The Wall Street Journal-20080129-Business Technology- Taming Technology Sprawl- H-P Hits Snags in Quest for Savings Through Systems Consolidation

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Business Technology: Taming Technology Sprawl; H-P Hits Snags in Quest for Savings Through Systems Consolidation

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In an uncertain economy, many information-technology professionals are looking to consolidate their IT systems to cut costs. But as one tech giant has found out, it isn't easy.

That company is Hewlett-Packard Co., one of the world's largest tech concerns. Since July 2005, the Palo Alto, Calif., firm has been in a project to cut the number of computer programs it uses by more than half, and reduce the number of its data centers -- where large computers run programs that support H-P's businesses -- to six from 85.

Consolidation is a strategic tenet of H-P Chief Executive Mark Hurd, who has trimmed costs and improved operations since he was named to the post in early 2005. Mr. Hurd's goal for the IT project: Cut the percentage of annual revenue spent on IT by more than half. In 2005, Mr. Hurd says, H-P spent $4.2 billion -- about 5% of 2005 revenue -- to maintain its IT systems; he wants that to drop to 2% by the end of this year.

But about eight months after launching the overhaul in mid-2005, H- P's new Chief Information Officer Randy Mott unexpectedly hit a hurdle. According to a February 2006 survey, H-P employees depended on about 6,000 computer programs -- nearly double what Mr. Mott had expected. By then, he was months into the project and had allocated money and staff based on earlier assumptions. "I was blindsided," says Mr. Mott, who formerly worked at Dell Inc. and Wal-Mart Stores Inc.

Mr. Mott isn't alone in his experience. More companies are trying to save energy and maintenance costs by consolidating large numbers of old computers and moving to new data centers that use less space and power. The benefits can be significant: A Forrester Research survey last fall of eight companies that consolidated IT said nearly all "lowered . . . overall operational costs by at least 20%." At H-P, the project is expected to halve IT power use -- and the 19,000-person IT department -- by the end of this year.

But savings can come with a cost. H-P has allocated more than $1.8 billion to fund the consolidation effort. And the projects, which are large and unwieldy, can drag on for 18 to 48 months, according to Forrester. Forrester analyst James Staten says major IT changes often come with unexpected problem: For instance, vice presidents often aren't used to taking orders from chief information officers on what computer programs they can use. "It's about politics," he says.

Such problems are likely to crop up more often as more companies attempt IT overhauls. A survey of 1,500 chief information officers released by research firm Gartner last week said reducing costs through IT consolidation and other means is one of their top ten priorities this year.

At Citigroup Inc., Jagdish Rao has faced similar issues. The company's five-year IT consolidation effort, currently about halfway done, will account for much of the $4.6 billion in annual savings it wants to achieve by next year. Mr. Rao, Citigroup's head of technology infrastructure, says that early in the process, employees worried they would lose certain computer functions. And not long after he began, Mr. Rao says he learned Citigroup used about 10,000 computer programs -- more than the 6,000 he'd expected.

"In some areas we're ahead of plan," including an effort to consolidate data centers, Mr. Rao says. But in areas such as simplifying computer programs, "that's going to be a lot tougher," he says.

In H-P's case, obstacles surfaced as early as December 2005. At the time, several vice presidents "really dug in" and resisted, says Mr. Mott. Some units said, "'We're not going to give you a cost-benefit analysis (for why we use the IT we have). We're just going to tell you what product we want,'" the chief information officer says.

H-P had long encouraged employees to develop or improve computer systems, he says, so such reactions were understandable. But that policy -- combined with H-P's many acquisitions over the years -- also meant there was little company-wide consistency in computer programs.

In 2006, Mr. Mott found an H-P marketing group that used a Web site to conduct customer surveys. The site was supported by its own server, which his department hadn't been aware of. Once the IT department discovered it, Mr. Mott says the executive in charge didn't think it was something the chief information officer should control.

To address such issues, Messrs. Hurd and Mott got a mandate supporting the project from H-P's board. Mr. Mott says he also learned the importance of telling employees about the consequences of not cooperating. He told difficult executives that doing a cost-benefit analysis of their IT use "isn't really a choice," and, backed by Mr. Hurd, threatened some with termination. "Saying 'this is a policy and if you don't follow it you'll be in violation' was a powerful thing," Mr. Mott says.

When he found the number of computer programs H-P used was far higher than he anticipated, Mr. Mott increased the target number of programs to 1,600 from 1,500. By July 2006, he says, the consolidation was on schedule. H-P has its six new data centers running and is moving more computers into them. Staff and software cuts continue, Mr. Mott says. An H-P spokesman says the company still uses "thousands" of software programs, and that should decline to 1,600 later this year.

At a sales event near Austin, Texas, earlier this month, Messrs. Hurd and Mott presented their IT consolidation experience to a group of chief information officers, detailing what Mr. Hurd referred to as "hiccups" in the process caused by H-P's sprawling growth.

"There are going to be booby traps all along the way if you have a culture like we do at H-P," Mr. Hurd cautioned the chief information officers, adding that the solution is to get management support from the top. "Getting the CEO lined up is hard, and that's the key person," he said.