact is, virtually every company today uses some form of Cloud Computing. If you use Google, Facebook, gmail, eBay, or Skype, you are using Cloud Computing. Large companies have used “Private Clouds” or centralized data centers, for years, enjoying the cost and performance benefits this brings. Now, Cloud Computing makes these benefits available to everyone, which is why so many people are talking about it and investing in it.
The technical definition: “Cloud computing is on‐demand access to virtualized IT resources that are shared by others and accessed over the Internet”. Cloud Computing means the servers that you connect to, for example to download your email, are in a data center instead of in your office, and, even though you can’t tell, they are shared securely between many other users. (Of course this is done in a completely secure and audited way, so no‐one else can see your data). The engineers looking after the
1 Gartner Research, “FEI Study Shows the Impact of the Recession on Technology Budgets”, August 3, 2009
servers are part of a large team of specialists managing many thousands of servers. Because you don’t see the physical servers they are sometimes referred to as being “in the cloud”, hence “Cloud Computing”.
Importance of robust IT Systems
IT Systems have become as important as electricity. Can you imagine running your company without electricity today? IT systems have become equally important. In fact, companies worldwide spent $3.3 trillion dollars in 2008, an increase of 6.2% from 20072. A non functioning IT system not only results in lost revenue from missing an opportunity but also hurts future repeat business. Just imagine what would happen if you did not have access to Internet or e‐mail for a day or even for an hour. Ask yourself whether the data on your laptop is backed up or do you have the latest security patches on your server?
Large companies often benefit from a high quality IT system that is managed by a team of full time highly trained staff. The team of professionals often includes a Chief Information Officer who has a team of specialists to manage network operations, support, applications and security. The specialists are trained in network management, hardware, storage systems, database management and server operations. Their IT budget also includes a centralized high performance data center with a 24x7 support and data center professionals who ensure the servers have up to date features and security patches. A successful IT strategy helps large companies to maintain competitive advantage and create a defensible barrier to entry.
For small to medium size companies maintaining a sophisticated IT system is often challenging and cost prohibitive. For example, a business can use Microsoft Exchange to provide the most basic services such as secure email, shared calendars and group scheduling functionality, mailing lists, and integration with mobile devices. Microsoft Exchange, however, requires Windows Active Directory as well as high‐
performance storage and backup systems. This now requires more servers and a robust network, a network firewall, and a VPN to connect securely through the firewall. Of course, we have to build in redundancy to guarantee uptime. Very quickly, a small business will have to spend tens of thousands of dollar on a sophisticated network, computer hardware and software, and engineering staff.
Benefits of Cloud Computing
Before turning on a light, we do not think twice about where the electricity was generated and how it was distributed to the socket in the house. Due to its importance, we have outsourced production and distribution of electricity to centralized institutions that can provide us high quality electricity at lower cost. You can now do the same with IT Services. With Cloud Computing services provided by Hybridge, IT Services can be outsourced as well and you can demand a high level of quality.
Cloud service can provide a Large Company quality IT system on a small / medium size budget. We discuss how Hybridge IT can deliver quality service for a fraction of the cost of a much larger company.
The companies using Hybridge IT benefit by lower upfront expenses and ongoing maintenance costs.
Since the commitment cost is much lower, the companies take much less financial risk without
2 Gartner Worldwide IT Spending, June 2009
jeopardizing its ability to scale up. Further, due to economies of scale, Hybridge IT does not have to compromise quality to reduce the price. In fact, Hybridge IT will guarantee uptime, provide a redundant system with fail‐safe contingency plan, ensure data backup and recovery, and do so with top notch security.
Lower Expenses: capital and operating costs
Large companies have a significant cost advantage due to economies of scale. That is, as the company increases in size, it is able to reduce its average cost per unit. This could be a result of purchasing power (buying in bulk), or because it is better able to utilize its investments by spreading its fix cost over the entire production.
Hybridge IT’s cloud computing service now provides the same advantage to smaller companies.
1. Hybridge IT is able to buy the equipment in bulk and thus can lower the cost of ownership and maintenance for companies who sign‐up for the cloud computing service.
2. Centralizing IT allows Hybridge IT’s administrators to automate the management of servers, consolidate and standardize operational procedures, and thus streamline the operations.
Ultimately this reduces the maintenance cost for all customers.
3. To manage the spike in unexpected demand, companies often provision more hardware than needed. With cloud computing, the companies can share the load and thus reduce the overall unused capacity. This cost is further reduced as the diversity of the customer base increases.
4. Hybridge IT’s system is shared my many customers and thus the cost of owning and maintaining the system is shared across all customers.
5. The labor cost of quality systems engineers is shared by many customers and thus the individual maintenance cost is much lower.
Lower Up Front Costs
Building a robust computing infrastructure requires a substantial upfront investment. The company needs to invest in networking and data center technologies, software applications and human resources.
The company often hires an expert Systems Architect to design a secure and stable IT infrastructure and invests in expensive technologies to support the IT needs. The company also incurs substantial installation expenses that include fees for consultants and training for administrators. Added to this burden is the cost of financing such a large investment.
Most small to medium size firms require external financing for such a large investment. During difficult economic times, it is difficult to secure financing because of tight credit markets. Lenders are reluctant to lend money as the default on existing loans increase. In October 2008, Wall street journal reported an increase in default rates for tech financing. As a result, lenders and banks are now charging higher interest rates hovering around 8.25% and require as much as 50% down payment.
As a result of financial crunch, small companies are unable to secure loans for technology investments and thus cannot afford to make such investments. According to CIO executive council about 20% of CIOs postponed or cancelled purchases because of unfavorable credit terms3. Even if financing is available, a well managed company will prefer to use the funds on day‐to‐day operating activities as
3 “Tech Finance Defaults Rise”, Wall Street Journal, October 27 2008
opposed to investing up front on a major IT project. Added to the risk is the long‐term commitment to a particular technology. The increased risk of long term investment and increase in financing costs reduces the overall ROI for the technology investments.
What do people do when they cannot afford to buy? They rent. Cloud Computing is akin to renting in the IT world. Cloud computing allows this significant upfront investment to be spread across all companies and across multiple months. With Hybridge IT’s cloud computing services, you only pay per user on a regular basis and do not have to worry about the significant upfront investment. This alleviates the need for external financing and reduces the overall cost of ownership.
Faster access to features
Need to support iPhones? Are Macs back on your network? Need to make sure your laptops are backed up? What about BlackBerry enterprise features like calendar sync and remote wipe? Business needs in the increasingly global economy are changing fast and so are the IT needs. To keep up with technological progress, companies worldwide spent $3.3 trillion dollars in 2008, an increase of 6.2%
Managing the technological changes in the traditional environment requires you to hire a sophisticated systems engineer to manage the environment. The systems engineer will rightfully follow a series of steps to install the feature. The engineer will first evaluate the impact of the new changes on existing systems, schedule the downtime to install the appropriate components, test the installation on a limited setting and then deploy it companywide.
With Cloud Computing, system resources can be allocated in matter of hours and minutes instead of days or weeks. This is because Hybridge IT’s environment is designed to be “On Demand” and ready to use. The system is setup and configured to fit the needs of the client rather than changing client’s needs to fit the technology. In other words, with Hybridge IT, these changes are done only once on the server and all customers benefit from the change. Thus you can easily add features by simply activating them in your account without worrying about software installation. No servers to buy, no software to install.
Use the applications and storage as you need when you need it, without having to buy in advance or make long term commitments.
Reduce financial risk
Hybridge IT’s cloud computing not only makes good technical sense, but also makes good financial sense. The metered approach to pricing cloud computing and the subscription based pricing structure gives companies significant financial flexibility and reduces long term financial risks associate with IT infrastructure. Specifically, Hybridge IT’s solution provides the following advantages:
1. Conversion from fixed costs to variable costs 2. Matching revenue growth with IT expenses 3. Predictable Expenses
4. No long‐term commitments
4 Gartner Worldwide IT Spending, June 2009
The first benefit of cloud computing is the conversion of fix costs to variable costs. Instead of paying up front to build the technology and sitting on idle computing power, you are only paying for services you need when you need it. Converting fix costs to variable costs provides a significant advantage during recessionary times. During difficult economic times, demand for company’s services often decreases.
This, in turn, also reduces the demand for IT services needed to run the operations. In traditional IT infrastructure, it is often difficult to scale back IT services and forces the company to sit on much idle capacity. The scalable feature of Hybridge IT, however, allows companies to easily scale down usage during difficult times.
It is good accounting practice to match your revenues with your expenses. This allows better evaluation of company’s profitability and performance. More importantly, it allows companies to only spend what it can afford. The scalability of cloud computing allows companies to follow good accounting practice by helping companies match its IT expenses with growth in revenue. As revenue and thus demand for IT services increases, companies can easily scale up by investing more in IT.
Budgeting for IT services also poses significant challenges. According to Computer Associates, a third of IT projects are over budget and only half of the projects are within budget5. The regular subscription for Cloud Computing makes it easier to calculate the ongoing IT expenses and removes the uncertainty out of budgeting for Information Technology.
Higher Quality: Enterprise Class Technology and Uptime
Maintaining a highly stable, enterprise‐grade IT system, is not only expensive, but fairly difficult. Despite significant investments, businesses often suffer significant downtime. Gartner Research estimates that 70% of businesses suffer downtime of some kind each year, which conservatively costs an average of
$42,000 per hour.
Hybridge IT’s service can provide a large company quality IT system on a small / medium size budget.
Not only can cloud computing lower expenses, but it can also do so without compromising quality. In fact, Hybridge IT guarantees uptime, provides a redundant system with fail‐safe contingency plan, ensures data backup and recovery, and does so with top notch security.
5 Computer Associates, 2007 Survey
Hybridge IT is able to guarantee a very high level of Service Level Agreements (SLAs). The service providers generally offer SLAs of three 9s or four 9s referring to 99.9% uptime or 99.99% uptime respectively. Hybridge offers SLA of four 9s. The high level of service is possible because the Hybridge employs highly trained professionals to manage the systems. The company hires specialists to manage different parts of the system such as network connectivity, application management and server operations.
Contingency Planning: Providing Redundancy
Despite investments into high performance system, things can and will break. Thus, it is extremely important to have a solid contingency plan. Hybridge invests in providing a fool‐proof system by providing multiple levels of redundancy. Redundancy often includes providing multiple power supplies, cooling and internet connectivity, and duplicate storage methods so data is always available. Further, to ensure network connectivity the company will provide alternate network paths, redundant network interface cards and duplicated routers and switches. The application servers are also be setup to provide redundancy by creating a cluster of servers that share the load automatically manage the load if one of the servers in the cluster fails.
The key in Information Technology is managing Information. Data is perhaps the most valuable asset for a business today and a good data management strategy is at the heart of IT management strategy.
Despite its importance, 66% internet users have lost data on their PC6. In 2009, only 44% of enterprises had a data loss prevention capability in place7. A robust data backup strategy is important in case of a disaster or accidental deletion of data.
Hybridge IT can ensure that data is backed up on a regular basis and is always available when needed.
This is done by automating the backup process and also dedicating a human resource to ensure that the backup process does not fail.
An IT system can be compromised by executing malicious code, unauthorized entry, theft or denial of service attacks. These attacks impact the availability of e‐mail and applications, result in network downtime, and compromise data integrity. According to CSI Computer Crime and Security Survey, about half of the survey respondents reported a breach in security with many companies reporting more than one incidence. On average, companies with security breaches reported cost of close to $500,0008.
A security breach not only affects a company’s competitiveness but also damages its reputation.
Customers will not trust the company with their personal data and will refuse to transact with the company. A breach will also jeopardize business operations since business partners will refuse to do business with the company. For example, the credit card network requires a merchant to maintain a certain level of security known as PCI Compliance and will prohibit companies to accept credit cards of
6 Kabooza Global Backup Survey
7 PriceWaterHouseCoopers’ Global state of information security survey 2010
8 CSI Computer Crime and Security Survey 2008
the security is not managed. A security breach can also trigger legal action by multiple stake holders. It is no surprise that many firms allocate 10% of their IT budget just to maintain security.
Maintaining high level of security is expensive and cost prohibitive for many small to medium size companies. Hybridge IT provides a highly secure environment that safe guards company’s data, intellectual property and reputation.
The Bottom Line
IT Systems have become a corner stone of today’s business and many companies use IT as a competitive advantage. Cloud Computing has been used by large successful companies for many years as part of their defensible IT Strategy. For small and medium size companies, this is still a fairly new concept.
According to Rackspace Hosting, only a third of small businesses and about half of medium size businesses have heard of Cloud Hosting9.
Hybridge IT’s cloud computing service gives small to medium size businesses access to secure and stable IT infrastructure at a fraction of a cost. Companies are guaranteed a secure environment that is available 99.99% of the time backed by written service level agreements. The system redundancy and regular data backups offer the peace of mind during an emergency. Additionally, these features are easily available and new features can be easily added thanks to the “On Demand” nature of the technology. The best part, Hybridge IT provides all of these services at a much lower costs.
9 Cloud Hosting Awareness Survey, 2009