Keeping the Data Center Competitive

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Cost and capacity pressures on the corporate data center are mounting. Increasing computing power demands, poor asset utilization, excess complexity, and growing concerns about energy usage and costs …

Cost and capacity pressures on the corporate data center are mounting. Increasing computing power demands, poor asset utilization, excess complexity, and growing concerns about energy usage and costs are forcing companies to reassess how they manage their data centers. Companies that don't do so face a future of rising costs and declining performance relative to their competitors. Companies that do make the effort can expect to cut the cost of operating their data centers by as much as 40 percent.

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  • 1. Perspective Stefan Stroh Dr. Germar Schröder Dr. Florian GröneKeeping the DataCenter CompetitiveSix Levers forBoosting Performance,Reducing Costs, andPreparing for anOn-Demand World
  • 2. Contact InformationBeirut Frankfurt London New YorkRamez Shehadi Stefan Stroh Louise Fletcher Jeff TuckerPartner Partner Partner Partner+961-1-336433 +49-69-97167-423 +44-20-7393-3530 +1-212-551-6653ramez.shehadi@booz.com stefan.stroh@booz.com louise.fletcher@booz.com jeff.tucker@booz.comBerlin Dr. Germar Schröder Milan SydneyDr. Florian Gröne Principal Enrico Strada Chris ManningSenior Associate +49-69-97167-426 Partner Partner+49-30-88705-844 germar.schroeder@booz.com +39-02-72-50-93-00 +61-2-9321-1924florian.groene@booz.com enrico.strada@booz.com chris.manning@booz.com Hong Kong  Chicago Edward Tse Mumbai TokyoMike Cooke Senior Partner Suvojoy Sengupta Shigeo KizakiPartner +852-3650-6100 Partner Partner+1-312-578-4639 edward.tse@booz.com +91-22-2287-2001 +81-3-3436-8647mike.cooke@booz.com suvojoy.sengupta@booz.com shigeo.kizaki@booz.comChristopher Schmitz and Christian Beekes also contributed to this Perspective. Booz & Company
  • 3. EXECUTIVE Cost and capacity pressures on the corporate data center are mounting. Increasing computing power demands, poor assetSUMMARY utilization, excess complexity, and growing concerns about energy usage and costs are forcing companies to reassess how they manage their data centers. Whether they operate their data centers for internal customers or as third-party providers of data center services to others, companies that don’t make the effort to rethink their data center strategy face a future of rising costs and declining performance relative to their competitors. Companies that do make the effort can expect to cut the cost of operating their data centers by as much as 40 percent. Managers of data centers should look at six areas in which their operations can be improved. The greatest potential sav- ings lie in improved utilization of data center assets, through server and storage virtualization and by making better use of the data center facility itself—including a careful analysis of the total worldwide footprint of data center facilities as well as how operations are organized. Understanding how and when data center resources are consumed can further improve asset utilization and save energy. Restructuring the data cen- ter’s operating model can increase efficiency, as can devising a global sourcing strategy for data center services. Finally, moving to a demand-driven model that rationalizes platforms and products will help set the stage for the creation of the data center of the future, one that can give corporate customers what they want: efficient and flexible computing capacity.Booz & Company 1
  • 4. Key Findings•  ven as demand for data services is E on the rise, the data center is under tremendous pressure to cut costs, reduce energy usage, and develop new delivery models.•  hose pressures, and the threat of T rising costs, will force every data center operator to reassess how it does business if it wishes to remain competitive.•  e believe there are six areas in W which companies can work to im- prove their data center operations: • mprove asset utilization through I virtualization Rethinking Deutsche Bank, and DHL—are making major investments in state- •  onsolidate the data center foot- C the of-the-art data centers in hopes of print Data Center making their data center operations more efficient and less costly. Such •  anage consumption to reduce M efforts can lower total capital and usage and energy costs operating expenses by as much as •  estructure data center manage- R 40 percent. If corporations desire ment and operating model to maximize the value of their data At a time when every large-scale orga- center assets and reach the next level •  reate a global data services C nization is looking to cut expenses and in performance, cost efficiency, and sourcing strategy streamline operations, the data center quality control, they must begin now has come under increasing pressure to to rethink the core structures of their •  odularize services offerings and M make its operations leaner. And the data center production model. rationalize payment schemes time is ripe: Traditional data centers are facing the upper limits of their Creating the data center of the future data capacity even as they continue to will require a reassessment of the underutilize computing assets, while current model in six specific areas: their massive appetite for electrical technology platforms, data center power continues to raise concerns topology, consumption management, about their impact on the environment. end-to-end process efficiency, global sourcing models, and commercial Any number of information-intensive models. The risk of not doing so? companies—including the likes Falling behind in the very competitive of Google, Microsoft, Facebook, race for IT efficiency.2 Booz & Company
  • 5. Pressures Four factors are driving the need to rethink the data center. First, typical data center is saddled with a large and unwieldy inventory ofon the despite ever more powerful comput- operating systems, database software,Data Center ing technologies, such as multi-core, 64-bit chip architectures, the installed and middleware. That in turn adds hugely to the complexity of systems base of servers has been growing administration and maintenance—not 12 percent a year, from 14 million to mention adding to cost. And server in 2000 to 35 million in 2008. Yet utilization is often low, with too many that growth isn’t keeping up with the CPUs idle or nearly so. Poor utiliza- demands placed on data centers for tion is a central cause of inflated data computing power and the amount of center capacity requirements, unnec- data they can handle. Almost 30 per- essarily high investments in hardware, cent of respondents to a 2008 survey and big energy bills. of data center managers said their centers will have reached their capac- Moreover, companies face grow- ity limits in three years or sooner. ing concerns about the enormous amounts of energy their data centers At the same time, too many data use and the resulting high levels of centers are just not managed very CO2 emissions they cause; indeed, a well. Thanks to long histories of number of European countries are legacy systems and software, a lack looking to regulate emissions even of discipline regarding standards, and more strictly than they do now. ineffective life-cycle management, the European data centers currently European data centers currently consume more energy than the entire country of Denmark; by 2019 they are expected to use more than the Netherlands.Booz & Company 3
  • 6. consume more energy than the entire tion. The auctioning of emission Exhibit 1), even as both external andcountry of Denmark; by 2019 they certificates to utilities, slated to begin internal customers apply downwardare expected to use more than in 2012, will further increase the cost pressure on the price of data centerthe Netherlands. A European Code of electricity. services. Much of that increase isof Conduct is already in place; due to the rising cost of energy andcompanies subscribing to the code There is only one future for compa- higher labor costs, including wagemust make a voluntary commitment nies whose data centers continue to inflation, an aging, more highly paidto reduce power consumption by be traditionally operated: a world workforce, and a coming shortageapplying best practices such as of rapidly rising costs. Under cur- in the skills needed to operate dataenergy audits, specific action plans rent practices and assuming constant centers, all of which will result infor reducing emissions, and continu- capacity, data center costs will rise 17 stagnating productivity. Althoughous monitoring of energy consump- percent over the next four years (see continuing improvements in hardwareExhibit 1Over Time, Manpower and Energy Cost Inflation Will Eat Up Traditional Operators’ Margins Enterprise Computing Cost Outlook Indexed Cost, Assuming Zero Volume Growth & Stable Delivery Model 117 110 112 105 • Wage inflation 100 • Aging workforce • Skill shortages 50 • Stagnating productivity 45 47 43 41 • Improving hardware performance • Stable price/performance ratio 5% 36 36 36 • Rising power density 35 35 • Energy prices and emissions trading • Capacity shortages 10 11 11 12 7 • ncreasing construction I 17 17 18 18 19 and facility services costs 2008 2009 2010 2011 2012 Data Center Margin -5% Manpower Cost Hardware/Software Cost “Business as usual” will turn a 5% profit into a -8% Energy Cost 11% loss within 4 years Facility Cost -11%Source: Booz & Company Econometric Data Center Planning Model4 Booz & Company
  • 7. performance will mean that the ratio Only by reinventing how they runof price to performance will remain their centers—rethinking everythingsteady, rising energy costs will eat up from technology platforms and datathose gains, as will higher costs of center topology to consumptionconstruction, operations, and facility management, global sourcing models,services. The inevitable result: Driven end-to-end process efficiency, andby bottom-line cost pressures alone, commercial models—can providersproviders of data center services will of data center services hope to thrivesee their already thin margins erode despite the pressures they face (seefurther, turning average profits of Exhibit 2). How should data center5 percent of revenues in 2008 into operators work to transform theirlosses of 11 percent by 2012. businesses in each of these six areas?Exhibit 2CIOs Must Rethink the Core Structures of Their Production Model to Remain Competitive Structural Optimization Levers Commercial Models Technology Platforms • Capacity-on-demand is the wave 6 1 •  y increasing utilization, server B of the future, requiring service and storage virtualization modularization and has the greatest potential for transparent payment schemes. lowering data center costs. • Potential gains: N/A • Potential gains: 15%–20% Global Sourcing Models Next Level … Data Center Topology • Optimizing the global delivery • Cost Efficiency •  ootprint consolidation and F strategy involves balancing 5 2 a proper tier structure can save • Performance commodity applications • Quality Control money, but a balance must be with more complex tasks struck between scale and complexity. • Potential gains: 10%–15% • Potential gains: 15%–30% E2E Process Efficiency Consumption Management • Restructuring both the data center •  etter utilization of data center assets B management organization and the 4 3 and reduced energy consumption operating model can lead to better capacity offer significant benefits in cost and planning and lower administrative costs. reduced complexity. • Potential gains: 5%–15% • Potential gains: 5%–25%Note: All figures should be read as “total cash-out reduction potential”; they include both capital and operational expense reductions.Source: Booz & Company analysisBooz & Company 5
  • 8. The Virtual Of all the steps that can be taken to reduce costs, using data center amounts of operational and capital expenditures that could be better usedData Center assets more efficiently has perhaps elsewhere. After a detailed analysis the greatest potential for generating of its data center costs, one large significant savings. Underutilization European corporation found that a of both computing and facility assets large-scale virtualization program had remains a large problem in data cen- the potential to lower its overall data ters: Servers typically run at less than center costs by 29 percent. 10 percent of capacity, and it is not uncommon for more than 50 percent The economics of virtualization of data center floor space to sit under- are powerful (see Exhibit 3). The utilized as well. The result: significant technology has the potential to lowerExhibit 3Virtualization Technology Has Tremendous Potential to Drive Cost Reduction throughout the Data Center Virtualization Cost Impact Virtualization Economics Average Cost per Windows Instance Illustrative Net Effect/Instance1 €12,600 Virtualization Economics -29% Low High Each full-time employee can manage 60 or more virtual servers, compared with the current 20 to 30 -30% -45% 5,500 dedicated servers. Manpower €8,950 Virtualization can more than double the current dedicated hardware utilization rates of less than 10%, -15% -35% although cost per CPU will be higher. 3,200 Operating systems, databases, and middleware can be run virtually, although overall expenses may increase, thanks to +15% -10% Hardware 3,800 added costs for virtualization management software. 2,900 Each dedicated server currently uses 300 to 500 watts of electricity, compared with an average of just 100 watts +45% -70% per virtual server. Software 1,900 2,100 Each dedicated server currently needs, on average, Energy 800 one to two rack units; that can be reduced to less than -25% -50% 300Data Center Facility 600 450 one rack unit per virtual server. Instance on Instance on dedicated server virtual server1 Size of effect depends on ratio of dedicated servers to newly virtualized servers, type of virtualization platform, degree of standardization, power density, and tier level of data center.Source: Booz & Company analysis6 Booz & Company
  • 9. total costs of ownership by as much tion—primarily high-volume platforms includes, on the hardware front, anas 40 percent. Consider hardware. such as Windows and standard Unix inventory of assets—the numberDedicated servers frequently have or Linux—lies somewhere between 20 of harmonized vendor clusters andutilization rates of less than 10 and 60 percent of assets, depending on machines with fewer than fourpercent, whereas servers run virtually the production model and computing CPUs—and an analysis of utilizationcan often more than double those footprint. Trying to virtualize more levels. As to software, the inventoryrates. And even though virtual servers than that will usually involve the virtu- should include harmonized operatingtypically cost more per CPU, the alization of more exotic platforms with systems, database software andoverall benefit can be hardware cost lower server counts, such as legacy middleware clusters, and standard,savings of between 15 and 35 percent. Unix systems, and the effort simply multi-platform certified applications won’t bring the returns expected. such as Web and e-mail and standardDespite the very real benefits of virtu- ERP and CRM. Finally, it’s importantalization, it rarely makes sense to try to Achieving the maximum return to ascertain whether any applicationsvirtualize everything. Indeed, the “sweet requires a careful review of the have technical restrictions, such asspot” for generating the maximum preconditions in the data center maintenance liabilities, that mightreturn on investments in virtualiza- for successful virtualization. That restrict the use of virtualization.Dedicated servers frequently haveutilization rates of less than 10 percent,whereas servers run virtually canoften more than double those rates.Booz & Company 7
  • 10. Mapping the Large multinational corporations use different strategies for siting their data ated by excess complexity have not begun to make themselves felt Data Center centers. Some may find themselves (see Exhibit 4). running dozens of data centers around the world. Hewlett-Packard, for Another way to put the problem is instance, maintains about 60 centers in terms of utilization. Obviously, worldwide. Others, such as ING, data centers are expensive. Looked maintain just one primary hub. Data at in terms of cost as a function of center topology, however, creates a utilization rate, however, unit costs dilemma: Scale or resilience? A topol- come down rapidly. But the benefits ogy that includes a small number of go only so far. After about 90 percent large-scale centers offers the benefit utilization, data centers run a real of scale, but the lack of diversification risk of losing operational flexibility. can pose a security risk, and individ- Generally speaking, the utilization ual centers risk being simply too com- goal should be about 80 percent, plex to operate efficiently. A plan that which leaves adequate headroom for includes many smaller centers runs the peak demand. Service providers will opposite risk: Security concerns and want to leave somewhat more room complexity are eased, but the individ- depending on their mid-term deal ual centers may not be large enough pipeline, which may add sudden large to reap the maximum benefits of scale. demands on their data centers. By the Where is the happy medium? same token, in coping with capacity bottlenecks, before expanding capac- To operate at peak efficiency, data ity in a lower-tier center and reducing centers should be about 10,000 its utilization rate, consider the pos- square meters. At that size, each sibility of using higher-tier capacity center’s annual operating expenses are with better utilization and overall minimized, but the added costs cre- lower unit costs. Exhibit 4 When Consolidating Data Centers, It Is Vital to Find the Right Balance between Scale and Complexity Data Center Cost by Size 16,000Annual Operational Expense (€ per Square Meter) Efficient Data Case A Center Size 14,000 Case B Case C 12,000 Case D 10,000 Case E 8,000 6,000 4,000 2,000 0 0 5,000 10,000 15,000 20,000 Scale Effects Dominate Complexity Costs Erode Scale Effects Computing Floor Space (in Square Meters) Source: Booz & Company analysis 8 Booz & Company
  • 11. Managing On the other side of the utilization coin is the issue of consumption man- changes in resource utilization in order to understand why they occur. TheseConsumption agement, involving the consumption steps can reduce consumption of assets of both computing assets and energy. by up to 15 percent. Significant savings can be found in the effort to reduce the use of assets and A further 15 to 20 percent reduction to optimize the kinds and number of in the use of resources can be achieved assets being used. The key here is to by identifying, and balancing, differ- implement an efficient capacity plan- ences in utilization by region, season, ning process. On the consumption time of day, and line of business. side, begin by identifying the resources Work with application owners and required for each software application. application development teams to Then retire or move any resources identify the factors driving utilization that do not get accessed frequently. and to develop measures for reducing Together with the application develop- consumption, including the renegotia- ment team, work to limit increases in tion of service-level agreements, the consumption that may occur when restructuring of job networks, and the new application releases are rolled out. redesign of applications to run at peak Set up a program to closely monitor efficiency. Again, devise a program A further 15 to 20 percent reduction in the use of resources can also be achieved by identifying, and balancing, differences in utilization by region, season, time of day, and line of business.Booz & Company 9
  • 12. to monitor utilization and how the the CPUs consume the most energy. number of AC-DC/DC-AC conversion measures you have taken are affecting Ideas for reducing the amount of cycles and by converting to high- resource utilization rates. power consumed by CPUs include efficiency power distribution systems. virtualization and the use of more Cooling costs can be lowered by the Data center operators can take a efficient multi-core processors and use of district cooling, heat pumps to variety of steps to save money on processors with dynamic scaling. reduce fan loading, desiccant cooling the energy side (see Exhibit 5). Of Gains can also be made in the area of driven from waste heat, variable the various data center components, power distribution by reducing the speed fans, and direct liquid cooling. Exhibit 5 Data Center Operators Can Deploy a Number of Effective Measures to Optimize Energy Consumption Typical Data Center Energy Usage by Component (%) 100 •  igh-efficiency systems (e.g., multi-core H Processor load 90 processors, virtualization, processors with Power system load dynamic frequency scaling, silicon storage, etc. Cooling system load 80 41% 41% Potential improvement measures 70 •  educed AC-DC/DC-AC conversion cycles R% Power Consumed • High-efficiency power distribution 60 • District cooling 50 20% • Heat pumps to reduce fan loading  • Desiccant cooling driven from waste heat  40 37% • Variable speed fans 12% • Direct liquid cooling 30 8% 20 7% 10 23% 6% 2% 4% 1% 0 Total CPUs Power Chillers Uninterruptible Voltage Server Fans Computer Power Water Supply Units Power Supply Regulators Room Fans Distribution Pumps Component Source: Data Center Energy Briefing, U.S. Department of Energy; Intel Corporation; Booz & Company analysis 10 Booz & Company
  • 13. The Efficient The typical data center faces a further challenge: the lack of truly efficient Many of the causes of inefficiency can be attributed to organizational prob-Data Center organizational structures and pro- lems such as understaffed demand cesses. The causes of inefficiency and capacity planning functions and are many: Too many data centers the lack of an integrated operating find themselves focusing on day-to- model. After a careful analysis of its day troubleshooting rather than on employees’ activities, one company strong system architecture and design. running a midrange hosting operation Furthermore, data centers often move discovered that employees were spend- into production mode prematurely, ing far too little time on planning and before they have completed proper building out their systems, and far too testing and deployment procedures. much time on daily operations and The result is a low degree of stan- ad-hoc troubleshooting. The result: dardization in commodity operations Day-to-day operations struggled with activities and no clearly modularized a poorly integrated operating model— service and product portfolios, which and efforts to standardize infrastruc- makes both sales and product manage- ture and increase utilization were ment needlessly complex. Incoherent doomed from the start. process routines and lack of fully transparent end-to-end service man- The consequences of a poorly orga- agement often lead to the delivery of nized operating model can be dire service levels over and above what has (see Exhibit 6). In the model on the been agreed to (and is being paid for) left, the various functions of the data by the customer—24/7 support, for center, from hosting to storage to con- instance, becomes the default setting. nectivity, are effectively siloed, withExhibit 6A Cross-Platform Planning and Management Capability Can Improve Efficiency Typical Data Center Operating Model Integrated Data Center Operating Model Customer-Facing Functions Customer-Facing Functions Capacity Planning & Administration Admin. Admin. Reduce Costs Admin. Admin. & Risks Service Service Management Manage- Service Service Service ment Manage- Manage- Manage- ment ment ment Service Service Service Service Service Service Service Service Delivery Delivery Delivery Delivery Delivery Delivery Delivery Delivery Host Midrange Storage Connectivity Host Midrange Storage Connectivity•  urrent data center management is fragmented into many layers, C • By integrating service management and thinking in terms of  with too many handoffs of core processes, such as problem resolution “services,” not “servers,” data centers can achieve better capacity and operations and change management, between functions. planning and management and lower administration costs.Source: Booz & Company client exampleBooz & Company 11
  • 14. each function running its own admin- with the goal of automating routine, features can help with complianceistration and service management and labor-intensive tasks such as trouble and risk management tasks, and somedelivery. The resulting fragmentation ticketing, fault management, and suites offer the ability to managecreates the need for an excessive performance management. And the workflow aligned with standard ITILnumber of handoffs when problems number of automation tools is growing processes. The maturity of such suitesoccur, and any effort of the various fast, as are the different configurations remains a concern, however. Many offunctions to work together to change of these automation systems, and the them still lack real depth and interop-operating procedures becomes very move to virtualization will only add to erability, and they do not typicallydifficult. Instead, planning, admin- that complexity. As long as each plat- cover critical areas such as storage areaistration, and service management form possesses its own management networks and other network functions.should be integrated across all the silo, moreover, each silo will look to The market includes a number of nichefunctions, as in the model on the right, automate its own platform operations. players in such areas as server provi-allowing for better capacity planning sioning, migration to virtual machines,and lower administration costs. Vendors are offering a variety of patch management, and storage automation suites that can aid in the allocation. The result: AutomationCan the automation of data centers process of automation. Such tools efforts still require a patchwork ofhelp improve efficiency? That, of already include configuration manage- tools—BMC Patrol combined withcourse, is the hope of every operator of ment functions such as automatic asset MS System Center, for instance, ordata centers, especially as both process discovery and resource transparency VMware vCenter Server and EMCand management complexity increases. and are beginning to offer dependency ControlCenter. Buyer, beware.The desire to raise the efficiency of mapping and advanced configurationIT processes themselves is strong, item reporting. New audit and controlOne company running a midrangehosting operation discovered that employeeswere spending far too little time onplanning and building out their systems,and far too much time on dailyoperations and ad-hoc troubleshooting.12 Booz & Company
  • 15. Global As corporations look to rationalize and save money on their overall data ers—continues to grow quickly. A well-planned and well-executed globalDelivery center footprints, the opportunity to delivery model for data center services offshore and nearshore a variety of can generate considerable savings, data center services—and to farm out depending on which services are sent some services to third-party provid- offshore, where they are sent, and to whom. Offshoring or nearshoring suitable “commodity” activities such as application management, database management, monitoring, and engi-Exhibit 7 neering will bring the greatest costThe Market for Offshore and Nearshore Services Continues to Gain Momentum, decreases—thanks primarily to lowerOffering Significant Cost Reduction Opportunities salary and benefits costs, significant process improvements, and lower Offshore/Nearshore IT Production: Examples overall management costs. Total Cost Structure Shifts Application management Midrange server operations Moving application management -22% -10% efforts to a combined onshore/ nearshore model probably offers the Manpower 37% Manpower 69% 29% greatest benefit—cost reductions of 56% up to 22 percent—primarily because Hardware Hardware 28% 31% Software 0% 1% of the large reduction in labor costs. 27% Software 11% 12%Connectivity 21% 3% Data Center 14% 16% Manpower typically makes up fully 0% Other 10% 13% Other 10% 11% 69 percent of the cost of onshore Onshore Onshore/Nearshore Onshore RIM Nearshore application management; moving to a combined combined model, however, can reduce Mainframe operations Storage operations -6% -6% labor costs to just 48 percent of the total. Cost savings can also be found Manpower 16% 13% Manpower 30% 28% in other remote management models, Hardware 19% 19% Hardware 43% 44% including mainframes, infrastructure, and storage (see Exhibit 7). Software 28% 29% Software 14% 14%Data Center 11% 12% Data Center 15% 15% Other 12% 12% Other 13% 13% Onshore RIM Nearshore Onshore RIM NearshoreRIM=Remote Infrastructure ManagementSource: Booz & Company analysisBooz & Company 13
  • 16. Companies have taken a variety of as eastern Europe gain expertise in A third company, a large Europeanroutes in their efforts to reap the running large-scale data centers. industrial manufacturer, outsourcedcost and flexibility benefits of global Looking to create a shared onshore/ all of its data center operations,sourcing. India has long been a prime offshore infrastructure delivery including remote managementregion for such activities. One large model, one German corporation of more than 5,000 servers, to adata center operator, for example, recently set up a nearshore subsidiary provider in India. In addition to dataturned to an Indian outsourcer for to provide its more commoditized services, the scope of the projectservices that included 350 servers, 46 second- and third-line services on a included incident management,separate databases, 3,200 network 24/7 basis, in addition to its onshore monitoring, and change execution,elements, and 10 firewalls. In data center, where the tasks requiring all provided on a 24/7 basis. Theaddition, the provider offered virus a more highly skilled workforce project began with just 50 full-timemanagement, as well as backup and took place. Again, the benefits came employees, but within three years thatstorage management. The benefits primarily in the form of lower labor number was approaching 150. Again,obtained included service levels costs. Wages were about 40 percent the advantage in labor costs providedof 99.95 percent, 24 hours a day, lower than those in Germany, and the greatest savings: Wages in Indiaand higher productivity, as well as the average age of the nearshore averaged less than half of those insignificant wage differentials. employees was likewise lower. The the European headquarters. And client also found a strong talent pool the project also allowed the clientSuch benefits can be found closer surrounding its new facility, with to enforce a high level of processto home as well, as regions such adequate English and IT skills, thanks standardization and automation. to the presence of nearby universities.Manpower typically makes up fully69 percent of the cost of onshore applicationmanagement; moving to a combinedonshore/nearshore model, however, can reducelabor costs to just 48 percent of the total.14 Booz & Company
  • 17. Managing Data center operators looking to offer their services to others on a and the revenues obtained from them. Without that connection, they cannotthe Third- commercial basis frequently face the clearly link capacity planning andParty same problem: Too often they don’t have the ability to conduct effective revenue projections, and they cannot determine clear targets for their costsData Center end-to-end capacity management of production, given what the market and cost steering, or the means to expects. Solving this problem requires provide transparency for costs and simple, transparent connections services. Typically, their catalog between services and modular of services is too diversified, with production building blocks and the every customer enjoying its own set capacity to understand the market of specific, personally configured and link it to target cost planning. services. The result is an overly complex set of offerings that is A further consequence of the typical difficult to benchmark or rationally collection of diversified services and transparently charge for. Making maintained by most commercial the transition to a demand-driven data centers is a lack of transparency model will require significant changes regarding the total cost of the in how data centers operate. They data center’s operations and poor must move to a standardized set of governance in managing those limited platform products that can costs. The mechanisms by which be strictly managed and maintained, costs are allocated become overly easily compared with the offerings of complex, thanks in part to poor competitors, and straightforward to organizational alignment. Here again, cost out. the solution lies in introducing a cost- reporting mechanism that is simple, In the area where service and transparent, and based on total cost production issues merge, the problem of ownership, and in realigning is similar. Many data centers struggle the organization into “production to maintain a clear, logical connection towers” that can help organize the between how services are produced process of cost reporting.Booz & Company 15
  • 18. The capacity-on-demand model customer’s needs, and based more onis clearly the future of data center computing capacity and performanceoperations (see Exhibit 8). Customers than on specific hardware andno longer want to pay for capacity software configurations. Thatthey aren’t always using, and they means developing efficient newdon’t much care anymore about the ways to deploy capacity and shutspecifics of the hardware and software it down when not needed, to betterbeing employed. In order to stay balance total capacity usage, andcompetitive, providers must move to standardize both hardware andquickly to offer data center services software platforms so they can scalethat are scalable depending on the up capacity quickly. In Summary These six areas in which data center operations can be enhanced offer data centers the potential for major improvements in their performance,Exhibit 8 and significant benefits in the formThe Continued Move toward Capacity-on-Demand Models Will Force of reduced operating costs. BothData Centers to Rationalize Platforms and Services Offerings corporate data centers and centers providing computing services to Data Center Service Model Trends others should consider some or all of the improvements suggested if they wish to maintain their competitive position. The data center is rapidly Classical Outsourcing moving toward a new model in which what matters is delivering as much computing capacity as customersSpend Managed Services need, when they need it. Will you be ready to give it to them? Computing Utility 0 2005 2020 Servers Toward variable commercial delivery Services • Platform specific • Platform independent •  ased on individual system B •  ased on computing capacity B configurations customized and performance for each customer •  calable depending on needs SSource: Booz & Company analysis16 Booz & Company
  • 19. About the AuthorsStefan Stroh is a partner with Dr. Florian Gröne isBooz & Company in Frankfurt. a senior associate withHe leads the global transporta- Booz & Company in Berlin.tion technology practice and He supports telecommunica-works for leading players in the tions companies and ICTinternational railway, logistics, Service Providers in develop-aviation, travel, high tech, and ing their market positioningconsumer products sectors. strategies and improving IT  operations efficiency. He alsoDr. Germar Schröder is a works on CRM strategy andprincipal with Booz & Company architecture across industries.in Frankfurt. He focuses onIT strategy, large-scale transfor-mation programs, and financeIT, primarily for the telecom-munications industry. He alsosupports IT service providersin business model develop-ment, strategy, and operationalefficiency.Booz & Company 17
  • 20. The most recent list of Worldwide Bangkok Madrid Dubai South Americaour office addresses and Offices Brisbane Milan Riyadh Buenos Airestelephone numbers can Canberra Moscow Rio de Janeirobe found on our website, Asia Jakarta Munich North America Santiagowww.booz.com Beijing Kuala Lumpur Oslo Atlanta São Paulo Hong Kong Melbourne Paris Chicago Mumbai Sydney Rome Cleveland Seoul Stockholm Dallas Shanghai Europe Stuttgart Detroit Taipei Amsterdam Vienna Florham Park Tokyo Berlin Warsaw Houston Copenhagen Zurich Los Angeles Australia, Dublin McLean New Zealand & Düsseldorf Middle East Mexico City Southeast Asia Frankfurt Abu Dhabi New York City Adelaide Helsinki Beirut Parsippany Auckland London Cairo San FranciscoBooz & Company is a leading global managementconsulting firm, helping the world’s top businesses,governments, and organizations.Our founder, Edwin Booz, defined the professionwhen he established the first management consultingfirm in 1914.Today, with more than 3,300 people in 58 officesaround the world, we bring foresight and knowledge,deep functional expertise, and a practical approachto building capabilities and delivering real impact.We work closely with our clients to create and deliveressential advantage.For our management magazine strategy+business,visit www.strategy-business.com.Visit www.booz.com to learn more aboutBooz & Company.Printed in Germany©2009 Booz & Company Inc.