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Legacy IT budget cuts boost data center investment plans

New data center investments can come from legacy IT spending cuts, something most U.S. agencies haven't done well in recent years.

The biggest fear for many IT pros who oversee data center investments is that if they make budget cuts this year,...

they'll lose funds next year.

So when the U.S. federal government came up with a plan to cut IT spending five years ago, it included a "cut and reinvest" initiative. This allowed federal agencies to keep some of their money and make better IT buying decisions to increase efficiency and reduce costs.

What happened? It failed.

"There is a bit of reluctance because of the possibility of taking money away," said David Powner, director of IT Management Issues at the U.S. Government Accountability Office (GAO) and the author of a 92-page GAO report released earlier this month to outline the results.

There needs to be a "mindset and cultural change" to reverse course, he said.

"We can't keep spending $80 billion [on IT] without looking for inefficiencies," Powner said.

The cut and reinvest strategy from the Office of Management and Budget asked 26 federal agencies in fiscal year 2014 to focus cuts on duplicative commodity IT infrastructure or contracts, underperforming projects and lower-value or lower-priority investments. The money saved was expected to be spent on initiatives that could demonstrate a favorable return within 18 months.

The reinvestments were designed to improve citizen services or administrative efficiencies while adopting shared services and consolidating commodity IT. The one-time initiative asked the agencies to make sure the reinvestment was between 50% and 100% of the cut.

The report credited the federal government for some progress consolidating data centers, moving to cloud computing and sharing services among agencies. The total savings were pegged at about $3.6 billion -- a combination of either reduced spending or cost avoidance -- but came in at about half of the initial goal.

The bulk of the savings were attributed to data center consolidation and optimization through data center closures, increased server virtualization, license consolidation, increased use of cloud computing, including a move to software as a service applications.

Data center reinvestment no easy task

A focus on reinvestment has to be front and center for the federal government, said Powner, the former director of IT and software development at Qwest Communications International Inc. (now CenturyLink).

"The jury's still out about whether we will be effective with the reinvestment," he said.

While the initiative to save money on IT by consolidating data centers and eliminating duplicative spending started in 2010 and ran through 2015, the "cut and reinvest" project spanned just one year: 2014.

[The federal government] can't keep spending $80 billion [on IT] without looking for inefficiencies.
David Pownerdirector of IT Management Issues at the U.S. Government Accountability Office

During that time, a majority of the federal agencies failed to even submit a reinvestment plan and few of them kept close track of the reinvestments. It was unclear how much would be saved through the reinvestment and the increased efficiencies that it created, Powner said.

"It goes into a black hole," he said, adding it is a source of frustration for the GAO. "There's not a lot of visibility into the reinvestment."

Last December, the Federal IT Acquisition Reform Act sought greater transparency for IT spending and pushed data center consolidation.

"It shouldn't be that hard to do," Powner said.

The top factor preventing a successful cut and reinvest plan is frequent personnel changes. A new CIO will take office and embark on a long term plan, but won't be in office long enough to complete it, he said.

In addition, the federal government's reliance on the traditional Waterfall approach means it takes years to make changes and update aging infrastructure. There are some efforts underway, such as a federal government CIO Council that is sharing ways to move off mainframes quicker.

"The short term view is problematic for reversing this trend," Powner said. "You're going to spend all your money on just keeping the lights on if you don't change things."

Enterprise IT could make a cut and reinvest plan work

With its massive size and cumbersome procedures, the federal government couldn't make the cut and reinvest program meet its goals, but enterprises could use the same principles and make it work.

In the modern data center, much of the data center investment plan goes into new initiatives. Just because it is new hardware or software doesn't mean using it is any easier than what it replaced, said Dan Harrington, an analyst at 451 Research LLC based in New York.

Some IT pros are grappling with hyper-converged infrastructure and how to integrate it with the network for new workloads, but data center consolidation is still top priority for IT pros, according to 451 Research's latest surveys.

IT budget cuts today often end up with the money being reassigned from hardware spending to IT operations and data analytics, Harrington said.

"There is still spending on hardware, but it takes up less space," Harrington said.

For example, two racks of dense, efficient and modern data center infrastructure could replace 20 racks of legacy equipment.

Not everyone is on board with the cut and reinvest mantra. In the next 90 days, 35% of enterprises plan to increase spending on non-x86 servers. Another 47% of respondents to 451's quarterly IT spending survey plan to maintain the current spending level.

Many organizations continue to sink significant money into a mainframe infrastructure and wonder why they should stop, Harrington said.

Meanwhile, the most common target for shutdown and migration are Unix-based servers.

"IBM open sourced Power for a good reason," Harrington said. "The writing is on the wall."

The general feeling is often that organizations are not spending money on equipment and are closing data centers to move to the cloud, Harrington said, but that isn't entirely true.

"People are investing, they are spending more as they consolidate data centers," Harrington said.

As for the federal government, a lot of what the GAO said in its most recent report wasn't surprising to many federal agencies. Previous studies showed that the federal government was actually increasing the share of its budget toward legacy IT infrastructure.

For example, the Internal Revenue Service is working to convert agency location codes to Java on its mainframes, he said.

"Those are the types of things that have to be done," Powner said of the GAO.

Robert Gates covers data centers, data center strategies, server technologies, converged and hyper-converged infrastructure and open source operating systems for SearchDataCenter. Follow him on Twitter @RBGatesTT or Email him at rgates@techtarget.com.

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What areas of legacy spending have you recently cut in your data center? What are some areas of new data center investment?
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I'm in Health IT, so I'm seeing many Healthcare organizations (I'm sure other industries as well) reduce Legacy spending by looking to 3rd party maintenance providers.  While cloud and virtualization are key many health IT applications require them to run legacy gear well past EOSL so they are taking the saving from OEM maintenance cost and reallocating to innovation.  
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