Dell cut $160m last year off its IT spend. CIO Robin Johnson explains how he manages to combine delivering business value with driving cost efficiencies.
Q How do you see your role at Dell?
A There are two pressures as CIO, first, there’s running all the technology. You’re accountable for thousands of applications and devices, and if they don’t work or you’re not compliant, then you’re in trouble – there’s a huge downside and no upside. The upside is creating value for the business – the second pressure – so that that’s my focus. I focus on how can I make more efficient everything I run to be able to push money to creating value for the business. We’re not the IT department, I’m not in the technology business, I’m in the value creation business and my tool is technology.
Q Given these different pressures, do you think ‘keep the lights on’ function and the strategic function of IT should be kept separate?
A No. We used to have infrastructure and development teams running separately, but a couple of years ago we reorganised by business process. So each team has accountability for that portfolio, not just developing new stuff, but looking after older stuff too. We deliberately have not separated the ‘keep the lights on’ people from development people, otherwise developers will just do new stuff and the rest of the team will get further from the business.
Q What measures have you employed to cut costs?
A We changed the costing model in IT, which is just in its second year. It’s not quite cost per usage but very close. There was huge suspicion from the business about changes, but we brought them round by dropping savings into their development budget. It’s all about how you present changes. If you go to the London office and say I want to turn off your reports and you can use the US reporting system instead, you won’t be very popular. But if you go to the guys and say I’ll give you £15m more to develop the stuff you need, but we do need a change in reporting, then you’ll get them on board.
IT departments the world over are asked: couldn’t you do this cheaper, but the answer is do you want the same level of service. This it isn’t just about money. Cost is important, but it’s also about faster and cheaper speed to market.
Of the $160m costs taken out last year, $60m went straight back into development. We rationalised the applications we had from 10,000 down to 2,800. Application rationalisation is a way of life not a diet. We’ve crossed a 50% ration of money spent on new development. On $1.2bn spending, 50% is on new development rather than say the usual 60-80% spend on keeping the lights on. If you look at our spending now, everything is industry standard which drives efficiency. We standardised with 98% of our processing power on the Dell x86 platform and we run just two server OS images across the entire estate: .Net and Linux.
Q How do you keep a lid on data centre costs?
A If you look at data centre costs over a three-year period, the major cost is power. 3% of the US power supply is consumed by data centres. Through virtualisation we’ve not only reduced our footprint, we’ve made power savings, so much so, our calculations suggest if we replaced 25% of servers in data centre the first year power savings would pay for the hardware. We saved $38m at the back end of last year through server virtualisation, and we are doing some desktop virtualisation.
A few years ago we thought we needed to buy a $350m data centre and moved into 5 colocation facilities. Through all that work we’re now closing down those colos and not building the data centre. The greenest data centre ever built is one that hasn’t been built!
Q Plans for 2010 and for further innovation?
A Our plan for 2010 is to continue to attack fixed costs and the target is to cut another $60m this year.
We benchmark how we’re doing like most IT departments. But there’s always room for improvement. If you looked at our telecoms we’ve taken a ton of money out through better use of capacity. But then we thought about wireless. There’s still a lot of offices with fixed lines and wireless too which is unnecessary. It’s not a big spend but it’s a perfect example of where you can make savings.
We innovate in four major areas. First we use best-of-breed applications and globilise them. We generated that $60m to go to develop better systems for users. Happy users, means better IT and more customers. Second the growth of the company is services and solutions and that requires different applications and application portfolio. Third is online business and forth is continue reinvention of the supply chain, which gets the business leaner and meaner.