As any chemist will tell you, an exothermic reaction is one that releases more energy than it consumes. If we apply that notion to finance, an exothermic investment is one that releases more resources than it consumes. Now go a step further -- into the "exothermic data center" -- where investments in IT result in a far greater return to the company than originally expected.
In this month's CIO Habitat, we examined how far data center management has come as well as where it's heading. We surveyed 126 IT thought leaders and practitioners about the prevailing trends and strategic questions surrounding today's data center direction.
There is tremendous optimism about this new "glass house" in the wake of technology advances that have improved reliability, remote monitoring and virtualization while lowering costs and reducing company footprint. Fully 74% rate the state of the data center as improving (see Figure 1).
The CIO at a financial services conglomerate notes that improving reliability, price to performance, process controls and monitoring has transformed the data center. Companies today, he adds, have "greater understanding of end-to-end performance, better control of PCs and servers [with automated software updates] and an overall better end-user experience."
Through a Glass House Lightly?
One does not need a Ph.D. in research methods to recognize that management thinking about data centers has evolved substantially since the first computer rooms housed truck-sized behemoths. Data centers were once perceived as the center of the computational universe as well as a source of endless mystery. "Data centers were dark glass houses," a senior IT executive at a transportation company jokes, where "only the shadow" knew what went on behind those doors. Then, during the go-go days of client/server computing, data centers receded as expanding bandwidth enabled more distributed modes of deployment.
But now, as organizations wrestle with regulatory compliance, disaster recovery and business continuity planning, the data center has moved front and center once again. The CIO at a health insurer notes that his data center build-out "is the only capital project I have this year with an ROI." Another CIO from a multimodal transportation company contrasts the huge physical plants required for pre-1990s data centers with today's "severely compressed footprints." But while physical space has shrunk, physical cooling and centralized power locations have significantly increased in complexity, he adds.
"Old uptime expectations of 99% are out of date. Now it's 100%, 24/7, which means data centers have to provide multiple layers of failover redundancy and excess capacity," he observes. "The Internet environment assumes you can get to anything, anytime and with immediate response."
CIOs appreciate how the cost of computing hardware has continually decreased per unit and that mainframe software vendors are more willing to negotiate because of the competitive pressures created by open systems. Shifts to Linux servers from Unix, blade servers and network-attached storage connectivity have all helped control computing costs. Fewer people are required to work and manage data centers.
"Ten years ago, we had two data centers and more than 20 personnel dedicated to data center printing and tape operations," the transportation company CIO notes. "Today we have a total of five personnel dedicated to those same two functions covering both open-systems and mainframe operations."
Turning Points and Trend Lines
Yet while respondents perceive the general data center situation as improving, most agree that the future will require adjustments. As the CIO at a financial exchange says, "Today any data center that is over 10 years in age is probably obsolete. Most likely the center was designed to handle approximately 35 to 40 watts per square foot. Today's requirements are growing exponentially to 50 to 75 watts per square foot," he says.
The good news is that the industry knows where it's heading capability-wise. Information management is being professionalized, and neither business nor the public at large will tolerate poor information management practices. How decisions are made and the information management systems supporting them must be evident to investors, regulators and customers. And data centers will play a major role in managing this information. As business needs change dynamically, computing capabilities must as well.
But the bad news is that few know how to get to the next level. In a previous CIO Habitat ["Turning Telecom From an IT Blind Spot Into an IT Innovator," February issue], we discussed presbyopia: the tendency to view the distant future enthusiastically while overlooking likely obstacles in getting there. Respondents to this survey exhibit similar blind spots about how to reach the future.
In the future, data centers will be lights-out facilities, featuring pay-per-use pricing, near-infinite scalability, total security and increasing asset consolidation. The CIO at a regional office supply company that prides itself on superior customer service sees a clear trend line of "more automation, redundancy, elimination of labor, standardization and continued outsourcing." An IT colleague at a Midwestern construction firm concurs, "The major trends I see are the move to more organized and neater data centers, plus the use of more monitoring and remote-console software to move the operation of centers to more of a lights-out mode."
The CIO at a federal agency sees his next steps as "re-centralizing the data center functions that the business areas had taken upon themselves. This helps ensure consistency of process, privacy and confidentiality, and security." And the director of architecture at a medical distributor notes that, finally, the one-application, one-server mentality is disappearing.
Then there is the question of virtualization, which research firm Gartner Inc. defines as the "pooling of IT resources in such a way that masks the physical nature and boundaries of the resources from resource users." The IT community loves virtualization because it offers cost savings in storage management today and possibilities for software and networks tomorrow.
But virtualization also raises questions about literacy. Do the "suits" -- that is, business executives -- understand what is happening in data centers? How much do they need to know? Among our 126 respondents, the majority (89%) say the suits don't understand virtualization. And most (91%) believe that the business doesn't need to understand the inner workings of virtualization, just to sign the checks that make it possible.
Insourcing Versus Outsourcing
Among respondents, 76% have already decided whether to outsource their data center (see Figure 2). Frankly, we expected respondents to list outsourcing at the top of our trends list, but they place it third, behind consolidation and virtualization (see Figure 3). Further, we were impressed to learn that 16% of respondents no longer use a big-bang approach to data center outsourcing (i.e., making a decision and running with it until something disastrous happens). Because of improvements in IT service delivery and the ever-changing tradeoffs between in-house capabilities and third-party competencies, this group regularly revisits its decisions about what to keep in-house and what to outsource.
Is the data center ultimately too strategic to be outsourced? For some companies, depending on their size and business demands, the answer to that question is "Damn straight" (see Figure 4). The CIO at a financial services firm (which is big enough to spend the money required to keep his data center in-house) vehemently believes that data centers are strategic assets. "We continue to see data center control and management as an important competency to be maintained within the firm," he says. "Maintaining data centers over the past few years has required upgrading the physical and power infrastructure to support the growing density of equipment. So planning and investment are important."
Keeping the data center internal gives this company better cost controls as well as the flexibility and speed to meet business requirements and understand new opportunities, the CIO adds. "We selectively outsource certain functions [such as desktop support and network management], but not the core of IT that runs our business: the data center and applications."
Many midsized companies use selective outsourcing as a way to support the business without overspending on IT infrastructure. "The redundancy for power, air conditions and telecommunications" built into centers like those run by Qwest and BellSouth are "too expensive to duplicate on your own," the CIO at a construction company asserts.
André Mendes, chief technology integration officer at the $350-million PBS in Alexandria, Va., adds, "I can't afford to provision for the peaks that my Web sites experience, so in that case it makes sense to let somebody else use their pooled resources to satisfy that occasional need." But for all other applications, "We have become so lean and mean that outsourcers can't compete with my internal costs," he says.
All CIOs -- whether they are in the public or private sector or at jumbo or midmarket firms -- wrestle with getting solid data with which to make data center decisions. "We are using a combination of consultants and benchmarking to compare our operations with industry best practices and costs," says a senior IT executive at a medical distributor. "At the end of the day, this will be an economic decision."
One transportation company performed a head-to-head comparison of four major outsourcing providers with its own internal data center capabilities. "Our base case considered the cost of constructing the data center, moving the data centers and the people to new facilities, and incurring ongoing costs for five years," this senior IT executive explains. "No outsourcing provider could even match our internal costs, much less save on total expense."
Who Moved the Finish Line?
As the CIO at one regional health insurer notes, you never really finish your decision-making cycle regarding data centers. Insourcing, a reversal of the data center outsourcing trend of a few years ago, caught his company off guard. "We not only outsourced the hardware platforms, but the expertise in the data center. And that expertise has been difficult to rebuild," he says.
In the future, midsized companies especially must watch and understand "the true timing of the next waves of change," recommends the CIO at a financial services conglomerate. "We need to map these changes to our current environment. There are several concepts--on-demand, grid, virtualization, autonomic, etc. -- and associated promises that trail the vision significantly. We do not want to be on the bleeding edge, but take advantage of these innovations as they become industrial-strength."
Ironically, the best current strategy for data centers is to be financially exothermic -- that is, to throw off more revenue heat than financial capital invested. And when this strategy is pursued correctly, data centers can and should be economic multipliers. The future will require accurate data delivered in a secure, timely fashion. The data center is part of the organization's brand and serves as a visible guardian of the information assets of the enterprise. And that's good chemistry for any company.
SURVEY METHODOLOGY: We surveyed 126 thought leaders and practitioners; the sample comprised large enterprises (40%), midsized enterprises (40%), the analyst and academic communities (10%), and service providers/staffing firms (10%). We were aided in our research by participants at the Fisher College of Business CIO Practicum Dinner Series, the Brookings Institution's Urban Markets Initiative Forum on Information, and faculty and participants of the Managing the Information Resource Program at the University of California, Los Angeles.
Thornton May is a respected futurist, adviser and educator whose insights on IT strategy have appeared in Harvard Business Review, The Wall Street Journal, BusinessWeek and numerous computer industry publications. To comment on this story, email editor@ciodecisions.com.
This was first published in April 2006