Overlooked considerations when investing in IT infrastructure

Dec. 1, 2007
As the global economy moves further into the digital age, oil and gas companies are relying more and more on information technology for business operations.
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Blake McLane CyrusOne Houston
As the global economy moves further into the digital age, oil and gas companies are relying more and more on information technology for business operations. They are also investing heavily in developing or acquiring IT and information systems that can create or sustain competitive advantages in the market. According to Forrester Research, the global spend for IT goods and services reached $1.5 trillion this year and is expected to grow at least 5% in 2008. Total global spending on goods, services, and staff reached $2.1 trillion.

Today’s IT and information systems are agile enough to help companies anticipate business needs and adjust ahead of market curves. Whether it’s a threat from new market entrants, emerging suppliers, substitute products, or shifts in customer behavior, IT applications help with predictive modeling and strategic decision making.

The stakes have never been higher. Information technology is no longer seen as a budget item; instead, it is viewed by most executives and managers as a strategic investment that will increase revenue while reducing operating costs. IT today serves many critical business functions and provides efficiency improvements and reduced operational redundancy. It is used for operations management, decision support and executive strategy development. New technology leads to new opportunities, which in turn leads to competitive advantages.

The key questions today are: How can IT help our organization excel in the market? What is the optimal approach to investing in IT infrastructure? There are four questions to consider before making a significant investment in IT infrastructure.

Is this investment scaleable?

Scalability has been the buzz word among IT managers for years, and with good reason: the data center, in addition to being the most capital-intensive aspect of IT, also serves as the nerve center for most large companies. The ability to adapt and grow with new technologies is critical. Yet only with a crystal ball can a company predict its data center requirements over the next ten years ­ most projections are updated year to year. No one can forecast how technology will fully adapt to market needs five or ten years down the road.

Not surprisingly, most in-house data centers become quickly obsolete, as hardware depreciates and manufacturers push newer and faster technologies. This jeopardizes system scalability and impacts IT budgets ­ suddenly acquiring new hardware and software isn’t enough. You now have to reconfigure or even retrofit your data center to accommodate system requirements.

These burdens can push a newly-built data center into the red zone very quickly ­ many companies with in-house data centers find themselves retrofitting an existing environment after just a few years, simply to keep pace with changing technology. Retrofitting can be very expensive and time-consuming, and typically includes additional cooling and power capacity and resetting floor configurations.

At the end of the day, companies are faced with three options: 1) build a new facility, 2) retrofit or expand an existing facility in an ever-changing business environment, or 3) colocate with a data center services provider. Outside of the tremendous risk, there are hefty capital and operating costs associated with the first two options.

High Density Factor
Paramount to any evaluation of IT investment is the issue of high-density equipment. In the oil and gas industry ­ as with other industries ­ many companies have moved aggressively to equip their data centers with blade servers, a popular and space-efficient means of crunching more data and applications into a smaller space. This strategy, however, comes at a steep price: higher utility expenses and the costs associated with retro-fitting a data center to accommodate the exponentially higher power and cooling requirements of blade servers.

About 25% - 50% of data center costs are attributed to power consumption, and this number continues to increase dramatically, and could surpass hardware and equipment costs in the near future. This means that achieving optimal power distribution is paramount within a data center. Taking maximum high density consumption into consideration, it could cost a staggering $1,500 per sq ft to build a data center running at 250 watts per sq ft ­ a typical requirement for modern blade server needs. For a 10,000 sq ft data center, this translates into an increase of $15 million in power and cooling infrastructure.

Is this investment strategic?

The data center also helps managers leverage IT for strategic business outcomes ­ scalability here includes having a flexible, optimized infrastructure for supporting power-hungry information systems. It’s essential to have outstanding storage, software and applications on hand, but packaging these tools in a robust, scalable, IT-centric environment is even more important. No one can afford downtime, whether due to power failure or computer hardware breakdowns.

A data center must be designed and equipped to minimize any potential failure that could impact business ­ yet regrettably, most in-house data centers lack the scalable architecture and progressive design-and-build characteristics required for flexible, scalable operations. As a result, they become increasingly vulnerable to failure when faster, more intensive technologies are introduced and power and cooling demands increase.

Will this investment drive revenue?

While IT has been delivering cost reduction benefits for many years, its revenue generating capabilities have been visible and measurable for just a short time. This is one of the most exciting aspects of today’s IT environment, and one of the major reasons that IT has become a trillion dollar industry.

Countless companies and organizations have transformed their business models and use technology daily to assist with critical business decisions that grow revenue. This is a novel concept for IT ­ yet when packaged in a state-of-the-art data center, IT hardware and software can work in tandem to provide companies with flatter, leaner operating infrastructures; mass customization options for rapid deployment of customer- or market-focused programs; and data integration that supports faster delivery and faster time-to-market for products and services.

Why invest in IT infrastructure?

Given the criticality of the decision to build and/or retrofit a data center, it’s extremely important to understand and forecast all capital and operating expenses associated with the project.

Analytical tools help make the right investment decision
Making the best decision requires a thorough, accurate and realistic assessment of operating costs and capital expenditures. Every effort must be taken to avoid overlooking or undervaluing critical components of the decision-making process. When properly and accurately assessed, the factors involved in a build vs. buy decision typically point to a colcoation data environment as the most reliable, cost-effective choice.

We encourage feedback from our customers, many of whom have grappled with the build vs. buy dilemma, and the overarching message we hear is that colocation data centers deliver cost stability and peace of mind. Predicting utility costs and factoring in system redundancy requirements and updates are no longer a concern. Capital expenditures and data center build-out factors are taken out of the equation altogether.

Outfitted with best-in-class power supply equipment, colocation data centers are ideally positioned to economize power whenever and wherever possible through optimal distribution of energy controls and resources. This translates into predictable, budget-conscious hosting costs for the customer.

The build vs. buy dilemma is a strategic challenge for both IT leaders and financial leaders within a company. Increasingly, the decision isn’t just about data, but the entire data hosting infrastructure hosting environment. The colocation data center no longer serves as merely a secure data repository; rather, it hosts an entire infrastructure associated with data storage and mission-critical applications. Though remotely located, it serves an integral role in a company’s business operations.

More and more oil and gas companies ranging from super-majors to independents are realizing that building and operating a data center is not scaleable, not strategic, and not revenue-generating. And it’s becoming more and more critical for these companies to maintain availability of their servers. We are seeing a trend within the energy industry in selecting colocation providers instead of spending millions of dollars in building and operating their own data centers.

About the author

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Blake McLane [[email protected]] is senior vice president of strategic development for Houston-based CyrusOne [www.cyrusone.com]. The company specializes in providing data center solutions for the oil and gas industry.