A Checklist for Wringing Out IT Costs

Businesses of all sizes can tap innovative ways to cut IT budgets in a down economy.

By Michael Doan, Senior Associate Editor, The Kiplinger Letter

November 14, 2008

Can you pare IT expenses without compromising productivity? You bet, and here’s how:

• Switch to Internet phone systems. InternetGIRLfriday.com of Framingham, Mass., changed from an in-house system to Internet phone and fax lines, saving $1,200 to $1,500 per year. The firm, which provides administrative help to small businesses, now has its entire phone operation handled by RingCentral -- a hosted business telephone service. Yellow Brick, a financial company based in King of Prussia, Pa., ditched its internal telephone network in favor of Voice over Internet Protocol (VoIP) for use in its executive offices and call center. As a result, the firm no longer has to shell out for IT consultants to install and maintain its telephone system.

• Use online software. Ditching its mail server and using Google’s Gmail will cut Powerfeedback’s estimated annual costs by $25,000 to $40,000. The Easton, Pa., business consulting firm also makes use of Google Apps rather than Microsoft Office by paying $50 per user per year to Google for spreadsheets, word processing, shared calendars and instant messaging. InternetGIRLfriday,com uses Zoho’s free customer relationship management software, trimming $1,200 a year. And Lightstreams Glass Tile of Mountain View, Calif., which manufactures glass tiles for high-end homes and offices, built its own free Web site on Microsoft Office Live Small Business, saving $30,000 a year. Lightstreams did not have to rely on a Web designer to build the site or on IT staff to update it.

• Cut back on data storage. Ares Management, a Los Angeles investment firm, saved a whopping $70,000 by moving 25% of the company’s infrequently accessed data to less costly lower-speed drives using Compellent’s storage area network. The process is called automated tiered storage, and it permits businesses to prioritize information they need most at their fingertips. Cameron Consultation of Swampscott, Mass., which helps children with autism, reduced its costs by switching from manual backups to Symantec’s online data backup system.

• Consolidate servers. Gaston County, N.C., figures it saved several thousands of dollars by running multiple programs on servers once reserved for just one. The method -- called virtualization -- reduces storage space and energy costs by having accounting, human resources, sales and other departments share server space. NetworkIP, a telecom company in Longview, Texas, cut IT staff costs dramatically through virtualization. Ken McGee, vice president and research fellow of Gartner Group, an industry consulting firm, also sees this trend accelerating in recession. “Many growing companies just slammed in servers and now they have paid the price, maxing out their air-conditioning and electricity,” he says.

• Renegotiate deals with software and other IT companies. “Vendors are going to be more flexible in their financing,” says Ashvin Vellody, senior vice president for research of Yankee Group, a research firm. “Maybe they’ll do an installation free or upgrade at a lower cost or help migrate to new servers.” Businesses can also save by renewing contracts early with vendors eager to reduce prices to maintain sales.

More cost saving tips: Outsource the computer help desk and other functions performed by an IT staff. Have a corporatewide policy for buying cell phones, not leaving it to workers to bill the company (the company may be able to get a lower price for higher volume). Have videoconferences rather than paying for travel to conventions and company meetings. Unload unused domain names, which cost up to $100 a year to renew. Use open-source software such as Linux products, which do not have to operate on costly Windows operating systems.

But note a couple of IT expenses you may have to budget more for: Wireless phones and broadband service. “The need for broadband and wireless won’t go away,” says the Yankee Group’s Vellody. “We don’t see mobile phones being affected.”

And data encryption. States want businesses to do a better job guarding consumers’ personal data. Michigan, California, Washington, Connecticut and others are headed down the path trod by Massachusetts and Nevada, which require companies that store personal information on laptops and send it over unsecured networks to take specific steps to prevent identity theft. A small firm in Massachusetts, for example, would need firewall and encryption software, with setup costs of up to $3,000 plus maintenance expenses of up to $500 a month.

Requirements reach beyond state lines, applying not only to businesses with operations in the state, but also to those that serve customers there. Down the road, as more states jump on the bandwagon, firms that do business across state lines may be forced to comply with a dozen different security regimes.

Jonathan N. Crawford contributed to this story.

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