A Financial Perspective

Rethinking People Costs inEnterprise IT

Goals of Enterprise IT Organizations

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1990 2012

McKinsey, “Perspectives on Digital Technology,” January 2012

IT Spending as a Percentage of Total U.S. Corporate Capital Investment

35% 47%

• Companies are becoming customer-centric

• Businesses are building mobile systems of engagement

• The new way of thinking requires a fresh look at IT spending, particularly IT staffing

3

IT is Changing Interactions

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78% of developers today are saying the

“pressure to deliver faster” has made

their work harder.

- Forrester Research, 2013

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Forrester ALM Survey, Q1 2013

• A business’ need to generate more output

faster at the same – or even lower budget

levels – requires intelligent reallocation of IT

spending

• The same money, spent strategically in the

right areas, can increase the speed of

innovation

5

The Impact of Customer-Facing Technology

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Goals of Enterprise IT Organizations

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New ModelInfrastructure Outsourcing as a Competitive Advantage

• Infrastructure outsourcing helps financial

managers realize the goal of better customer

experience with the same IT dollars

• Outsourcing makes this happen on two levels:

– Reduction in CapEx on equipment, infrastructure

upgrades and data center facilities

– Potential reallocation of IT personnel from routine

“keep the lights on” work to the development and

deployment of agile, customer-facing systems

Old ModelIT as a Cost Center

• IT in a traditional cost center model

of finance (IT staff/payroll = line item)

Understanding IT Labor Costs – An Example

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Systems Administration Staff

Number

of Staff

(FTEs)

Average

Annual

Salary

Fully-Burdened

Cost Per Item

Total Annual

Costs

Person Hours Per

Year

Server Administrators 2.00 $83,385 $110,485 $220,970 3,600

Network and Security Administrators 0.40 $83,385 $110,485 $44,194 720

Database Administrators 2.00 $93,195 $123,483 $246,967 3,600

Storage Administrators 0.50 $79,800 $105,735 $52,868 900

Backup Administrators 0.10 $67,000 $88,775 $8,878 180

Total 5.00 $560,644 $114,775 $573,876 9,000

Total annual payroll cost and person-hours for the five administrators required to run on-premises system

with complex database and storage requirements

The salary data is industry standard, based on Rackspace total cost of ownership (TCO) modeling process, which is derived from the Alinean® methodology.

A Closer Look

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Is it the best use of those staff dollars and hours?

Administration of a core system like this is a good example of IT “keeping the lights on”

Businesses can’t run without them, but they don’t advance strategic interests

What else could these administrators be doing with their time?

Total staff cost for this system:

$625,268*

The staff spends 9,000person-hours per year running it

*The total staff cost includes the total annual payroll cost, plus $34,650 for training and $16,742 for turnover, according to the Alinean TCO process, as detailed in the Appendix of the

whitepaper referenced at the end of this document.

Outsourcing infrastructure enables businesses to

reallocate IT staffing resources to projects that

serve the strategic mission of the business

9

Releasing the Potential Energy of Innovation

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Procure hardware,

including time

spent working with

finance

department, legal,

etc.

10

On-Premises Systems Need Continuous Support

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The work schedule of a Server Administrator is filled with tasks that span the life cycle of a server

Physical

installation

Configuration of

the server BIOS,

firmware, and other

settings

Provisioning of

network

connectivity with

involvement from

the network team

Basic provisioning

of the OS

(Sysprep, OS

configuration, initial

security component

install, etc.)

Changes during the

life of the server,

including routine

and exception

security updates,

BIOS, firmware,

and OS updates

Storage

provisioning,

possibly in

conjunction with a

dedicated storage

team

STORAGECHANGESOSPROVISIONNETWORK

CONFIGUREINSTALLPROCURE

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Outsourcing Enables Reallocation

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• Outsourcing removes work tasks from an administrator’s schedule

• Administrator hours per server, per year, drop from 355 to 72

On-Premises Outsourced

Procurement 10 0

Physical installation 20 0

Configuration of BIOS, firmware, etc. 20 0

Provisioning of network connectivity 5 0

Basic OS configuration 15 0

Changes to server configuration 100 10

Storage provisioning 10 2

Server monitoring 100 10

Application configuration 35 15

Application change management 40 35

Total hours 355 72

• Migrate entire system to a public cloud on virtual machines with connections to public storage

• Transfer system to a hosted private cloud

• Port system to an outsourced hosting provider, but maintain control using a service such as Rackspace’s Dedicated VMware® vCenter Server™ offering

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Infrastructure Outsourcing Options

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Outsourcing Reduces Administration

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Systems Administration Staff

Number

of Staff

(FTEs)

Average

Annual

Salary

Fully-Burdened

Cost Per Item

Total Annual

Costs

Person Hours Per

Year

Server Administrators 0.1 $83,385 $110,485 $11,049 180

Network and Security Administrators 0.1 $83,385 $110,485 $11,049 180

Database Administrators 1 $93,195 $123,483 $123,483 1,800

Storage Administrators 0 $79,800 $105,735 $ - -

Backup Administrators 0 $67,000 $88,775 $ - -

Total 1.2 $91,560 $121,317 $145,580 2,160

Total annual payroll cost and person-hours for the five administrators required to run on-premises system

with complex database and storage requirements

Company can reallocate

6,840 hoursof IT staff time to new projects

to increase revenue growth!

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Result

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The Financial Impact of IT Reallocation

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Systems Administration StaffSelf-Managed

Environment

Proposed Hosted

Solution

Expected benefits with

Proposed Solution

New application projects per year 10 10

Average system provision time per application (days) 30 2 $110,485

Average annual revenue value per application $5,000,000 $5,000,000

Average lost revenue per system provisioning $410,959 $27,397 $383,562

Annual value of potential revenue losses due to system provisioning $4,109,589 $273,973 $3,835,616

Net incremental contribution 25% 25% 25%

Annual incremental margin contribution $1,027,397 $68,493 $958,904

Improvement in business agility from outsourcing infrastructure and staff reallocation can result in increased

revenue growth

The five-person team liberated from “keeping-the-

lights-on” duties can easily handle the hours required to

provision new applications under the outsourcing scenario

– It would take 12,000 person-hours to provision 10

applications on-premises

– It takes 800 hours with outsourcing (10 apps X 8

hours a day X 5 staff X 30 days = 12,000 hours)

A Closer Look at the Financial Payback

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Bringing each new system online 28 days earlier than

previously possible on-premises, puts the company into

positive revenue territory faster

– Faster deployment brings $3.8 million in extra

revenue, which translates into $958,904 in additional

gross margin

– Faster time-to-market is a strategic benefit that usually

translates into greater revenue, earnings, and

sustained competitive advantage

A Closer Look at the Financial Payback

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A Closer Look at the Financial Payback

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Estimated ROI for the reallocated IT staff time is

substantial

– The time is worth $475,203 (76% of $625,268)

– The ROI is 117% on the outlay for staff hour—hours

that were already being paid to “keep lights on”

– Outsourcing cut expenses required to provision new,

revenue-generating applications

– Average fully allocated administrator cost is $63.76

per person-hour

– Shaving 28 days off of deployment with a five-person

team translates to a cost savings of $71,411 per

application provisioned

Liberate talented IT staff from routine

“keeping-the-lights-on” tasks

Now is the Time to Rethink the People Costs of IT

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Focus IT teams on new customer-facing,

revenue-generating applications

Discover the most profitable way to

invest your IT budget

Achieve the best financial return on

human capital

Explore new ways

to manage your IT

spend

Infrastructure

outsourcing can

help your business

Go beyond the

Traditional cost-

center model

Look at the value

of the IT staff

resources

Need help relieving the burdens associated with

handling “lights on” IT responsibilities, so you

can focus on growing your business?

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Next Steps

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Rackspace has over 15 years of expertise in

managing IT environments for over 200,000 businesses

worldwide. Let our specialists do the “lights on” IT work

for you, so you can focus on growing your business.

Contact Rackspace or read more at

Rethinking People Costs in Enterprise IT – White Paper

Call Rackspace at 800-961-2888 to get started today.

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About Rackspace

9 Worldwide Data Centers

Nearly 6,000 Rackers

200,000+ Customers

90,000+ Servers

26,000+ VM

≅70 PB Stored

Global Footprint

Customers in 120+ Countries

Portfolio of

Hosted SolutionsDedicated - Cloud - Hybrid

Annualized Revenue$1.7B

60% 100OF

THE

We Serve FORTUNE®

OV

ER

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About Rackspace

Named a Top Performer for Hosted

Private Cloud by Forrester Research Inc.

in “The Forrester Wave™: Q1 2013

A Leader in the Magic Quadrant for Cloud-Enabled Managed Hosting, 2014 North America & Europe

Founder

OpenStack®

Open source software for building private and public clouds

THANK YOU

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