A significant part of the Infrastructure 2.0 vision that Wikibon has been researching is the value of integrated stacks. Integrated stacks can be defined in many ways, and the benefits derived are a function of the definition. The range of integration lies between two extremes:
- Integration of IT components by (say) a systems integrator, and delivering the system to be maintained as business as usual;
- Delivery of a standard integrated stack of hardware, OS, application, and management that has been pre-tested for performance and availability and is delivered and maintained as a single bill of material (BOM) that can be maintained by a single group within the organization.
There are many points between these extremes, but a useful first step is to "envelope" the ends of the spectrum. To help understand the business value of different approaches, Wikibon created a model based on the Wikibon standard $1.0 billion company with 4,000 employees and an IT budget of $40 million per year. The allocation of budget within the model is shown in Figure 1.
The model assumes that a software and hardware solution costs $1.0 million to purchase, based on the cost of a VDI solution from VMware on Vblock hardware (made up of storage from EMC and servers and networking from Cisco) from the VCE Coalition. The model is shown in Table 1 below. The total cost of that $1.0 million capital investment becomes a total budget investment of $3.58 million at the end of four years, when maintenance by the vendors and support by IT staff are taken into account.
The model assumes a 10%($100,000) additional cost of purchasing this integrated stack. The model then looks at the benefits of an integrated stack in three areas:
- Benefits from delivery of the pre-tested stack,
- Benefits from decreased IT staff costs to operate the hardware over the four-year life of the project, and,
- Benefits from decreased IT staff costs to maintain the software infrastructure and ecosystem.
Wikibon assumed that three months would be saved by installing a pre-integrated system rather than deploying internal staff to install, integrate, and deploy the solution. The total benefit for this is calculated as $86,000.
Wikibon assumed that operating the stack delivered as a single BOM would only require 70% of the operational staff that would normally be associated with supporting the hardware, OS and middleware. The benefit comes from the avoidance of the skills required within each of the normal stovepipes of a typical IT organization and the necessity to communicate between these stovepipes. By providing a high unit of compute (the integrated single BOM), the IT provider is reducing the cost of support, and the internal costs within the business. The savings over four years is $417,000.
Wikibon assumed that a single BOM would only require 20% of the development staff that would normally be associated with supporting the package software, saving $131,000. The benefits to the development group are smaller than to the operations group but are still significant as the units of testing and integration are simplified.
The total benefit of implementing a single integrated stack over four years is $634,000. If only the front-end of the stack is provided, only $86,000 would be saved. Overall, the net present value (NPV) of this approach would be $378,000, with a 6 month break-even, and an IRR of 169%.
Overall, the benefits provide a total saving of 18% of the original four-year total cost of the project. The additional cost of the integrated approach over the total four-year cost is 3%. Wikibon believes that this may well drop over time, as IT providers are able to compete with lower costs of maintenance against piece part providers.
A very important benefit of the integrated stack is the work that can be done to pre-test and qualify the stack for different environments, reducing the risk that projects are over-configured, or that under-configured projects that should have needed more hardware were approved in error. This risk reduction is not included in this analysis but is very significant.
Action Item: Integrated stacks can provide a significant reduction in IT costs over the life of a project. The maximum benefit comes from stacks like the VCE VDI solution, where all the component parts are included and maintained as a single BOM. IT executives will need to ensure that the organization can provide a single department within IT or the line-of-business that will be responsible for the total IT support for these savings to be realized.