Ovum: Value in Technology - David Mitchell

Involving the finance function from the outset on new IT purchases means that the business case is always at the fore and purchasers can obtain full value from new IT equipment and services, as David Mitchell, SVP of global IT research at consultants Ovum, tells Nigel Ash.

IT vendors that offer captive finance, such as Hewlett-Packard, are often more attractive to potential purchasers. Using bank money means that a separate evaluation of return on investment is needed, in addition to the internal business case.

In the current climate bank funding is proving to be elusive and, even when it can be obtained, the terms can be expensive.

'One of the reasons why deals work better where finance is introduced at an early stage is that you simply cannot talk financing with a junior IT person,' says Mitchell, 'If you are a vendor, you need to be talking to the senior finance team from the get-go. That means there is a greater understanding of what the business really needs, as opposed to what some technical lobbyist down in the bowels of the business thinks that they need.'

The IT vendor team may include technologists, finance people and perhaps business consultants. Together they will be presenting a case to a CFO that should be light on technical jargon but strong on the tangible business benefits. It is more crucial than ever that it can be measured by the finance function.

Mitchell recalls: 'Recently, when talking to one of our clients, he said he had a vendor come to pitch to him and talk about potential head count reduction. His question in return was: "which heads, which cost centre and on which day?"'

Vendors need to able to answer these questions in detail, being very precise about where benefits will be found. In Mitchell's view, this level of clarity simply cannot be delivered at a 'marketing level'.

Big multi-year transformational IT deals that take two or more years to show whether they really deliver are now a rarity, Mitchell says. With the commoditisation of IT, projects of 90 or 120 days in duration are much more common. This allows the benefits of IT to be delivered much more quickly and errant projects to be curtailed quicker, avoiding runaway spending on expensive but fruitless projects.

He believes that recession-hit companies have two main strategic options. They can sweat existing assets as long and hard as possible, or, if there are good deals in the market which they can be sure will deliver in the short-term, they can invest in new generations of energy-efficient technology that can be much cheaper to run. Here, for example, many new generations of IT are more environmentally friendly, using less electricity and less environmentally damaging materials than their predecessors.

'People tend to think of the word green to only mean ecology but it is also about economy and improving operational efficiency.' Mitchell points out that utilisation of an average data centre server can be as low as 3% and no higher than 15%.

'The rest of that asset is depreciating and doing nothing while the power bill still has to be paid. Using technologies such as virtualisation, which allows computer resources to be shared more efficiently, can take asset utilisation up towards 80%. So you are getting much more output from your equipment and you need to buy less of it. An average data centre can save tens of thousands of pounds a year on power alone. You can probably take 40-60% of the cost base down through a combination of engineering and green focus.'

The challenge, says Mitchell, is being able to invest in such savings, as it is often harder for mid-sized companies to access good banking lines.

'Bank money can be just another liability, which has no direct connection to the IT. This is good for the vendor. If a business has a good strong case for IT investment but does not have the funds, vendor finance is attractive, not just for hardware but also for business applications such as financial management systems. Instead of buying an application which will only be used at full capacity for three or four days a month, a company can purchase its standard usage and rent extra capacity for those few busy month-end days.'