Telecom and Technology Strategy

for Cost Reduction

Abstract

Based on a technical solution in use at Microsoft, this document provides a very high-level overview of how we significantly lowered the Total Cost of Ownership. Also achieved significant server and data center consolidation across the enterprise by using new management practices and taking advantage of technology enablers in new products. This helped sales and marketing be more productive bringing in new revenue. There is also a one page Telecom and Technology Cost Reduction Proposal as well as an article on Formalizing IT Governance (which was rated #1 on Google).

Introduction

Similar to many IT organizations, Microsoft IT was challenged with leveraging new product and technology features and providing optimal IT value to its sales and marketing clients, while balancing pressures such as cost constraints and security threats – plus Microsoft insists on running the pre-released version of all software to make sure it will meet future client expectations.

Beginning in 2002, Microsoft IT commenced a Model Enterprise Initiative (MEI) to reduce the complexity and the total cost of ownership of running its IT infrastructure. As part of the initiative I worked on a Server Consolidation effort to accomplish multiple goals, including the reduction of servers and data centers throughout the Microsoft IT enterprise. The consolidation effort was accomplished in a series of steps:

• Site taxonomy was established.
• A system of Performance Levels was created.
• New network architecture was developed.
• The data center and server management was centralized.
• New operations practices and procedures were instituted.

Situation

• Microsoft IT needed to reduce enterprise complexity and costs. Inefficiencies were targeted in unmanaged, decentralized, non-standard and extraneous servers, and redundant data centers

Solution

• Improve IT operational efficiency, while reducing the total cost of ownership.

Benefits

• Data center, server consolidation: 40 percent reduction in spending.
• Site reduction: 54 percent
• Infrastructure server reduction: 27 percent
• Move servers to data centers from branch offices: rent and maintenance reduced by 50 percent

Excessive Complexity and Costs

Before the consolidation solution began Microsoft had too many data centers and servers. This was because of rapid growth. Also, a centralized management function which was not optimized. Management was decentralized at site locations and unable to centralization. In addition to known server locations, there were many random, non-standard, servers that were not in data centers and were not centrally managed.

This patchwork of data closets and computer equipment rooms was maintained at varying levels of reliability, security, and cost. Typically, definitions and decisions about these locations had been made at the local or subsidiary level, and with different levels of sponsorship, management and support. Because there were so many locations, redundancy was a problem with duplication of storage, applications, and hardware. With no single central management environment, Infrastructure Management was difficult and resulted in inconsistent levels of support.

In 2002, Microsoft IT undertook an Operational Efficiency Assessment, which included:

• Operations review
• Application assessment
• Server infrastructure assessment
• Systems management assessment
• Server consolidation business value assessment
• Risk assessment

The outcome from the assessment demonstrated that considerable total cost of ownership savings and other IT efficiencies could be gained from application and server consolidation. Additionally, this assessment identified geographical locations where consolidation would be beneficial.

As a result of this assessment, Microsoft developed a goal to improve IT operational efficiency while reducing the total cost of ownership. Key to this goal was consolidating servers and data centers and optimizing IT management processes and procedures.

Business Value

Microsoft has gained significant business benefits from its server and data center consolidation efforts. Savings to date related to the consolidation effort is in excess of $25 million US, a 40 percent reduction from pre-consolidation spending levels.

Server and Data Center Consolidation Benefits

The reduction in data center costs of $18.3 million US represents 78 percent of the savings associated with all consolidation activities. Within the data center category, cost reductions associated with servers represent the largest savings, at $8.9 million. 3 years after starting this project 75% of all servers were located in managed data centers.

Real Estate and Facilities savings associated with server and data center consolidations comprise $2.6 million. Operations were amortized over five years. Square footage used was reduced by 50 percent. Network costs were reduced by 48 percent. Vendor support staff was reduced by 22 percent. Data Center sites were reduced by 54 percent, from 24 sites to 11 sites worldwide. 100 full time employees found different positions in the company – there were no layoffs.

Infrastructure Server Consolidation Benefits

Overall, there has been approximately 30 percent reduction in global infrastructure servers. This represented approximately $4.3 million in (ongoing) savings

Centralized Server and Data Center Management Benefits

Centralized server management has reduced the need for on-site support personnel. This applies to both software deployment and incident response tasks.

Originally, server software deployment tasks were distributed between 70 different vendors around the world. Beginning in 2003, remote change work was centralized into a 20-member team.

An internal Incident Management team of 22 supports 10,000 servers worldwide.

Key Catalysts

Hardware Improvements— The industry standards for server performance are becoming the same as mainframe class servers. 64-bit servers are replacing 32-bit servers. Dense, low-cost blade servers and rack-mounted servers are centrally managed with integrated communications functionality. Storage has been consolidated and managed with system area networks and file servers.

Decreased Communication Costs—Overall, cost reduction for communication have decreased because of improvements to equipment and software. These improvements enabled cost-effective geographical consolidations. Management strategy and operations tools have reduced labor costs and made operations easier to accomplish remotely.

Backbone Bandwidth—Worldwide, the network bandwidth has both increased in size and availability while decreasing in costs. Savings in negotiated rates, of up to 40 percent, have been secured for Microsoft’s North American network. Additionally, savings in backbone bandwidth have been generated by moving offices to the new model.  This will continue to drive savings.

New Connectivity Options—Broadband connectivity options such as cable modems are options that are relatively new to the enterprise IT environment. These options were used in recent implementations and save significantly over the cost of leased carriers.

Server and Data Center Consolidation Strategy

The server and data center consolidation strategy involved the following stages:

      Service sites were defined in new site taxonomy.

      Minimum Performance Levels were established to make service expectations within the sites consistent.

      Network Changes were rolled out.

      Data center and server consolidation began in earnest.

Site Taxonomy Development

The site taxonomy is a model that defines IT sites and service levels that are provided at those sites. Consistency was designed to enable customers to make business decisions about the cost and value of a given level of service. This consistency also provides the ability to optimize enterprise system cost and performance.

This taxonomy is designed to ensure that IT environments are planned, built, provisioned, and managed to a level that meets the business requirements of the services that they support. A site taxonomy factors in location, office size, the office’s business function, the type of equipment used, and the connectivity required to support specific business functions. All sites are unique, but the site taxonomy allows IT to properly reset client expectations with respect to site availability.

New Style to Connect Offices

Improved WAN access and less expensive network bandwidth allowed the development of the new network strategy. Conversions were a quick way to save significantly by reducing the number of servers, which facilitated subsequent data center reductions. The remote computing experience is equivalent to working in an environment with one or more local servers.

New Network  Implementations

The initial ICO conversions were relatively fast, recouped significant recurring costs, and were straightforward. The ICO configuration was used on planned new sites where the Internet was available, providing that it saved at least $25,000 over the cost of a leased circuit. For existing sites that were converted to ICOs, carrier contracts became a complicating factor. For example, one site was subject to a 100 percent penalty if they canceled their existing leased circuit contract within two years. Also, the possibility of savings outweighing possible penalties had to be considered in the decision to convert to an ICO site.

Data Center and Server Consolidations

The original 24 Regional Data Centers have been reduced to 11. The effort focused on the data centers that Microsoft no longer required. Data Center consolidation efforts reduced the number of data centers globally and combined applications on servers. The typical pattern was for servers to be moved to data centers, and then servers were consolidated within the data centers. For example, the applications on two smaller servers at different sites would be combined onto one managed server in a data center. Large data centers are responsible for the full range of services, while some data centers, such as the Southern hemisphere, are only responsible for services associated with latency. Large data centers are designed for other functions, such as regional backup and disaster-recovery needs.

Infrastructure Server Consolidation Strategy

The infrastructure server consolidation strategy was basically a two-phase approach. The first phase was a backward compatibility consolidation. As servers were made backward-compatible to previously deployed servers, they were moved to new locations and consolidated. The second phase was to eliminate the physical boxes and have forward consolidation of applications from separate, smaller servers to larger servers. Consolidation allowed the servers to be used more efficiently. Several smaller server applications could be combined into one server. In this model, clients do not own the physical servers; they only own the data.

New Operations Practices and Procedures Strategy

Using the MOF model, a group of efforts aimed at standardizing and implementing new operations practices was undertaken. The practices concerned:

      Incident Management.

      Problem Management.

      Configuration Management.

      Change Management.

Future

Microsoft is continuing to consolidate servers and data centers based on an ongoing process of refining and determining placement criteria, such as bandwidth and latency, and product technology features, such as 64-bit AMD architecture, and Virtual Server. In addition, it is Microsoft’s goal that all application servers be moved or consolidated to remaining data centers.

Conclusion

Server and data center consolidations have been immensely successful at Microsoft. The efficiencies of scale generated from the Consolidation projects provided significant savings, a reduction of 37 percent. While it is important that IT costs are controlled, it is crucial not to lose sight of other benefits, for example to the sales and marketing teams. The Cost Reduction Strategy was used as an opportunity to align IT with business strategy, delivering value by supporting and enhancing Microsoft’s business processes and meeting future demands as well as immediate needs.