In today's IT market, vendors tell users that engineered, converged and highly integrated systems deliver the greatest efficiency. But some users believe a heterogeneous environment is the best path to savings.
Michael Spears is one of those users.
Spears is the CIO of the National Council on Compensation Insurance (NCCI), which gathers and analyzes data about the workers' compensation insurance market and offers products and services to help more than 900 insurance companies and nearly 40 state governments better understand risks, costs and industry trends. The Boca Raton, Fla.-based not-for-profit brings in about $160 million in revenue; the IT department accounts for about a third of the organization's expenses.
Highly customized
The NCCI's work is so specialized that most of its applications are custom-built. Of the 220 people on Spears' IT staff, around 150 are in development. The rest support infrastructure and handle quality assurance.
Spears isn't averse to consolidation. NCCI recently migrated off a System z10 mainframe running z/OS applications developed in Cobol and DB2, as well as z/Linux applications, because he believed that many of the applications on the mainframe could run on a less costly midrange system.
The midrange computers are Solaris systems based on Sun hardware, which is made by Oracle. Spears had initially considered using Oracle's Exadata platform, which includes database, processing and storage components. But he believed that moving to that integrated platform would cost more in the long run.
By keeping processing and storage systems separate, Spears says he maintains leverage in contract talks. He can take the processing capability that runs on Sun and move it to an IBM system, if he chooses. That wouldn't be an option with an integrated system.
Long-term concerns
But Spears is worried about the long-term trend of highly integrated systems.
"Vendors that previously made options available -- Oracle Exadata versus Oracle Database plus Solaris -- are pushing hard to move customers to one preferred platform," he said.
It's happening in the software market as well, he added, citing Microsoft's drive to get customers to move to Office 365 instead of selling Office applications individually.
In the face of those trends, Spears said, "we try to work on creative solutions that would reduce cost and/or make us as portable as possible, so we can take advantage of better options."
The mainframe migration prompted other cost-saving moves. The mainframe used Tier 1 storage on an EMC system. Spears' team sought new bids for storage systems, and EMC came back with the best proposal -- one based on an entirely new tiered storage system that would save about $4 million over five years.
NCCI also took a new approach to disaster recovery. Under its DR agreement with IBM, the vendor owned the backup equipment. Spears wanted NCCI to own the equipment so it would be able to more easily switch vendors. He sought new bids for disaster recovery services, and IBM won with a proposal that allowed NCCI to host and offered expanded service options.
That new contract is also saving around $4 million over five years. Disaster recovery "was a commodity that we needed the best price on, and [IBM] heard us," he said.
Spears estimates that the mainframe migration, plus the changes in storage, disaster recovery, maintenance and staffing, will save NCCI a total of about $18 million over five years.
Choices dwindle
But the trend toward vendor consolidation is generally putting users in a tougher spot at the negotiating table.
"This move to integrated systems is taking a lot of choice out of the market," said Charles King, an analyst at Pund-IT. Once a user decides to move to an integrated system, "you are locked into dealing with a vendor on the product," he said.
"The impact on customer choice and negotiating positions" is very strong, he added.
The concern about a narrowing of choices isn't limited to platforms. The industry consolidations resulting from mergers and acquisitions could lead to the discontinuation of development work on certain systems.
"That may force us to switch tools and vendors," Spears said.
The impact of consolidation can be particularly acute in certain markets. The banking sector, in particular, may be the canary in the coal mine that offers an early sign of the risks of IT consolidation.
A study of community banks and credit unions by the Business Performance Innovation Network, a San Jose-based research group, found that those institutions are overpaying for banking IT services. That's because three vendors now control 85% of the market; 20 years ago there were dozens of viable competitors.
"The fact that there are so few vendors means that vendors have the upper hand in negotiations," said Dave Murray, the author of the BPI Network report.
BPI Network says users can improve their negotiating positions by initiating talks early -- at least 18 to 24 months before a contract is set to expire. According to the study, companies that wait longer "tend to reap lesser returns."