To help save money, IT groups are being asked to cut back -- in some cases, dramatically -- on their maintenance contracts with vendors. So instead of paying a premium for vendors to, say, fix any problems in key software and hardware within four hours, a 24-hour turnaround might have to suffice instead. Sometimes things stay broken until IT staffers can figure out the fixes themselves. And in the meantime, ITers involved say, they just hope that their business users will not notice any ill effects.
Jim Milde, executive vice president of global services for Boston-based IT services company Keane Inc., estimated that of his largest customers -- in pharmaceuticals, insurance, finance, government and transportation -- around 10% are cutting maintenance costs in various ways.
This trend is being seen in pockets all over the industry, IT staffers and industry analysts agree. But given the sensitivity of the issue, and often the politics involved, most ITers would speak about it only on the condition that they not be identified.
Why cut?
Lauren Whitehouse of Enterprise Strategy Group in Milford, Mass., said companies "have to do what they have to do" to get by today. By cutting or renegotiating maintenance pacts, companies trim costs so that they can perhaps avoid or reduce layoffs or still have money to spend on innovative new projects that will help grow the business when the economy does rebound, Whitehouse said.
"Hypothetically, 70% of your budget is for keeping the lights on and 30% is for moving the business forward" strategically in the future, she said. "So you look at the 70% to see what you can squeeze out there so you can keep the strategic stuff going."
For many clients, service-level cuts are "the last straw," Keane's Milde said. "We've seen clients go at rate reductions or cutting baseline support, but it's always with the caveat that they want to keep the trains running."
One IT staffer, a software engineer for a $1.5 billion Midwestern sporting goods manufacturer, said maintenance cuts came to his company after lots of other paring was done, including layoffs of about 20% of the IT staff.
What's being cut
In the past, the sporting-goods IT staffer said, a typical IT maintenance contract purchased by his company specified that if a piece of equipment failed, the vendor would have someone on site within four hours to replace or repair it, he said. "Now, our philosophy is that if it breaks, we'll just go to the store" and buy a replacement.
"As recently as two years ago, whenever you bought anything -- software or hardware -- whatever the maintenance agreement was, you bought it all," the engineer said. "That is totally seen as a luxury now that can no longer be afforded."
Savings can be substantial. The sporting-goods maker paid $30,000 for one application and another $16,000 for an annual maintenance agreement on the application, but now maintenance has been cut altogether. And, he said, "We're cutting those kinds of things across the board."
Another user, an IT manager in the financial services industry and a board member of The Computer Measurement Group, said that while maintenance cuts are being made at his firm, they are occurring only in less important areas -- in human-resources systems, for instance, or Internet access for employees.
One CIO, Jim Prevo of Green Mountain Coffee Roasters Inc. in Waterbury, Vt., said he's not cutting maintenance contracts at this point, but that he can see the wisdom in it as an approach for some.
"It could make sense," Prevo said in an e-mail reply to a query. In general, maintenance contracts "should be based on business requirements. If the cost of downtime is reduced due to business decline, then it might make sense to spend less for uptime. Also, if you drop second shift [work], for example, you wouldn't necessarily need certain coverage for that shift in terms of help desk or assurances the systems are all working at night."
Halfway measures
The sporting-goods firm has also cut maintenance contracts on the network side. In the past, two providers were paid to maintain network redundancy and zero tolerance for failure. That's been cut to one, and now the company accepts outages of up to four hours under the new, cheaper contract.
The sporting-goods maker also used to have a policy that when an IT manufacturer declared a product had reached the end of its life cycle, maintenance contracts might be continued until a replacement plan was created. "Now the plan is to just run it until it breaks," then decide whether to replace it, the engineer said.
Jack Santos, a CIO executive strategist with the Midvale, Utah-based Burton Group, said that he's not seeing a lot of his clients taking these actions yet. "That's more the exception than the rule" so far, Santos said. "That's not to say it's a bad idea."
He has, however, seen small to midsize firms reduce third-party help desk services for nights and weekends. "Often times employees aren't happy about it, but given the economic conditions if it's the difference between a workforce reduction and an inconvenience, they'll take the latter."
Where cuts are not being made
The only places where the sporting-goods firm avoided maintenance cuts altogether were in customer-facing applications, including customer Web portals, which generate revenue for the business. If the Web portals go down, "then our U.S. dealers can't order parts for our products," which cuts revenue, the engineer explained.
As for the financial-services firm, "if it's critical and customer-facing, even in these cost-cutting times, that will not be changed," the manager said. "Anytime you have any regulatory obligations, there is no way that you ... have that luxury to save money there."
In the non-critical areas, "maybe you can cut in areas such as turnaround time" for support and repairs, the financial-services manager said. "You can still look for cheaper solutions, but you'd look for them with a guarantee for the same level of service."
Pain points: Effects on the business
A network accelerator, which compresses traffic to get more speed over the network, recently broke at the sporting-goods firm. IT couldn't call the vendor to fix it, the engineer said, because there's no longer a maintenance contract on it. So his company began looking for a used replacement on eBay. "We lived without the extra speed while it was being replaced; everything just slowed down," he said. The device has since been replaced.
For their part, end users "were noticing the cuts," he said. "The network slowed down. . . and people don't like that." That caused new trouble tickets to be generated due to speed complaints, which overloaded the IT staff with even more work.
"They're generally OK when they're told it's going to hurt," he said of cuts and their effects on company workers. "Then when it hurts, they don't like it. We spent some time in meetings where we had to remind people that they agreed to this" when the cuts were looming. "Everyone wants a fuel-efficient car, but they still want it to go fast."
"Different groups [of users] inside a company might negotiate for different service levels, and the squeaky wheel gets the grease," consultant Whitehouse said. When IT services are shifted around due to budget and maintenance cuts, the users suffering the greatest cuts are the ones who are most unhappy and most vocal. "I'm sure this goes on on a regular basis," she said. "I think it's more pronounced this year because of the general cuts."
Green Mountain's Prevo pointed out that cutting back on maintenance in areas including security could make corporate IT systems more vulnerable in some cases.
Maintenance cuts can cause noticeable performance hits for users, Keane's Milde said. "Sometimes mistakes happen and sometimes balls are dropped. We definitely have had that happen at a couple of customer accounts," he explained. "It's fairly clear, it takes a certain amount of resources to support a certain number of applications."
In the end, maintenance cuts mean that end users will have to solve many of their own IT problems, including finding answers to questions online rather than dialing a help desk, Milde said.
Going forward
The engineer's guess is that in the future, killing maintenance on software won't happen as much inside his sporting-goods company. "Vendors have been lobbying us really hard" to reinstitute the maintenance contracts, "giving us discounts, and are starting to soften policies and prices to try to get us back." In the future, maintenance contracts will once again become the norm in his company as new gear is purchased, he believes. "For the old stuff that's already in place, [though,] I don't see it coming back."
At the same time, there's a bad precedent for IT departments in getting adequate performance out of a lowered budget, Whitehouse said. "Companies don't want to show they can do the same with less because they'll get less next year." The biggest risk is not ever getting back to the pre-cut levels.
Burton Group's Santos said he's also seen changes driven by the tough economy in server virtualization popularity, "since consolidation of servers directly impacts hardware maintenance costs, as well as floor space and energy costs. That has been a very positive trend."
Another thing Santos expects to see are on-the-fly price cuts for maintenance contracts as companies reduce workers and seek corresponding reductions in the IT licenses and services they are buying now. As workers are added again, contracts can quickly be readjusted upward to cover new users, he said.
Even with the dramatic cutbacks needed to cope with the economic climate, however, there might be a silver lining, Santos says.
Companies don't want to show they can do the same with less because they'll get less next year. "Some companies are probably overcutting -- they're going to lose staff, they're going to lose the commitment from their vendors," Santos said. "There's no question about that. But I think the large majority are doing the right thing and doing what they should have been doing in the good times. From 2003 to 2006, when times were easier, they were not being as observant and conservative. They should have paid more attention."
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