Newsletter March 2005

HP and Hardware as a Commodity

• Spending Too Little on Expensive Technology
• Spending Too Much on Cheap Technology
• The Lesson

The recent departure of Hewlett-Packard CEO Carly Fiorina has grabbed a lot of headlines. Like most of you, we'd love jobs where we could get $45 million after being fired. Practically, however, Fiorina's ouster demonstrates that selling lots of computers just isn't a recipe for success in today's market. While IBM was becoming more and more of a professional services company by selling consulting work by the hour, HP kept trying to find money by building more computers. If it weren't for their incredible profits from ink-jet printer ink, they'd very likely be out of business.

Since most of you know that computers are cheap, does it pay to spend time thinking about it? Shouldn't you just go after the lowest price for what you need? After all, one desktop seems just as good as another, and even your child's home computer is amazingly powerful and cheap compared to what you used in college or at your first job.

We believe it does pay to think about hardware. Because "everybody knows" that it's cheap, business people often make two mistakes: They spend too little on expensive technology and too much on cheap technology. What do we mean by that?

Spending Too Little on Expensive Technology

Let's start out by saying that in the world of information technology, expensive is a relative term. What it means here is anything that costs more than your desktop, your laptop or the server that allows you to share files with other people in your company or work group. So while people thin of a computer as something that costs a couple thousand dollars, an expensive computer may cost $30,000 or more. Such purchases may include things businesspeople understand—like a computer to run your financial applications—and things they don't, like a storage area network. The point is, we've seen too often that people, conditioned by the cheapness of their home computers and by a failure to do proper analysis, don't spend enough money when buying one of these key pieces of equipment.

Let me give you an extreme example: We were involved with a client years ago whose consulting bill (paid to multiple firms) probably added up to $5,000—per hour. Dozens of consultants and firm employees were involved. Yet because there wasn't enough disk space available, people wasted a lot of time staying out of other people's way. Eventually, project managers changed, and for the cost of less than two hours of the team's time, more hard-disk space was purchased and people could develop and test software without interfering with each other.

Spending Too Much on Cheap Technology

How is it possible to spend too much on inexpensive technology? Simple. You either buy too much of the stuff or you don't consider what it's going to cost you once you have it. Since PC and server prices have gone down, it's all too easy to buy lots and lots of them without thinking of the total cost of ownership. Indeed, in an average company, a server that pretty much does nothing but allow a dozen people to share files often comes within the purchasing authority of a relatively low-level manager. What this has meant is that no one does enough analysis to figure how much "people time" it costs to keep the things running. The servers that were such a good deal when first purchased turn out to require full-time staff and outside resources to maintain. If some analysis had been done up front, many fewer computers—if initially more expensive ones—could have done the job more effectively for less money.

The Lesson

When evaluating what you spend, it's important not to let what you "know" get in the way of a thorough analysis of your needs and of the real costs of meeting those needs. Also, remember that there is a lot of less well-known—if costlier—technology that will actually save you money. When faced with a purchase of "expensive technology," don't be penny-wise and pound-foolish. If you'd like to know more, contact us.

*Storage area networks allow companies to keep all their data on one system rather than on 10 different kinds of servers. They are very well-engineered and redundant systems, so you can worry much less about individual systems failing.

Red Three Consulting: Transforming Information Technology into Answer Technology