Opportunity for cost reduction in IT spend

For many organisations that are looking to cut costs, changes in technology offer an excellent opportunity to reduce IT spend while delivering greater value to the business. One such change is “cloud computing”, which Gartner, the world's leading information technology research and advisory company, defines as “a style of computing where scalable and elastic IT capabilities are provided as a service to multiple customers using Internet technologies,” writes Alan Low.

Historically, organisations tended to buy servers which they networked together to provide knowledge and information to their staff. This ranged from managing transactions – i.e. the procure-to-pay cycle for purchases – to providing management information.

Inevitably there has to be a certain amount of excess capacity to handle peak requirements, such as running reports at month/year end, and the like.

To the extent that organisations can now buy services via cloud computing, businesses now have significant opportunities to cut costs, as they will no longer need:

• Hardware – PCs, servers, etc. to run the relevant cloud-based functions;
• Maintenance costs for these servers;
• People – technical support to make sure this hardware runs optimally and is available as and when required; and
• Software upgrades and licence fees – as some functionality may now reside in the cloud.

Some IT-personnel within the organisation could  be re-deployed to provide more added-value services, such as data analysis, etc. Gartner predicts that there will be a 25% reduction in IT labour hours by 2015 – “Self-service and automated provisioning associated with cloud delivery means productivity levels for service providers will increase,” he says.

In addition there are some other longer-term benefits as traditional data centres within businesses face the following challenges:

• Ballooning labour costs as experienced and skilled personnel become scarcer in the SA marketplace;
• Savings in energy costs, both to run the infrastructure and to keep it cool. Energy costs in SA are expected to keep increasing beyond the current series of annual 25% increases in electricity tariffs;
• Increasing demands of users due to the proliferation of data sources and the need for their integration;
• Increasing complexities associated with trying to get data sources to synchronise with data warehouses and managing data silos that are resident in different business units; and
• Managing exponential increases in business data, as data becomes richer from both internal and external sources.

Cloud services can often provide a significant reduction in current IT costs while adding tremendous business value to management and staff that are tasked with driving business improvements and cost savings. Many of the services can be financed through operational expenditure (OPEX) rather than motivating for a share of the capital budget.

Finally, cloud computing can result in a very attractive return on investment, and a payback period measured in months rather than years.

(Alan Low is CEO of Purchasing Index, a company that provides benchmarking and analysis services via the “cloud”. If you would like to comment or discuss these issues, yor can email him on This e-mail address is being protected from spambots. You need JavaScript enabled to view it )