Renegotiate your gas contracts within the next 12 months or risk being tied into contracts based on higher unit costs – that’s the advice from specialist power, gas and ICT procurement specialists, Total Utilities Management Group.

Gas customers have been enjoying favourable pricing since 2009 as a result of ‘Take or Pay contracts’ in place between gas-based electricity generators and their wholesale gas suppliers.  These contracts commit energy/gas retailers to buying a certain amount of gas at a set rate, irrespective of the amount sold on.  This has periodically resulted in retailers looking for a good home for their excess gas – with near wholesale prices being offered to some retail customers as a consequence.  But be aware, these ‘Take or Pay’ contracts are due to expire within the next 12 months as we understand it.

Prior to 2009 the trend of rising gas prices caused an increase in the size of the recoverable reserves in the Maui Gas Field.  This also had a dampening effect on the market rate – all good news for consumers.  However, the pockets of gas from Maui are now becoming less reliable – the first reserves extracted were graded P85 (85% probability of successful extraction) but we’re now moving towards P50 reserves (50% probability) and this leads to increased retailer uncertainty which means that more risk, and therefore more cost, is built into customer contracts.

These two trends add up to a strong indication that the clock is ticking for this period of low natural gas pricing.  Unless something significant changes, we believe that the current period of low pricing will last for less than 12 months.  TUMG is currently bringing forward our client’s major natural gas negotiations so that we can lock in the low pricing for the next three years.

Our most recent bulk gas tender, completed in March this year covered a diverse range of customers, large and small, and achieved savings averaging $53,900 per customer over a three-year period for 19 of the 22 customers.  Five customers cut their gas costs by between 22% and 36%.  If you’d like advice or support in any utilities contract negotiation, just give us a call on 09 576 2107 or email jonathan [at] tumg.co [dot] nz

In the final part in a series of three articles on cloud computing, David Spratt, ICT specialist at Total Utilities Management Group (TUMG) answers the question:  Does cloud computing genuinely offer benefits to New Zealand businesses or is it another example of ICT answers looking for a problem?

Cloud services (especially Software as a Service) is an ICT revolution unfolding before our eyes.  It is crucial that all businesses plan and execute change in order to take advantage of the rise of web based services if they are to continue to be competitive.

A bold statement but one which I believe is backed up by four recent reports around global online buying behaviour.  Although it may not commonly be recognised as such, online shopping is the cloud service with which we are all most familiar.

1. A recent Pew Centre report noted that, for the first time, more consumers owned smart phones than ordinary mobiles in the USA.  This shows that even if not everyone is using their smart phones to access web services they are certainly now able to do so.
2. Forbes noted that the last Thanksgiving sales in the USA (our equivalent of the Boxing Day madness) generated more revenue from online sales than from those at retail stores
3. David Jones, the major department store operator in Australia, announced major, permanent reductions in the price of all its designer brand offerings because its sales were being so severely eroded by the impact of on line shopping.
4. A major camera store operator in Melbourne now charges $50 to customers wanting to try cameras in store before buying them.  Why?  Because these customers were now trying in store and buying on line!

The most common question I am asked by executives across all industries is ‘How do I position myself for cloud services and what are the issues that I face when I do so?’  These same executives are often faced with contradictory feedback from various departments some of whom are desperate to take advantage of the latest new software offerings available in the cloud (Software as a Service) while others take a more conservative approach in the face of potential expense and complex changes to an existing system.

In my opinion, Software as a Service (SaaS) is an area that offers businesses the opportunity for major improvements.  Firstly it is important to understand that deciding whether or not to use Software as a Service is not a simple either/or choice (Either I own my own software or I get it off the net).  In fact cloud computing has three quite distinct classifications when it comes to accessing software as a service.

Private Cloud – Where your business owns and operates the application and it’s delivered over the web.  This approach is often taken by businesses whose software application is unique to their business and/or delivers strategic advantages that they don’t wish to share with other companies.

Community Cloud – Where your business or organisation shares an application with other organisations that have a similar need.  This approach often suits professional services companies, schools or sports clubs who have highly specific requirements and want to share the cost and complexity of accessing a sophisticated web based application.

One good example of a community application is the global ticketing service shared by all the major airlines worldwide. This service allows airlines to share information to enable connecting flights onto each other’s flights.

Public Cloud – Where businesses access a piece of software that is generally available to anyone.  Google Apps and Skype are good examples.

The first thing is to decide whether you want a private, community or public service.  This will be driven by a combination of technical needs and drivers from various stakeholders in and around your business.

Then businesses need to decide how and when to move to a cloud services model.  You will note that I say ‘when’ not ‘whether.’  This is because the cloud model offers such enormous advantages to consumers and businesses that I believe the decision will become unavoidable for most businesses over time.  How to implement that decision is a more complex matter.

In order to make a methodical transition to cloud services I would recommend that businesses take an approach which combines technology adaptation with a pragmatic approach ie: identifying the most useful services available to your business and prioritising them.

Most business leaders have adopted or are looking at adopting cloud services because they are sick of  paying for businesses services that no longer deliver the value or flexibility their businesses requires.  To drive technology adaptation without becoming buried in technical gobbledegook a simple but powerful instruction needs to come from the top that drives the change.

To arrive at this instruction it is necessary to look at the HOW a service will be delivered.  Cloud services require two things to operate:  A web browser and a working network connection.  Given this, a business leader can simply say to the ICT provider:

“From here on all new or existing applications must be made securely available to any device that supports a web browser and a network connection”.

This means that all business services applications must be made available to all devices whether PC’s, laptops or smart phones.  If it is not available it must either not be selected or, if it is an existing application, it must be replaced or upgraded.

But aren’t computers different from phones – even smart ones? The pat answer would be that smart phones are actually computers.  This is obviously true but the smart phone and its tablet cousins have fundamentally shifted our definition of what a computer is.

It is this shift that lies at the heart of how cloud computing drives competitive advantage. For the first time there is no distinction between phones and computers – they have converged at the browser.

Suddenly expensive proprietary operating systems don’t dictate our application decision. We can buy and use any and all applications the business needs provided they run on a browser via a network connection.

Sadly this does not mean is that we can do away with the cost and complexity of ICT by simply moving to cloud services. However, we can move away from server hardware, application licensing and upgrades.  In exchange we need to become more aware of how we allow and enable connections to our business services.

Network security, availability and access now become even more important. Protection of data, concern for confirming user identity, worries about what services people can access from where are all big questions.  They are also complex and potentially expensive questions to design for and implement.

Application selection also becomes critical.  In the past the IT department helped to choose, run and administer expensive hardware and operating systems. Now their role must shift from technology gurus to business analysts and network specialists – helping the business select and implement the right applications and making them available in the cloud – whether it’s private, community or public.

Access devices will become a vexed issue.  We already have users wanting online access via their own devices rather than using the PC, laptop or mobile phone authorised by the ICT department or business.  Instead we are moving to a “bring your own device” (BYOD) model where if you have a device that supports a browser and a network connection, you can access the application you require.

There is also the question of access costs.  Network consumption is no longer a fixed cost.  In New Zealand the cosy mobile phone company duopoly (until recent times) means that we pay far more for data downloads than we should.  In most advanced countries, mobile data plans offer fixed prices and almost unlimited consumption – not so here.

As a result of this unfortunate commercial construct, mobile data monitoring and reporting have become essential.  Roaming and downloads are an expense that can easily blow budgets if proper monitoring is not in place.  Financial controllers take note!

On the other hand, the decision by the regulator to enforce an open market in tolls and fixed data lines mean that we can substitute some of the savings we make there into mobile data costs.  This helps businesses take advantage of the efficiencies cloud services provide without busting the bank balance.

David Spratt is an ICT Associate with TUMG and can be contacted on 0275 749 141 or 09 5762107

Cloud services have emerged as a genuine threat to established hardware and software providers as well as to the livelihoods of the many thousands of IT professionals who have made their living selling and supporting these products over the last twenty or more years.

This threat makes ICT investment decisions by businesses particularly challenging as we are encouraged by one group to stick with the tried and true and by another to throw away the old and bring in the new.

This three part series assesses the importance of cloud services to business by looking at whether a particular service reduces costs and/or improves businesses performance when compared to the existing way of doing things.

Part One of this series addressed Infrastructure as a Service – where traditional ICT services such as storage and processing power are provided.

Part Two addresses Software as a Service – where organisations access software tools via the internet.

Software as a Service represents the single biggest game changer in business IT since the personal computer made mainframes and mini computers a part of history.

Let’s look at email as an example.

Most businesses buy and run their own email services.  Associated with this is the need to buy and run a fileserver and email software, PC’s and laptops running a compatible operating system and  software client.

Once purchased, installed and put to work, email users and support staff experience risks from spam, computer viruses and malware attacks.  There is also the question of backing up and storing old emails and the associated mailbox storage sizes necessary to support this.

As we have become more used to mobile work styles mobile access to email and calendars has become an important issue. We solve this by buying specialised devices like Blackberries (with more associated software and charges) or by syncing our “compatible” devices to the email server – provided, of course, we can get the syncing software to work!

So we have a service that is expensive to run, insecure, hard to support, inflexible in its accessibility and limited in its scale and scope of devices.  While not labouring the point I think the reader can see how the cost in time, effort and money keeps rising for email despite the limited value being delivered.

Compare this to email delivered as software as a service.

Most of us use Xtramail, Google, Yahoo, Hotmail or similar as our personal email service.  These services just seem to operate – provided the network connection is available.  We can access it from work and home, via smart phones, in internet cafes, we can even access it from free internet services available in airports, banks and cafes.

These services rarely, if ever, notify us that our mailbox is full.  We never have to worry about backing it up or installing a new version.  We don’t even worry that the device we have chosen might not allow us to access our email, all it needs is a browser and a network connection.  Oh yes – and it’s FREE.

So what is so different about email at work?  The answer to that question is nothing at all.

It is possible to use free personal email services in small and medium size businesses and they work fairly well.  In reality, though, buying a commercial cloud based email service is a much better idea. Gmail for example offers a business email service for around US$50 per user per year.

This service comes with all the office applications you might require (word processing, spreadsheets, and calendars) plus dozens of others that you might not.  New applications are being added constantly.  The service has enhanced, business quality security and back-ups and allows you to use your company name as part of your email address – for example my Gmail address is david [at] tumg.co [dot] nz

The service has mailbox size of GB25.  To give you a sense of the scale of this – I use email daily in my work.  So far in the twelve months since our company, TUMG switched to Gmail I have used 250MB of storage.  This means that for all intents and purposes my mailbox is 0% – yes zero percent – full.  If I was still working in my old job I would have exceeded my mailbox limit (100MB) by two and a half times and probably deleted a good number of emails that I will definitely regret not having kept at some point.

So what does this mean from a dollars and cents perspective?

This is a tough one but I can share some work we did for a mid-sized client recently.  This group had 50 staff using a self managed email service.  The cost to support this, according to our calculations, was around $20,000 per year.

Using Gmail, the cost to run this same service would have been around US$3,000 per year.  This, of course, does not include the network connection or the local firewall both of which are generally required anyway and so are not costed on either side of our equation.

Over a five year period we would have seen $100,000 spent on self managed email or $15,000 on cloud services – saving of $85,000 over five years a payback period of nine months.  This for a service that:

-        Has virtually unlimited mailbox size

-        Is accessible anywhere, on any device provided it supports a web browser and a network connection is available.

“Email is one thing”, I hear so say, “but what about business critical applications like customer relationship management (CRM) systems”?

CRM

Most businesses rely heavily on some kind of system for recording their client’s details.  This can be as simple as a Cardax or as complex as a database or spreadsheet.  For the small or medium business, however, a full blown CRM is just a dream. The cost, complexity, staff and support overhead of owning and running an Oracle database, Microsoft’s CRM or a similar system is just too much for the average business operating in a recessionary economy.

These self managed services also suffer from being overly complex, expensive, inaccessible via most devices and constantly in need of hardware and software upgrades to keep them running.

Compare this to web delivered products such as Salesforce.com which costs a set fee per user per year, is relatively simple to use, is accessible anywhere, has loads of reporting built in and is easy to create specific reports into.

A recent example I dealt with was of a company that had been advised by its service provider that its old self supported CRM was now at end of life and needed replacing.

An analysis showed that upgrading their CRM required a new server, new laptops and PC’s, new software, improvements to the network, and migration of all the old data and redevelopment of key reports.

The company wanted its staff to be able to access the CRM from any location.  It  also wanted a great deal more detailed reporting and links to its email, finance, web and social media services.

In the end despite the initial cost of setup being similar and the annual subscription cost being roughly the same as buying their own software licenses this company chose to select a web based service rather than continue to own and support their own software.

There were four main reasons for this decision:

Location -  Applications could now be accessed via any device supporting a web browser and a network connection.  Thus the smart phone, iPhone, tablet, lap top, home computer or any other web enabled device now becomes a point of access.

Cost - Cloud based software services can simply be switched on.  There is no need for a server, operating system, clever geeks to support and maintain endless updates and three year cycles of replacement by the latest version.

These are real costs in both time and money and worse can sometimes be uncertain from a budgetary perspective.  How much was it the last time you had some guy in at three o’clock in the morning to fix your computer system?

Scalability - Under the old licensing regimes we purchased software when we needed it and then kept it forever – whether we needed it or not.  If we wanted more software we purchased and installed it onto our machines – provided of course that the new software was compatible with the stuff we already had and that our machines supported it.

Software as service providers on the other hand don’t usually sell licenses – they enable users.  Thus if you have 50 users today but acquire a competitor, all you do is enable more users and they too are on line, accessible and using the same system as their new owners.

If a few months down the road you shed a number of staff as efficiencies take hold – you just switch off the application for these users, paying only for the service you require.

Functionality

Because licensing software is now such a mature product we are constantly being bombarded with the latest features and benefits being added. Let’s take spreadsheets as an example.  How many features in Excel do you use?

Most SaaS products are simple and easy to use.  The common mantra on the internet is “it just works”.

Even my technophobic brother in law is now a fan because most of the applications he uses privately and at work are web based and simple to use on his much loved iPad and iPhone.

So what does this mean for me?

This is a big question for small, medium or large businesses.

The simple fact is that we already have substantial money and skill tied up in the old licensing model and its supporting infrastructure. Migration to software in the cloud model is not simple for political as well as technical reasons. Have you ever asked the receptionist to change over to a new application and way of working?

Given the technical and political constraints it would be unwise for an existing business to go for a big bang approach. Having said that, new businesses will find SaaS a very effective way to extract value, sustain growth and manage costs.

Software as a Service offers a cheap flexible way to access business services that were previously either too expensive or too hard to maintain. Find those services that add the most value and where current cost and performance is unsatisfactory. These are your prime candidates for possible replacement with a SaaS product. Prioritise and then make the changes one at a time.

In summary

Software as a Service is a serious option for most businesses.  The products are of production quality, if a little clunky on occasions. Their flexibility, scalability and cost transparency make them as attractive to businesses in belt tightening mode as they are to those planning for growth.

Mark: PASS – a revolution in software that is transforming business and the IT industry.

David Spratt is an associate with TUMG and has held senior ICT strategy and technology selection roles in business for over thirty years – he can be contacted on 0275 749 141.

Cloud services have emerged as a genuine threat to established hardware and software providers as well as to the many thousands of IT professionals who have made their living selling and supporting these products over the last twenty or more years.

This threat makes ICT investment decisions by businesses particularly challenging as we are encouraged by one group to stick with the tried and true and by another to throw away the old and bring in the new.

How can the average business customer judge the importance of a new technology or the continued relevance of existing technology choices to their business?

While the answer to this question can often be complex, at its heart is a simple challenge “What is the purpose of this technology?”

This three part series assesses the importance of cloud services to business by looking at whether a particular service reduces costs and/or improves businesses performance when compared to the existing way of doing things.

Part One of this series addresses Infrastructure as a Service – where traditional ICT services such as storage and processing power are provided.

Parts Two and Three will address:

Platform as a Service – where organisations can purchase the toolkit necessary to build and operate their own software

Software as a Service – where organisations can access software such as email or office productivity tools.

Part One

Infrastructure as a Service

So what is the purpose of this service? In essence this service aims to replace existing infrastructure and instead deliver it via the internet.

In my view this service usually fails the “so what?” test simply on a cost effectiveness basis.

Let me give you a simple example.

Companies offer you storage on line at a price – say $1 per annum per unit of storage. Often this price is at a discount to what a business might pay if it bought and ran the storage on its own behalf.

The trouble with this offer is that the amount of electronic data your company will store is growing every year by between 50% and 100%. Thus if you buy one unit of storage in year one and your data needs grow at 50% then you will be paying $8 per year for data storage in just over five years.  Scarily this amount will become $16 eighteen months after that, then $32, then $64 and so on. At a time when ICT budgets are being carefully examined and even reduced this is not an offer your Financial Controller should relish.

In the meantime the price of actually buying and running your own storage is halving every eighteen months. Thus if you paid the same $1 for your own storage in year one that same unit of storage would cost around 12.5 cents in year five. Thus your cost to own and store after five years, even when compounding data at 50%, is still only $1 per year and will remain so by and large.

Admittedly the complexity, and therefore cost, of supporting and maintaining data storage also rises with the amount we store but this is the same for both providers – except that the company outsourcing its data storage is now paying eight times the price per unit stored – at least until it renegotiates its contract.

This situation makes it hard for both the supplier and the buyer. The supplier wants to sell a longer contract in order to pay back their investment while the buyer wants a shorter contract to take advantage of the fall in data storage prices.

So why would business buy storage via the internet?

Let’s go back to our basic premise. What problem are we trying to solve?

One big business problem is protecting valuable data for legislative, company policy, records management and disaster recovery purposes. Many businesses struggle with the complexity, cost and reliability of backing up this data. It is not uncommon to hear of businesses who try to restore lost data and find that there has been a failure of technology or process that makes it very difficult or even impossible to get their data back.

Backing up data via an internet service can provide businesses with sophisticated technology and processes as well as contractual guarantees that would normally be well outside their normal financial and personnel capabilities. Thus the risks that are mitigated could well justify the extra expense incurred.

Infrastructure as a service also makes sense when it fits a temporary infrastructure need. This might occur, for example, in a general election when large amounts of processing and storage may be required for a short, finite period to handle electoral roll and vote counting.

Outsourced storage costs can also be reduced by insisting on regular contract reviews and ensuring that technology processes are in place that reduces the problem of replication – unnecessarily backing up the same data over and over again.

If a business is cash flow rich but capital poor Ieasing may offer opportunities to grow by creating ICT advantage without having to sink a fortune into depreciating assets – but that is a whole other article!

In summary

Mark: FAIL – must do considerably better

Careful analysis based on the simple question “what  is the purpose of this technology?” will reveal whether your business should go further in investigating Infrastructure as a Service. Right now, if I were the Financial Controller or CEO I would be asking some very searching questions and running the numbers very, very carefully.

We may see significant price cuts in the years ahead as multinationals and even local corporates offer New Zealand businesses storage based on their marginal cost of supply. Until then local New Zealand suppliers of Infrastructure as a Service may struggle to come up with a convincing offer that encourages businesses to change from the old to the new.

David Spratt is an associate with TUMG and has held senior ICT strategy and technology selection roles in business for over thirty years – he can be contacted on 027 574 9141.

At a time when every sector in New Zealand is feeling the pinch, 102 schools across New Zealand have found a way of making their money go further. 

Part of the solution for a large number of primary, intermediate and high school business managers has been to bring in specialist services to negotiate their power, gas and waste services contracts to make sure that their schools are not paying over the odds.

According to school business managers, bringing in third parties makes sense on a number of levels.  Having to deal with a wide range of different tasks is one of the challenges managers face on a daily basis, this makes it impossible to be an expert across the board.  Buying in expertise and handing over the more specialist jobs seems to be a logical step.

Business Manager at Pakuranga College, Graeme Brown is an advocate of this approach.  “Over the 11 years that I’ve been in this job, I’ve come to realise that it makes sense to leave utilities contract negotiation to the experts.  I don’t even think about our contracts now, TUMG notify us when they are due for renewal – it’s great to have something taken off my list of priorities.”

The opportunity to join forces with other schools and go out to market in bulk tenders is another plus point for bringing in a specialist.  Richard Gardiner at Total Utilities Management Group (TUMG) has been putting together power, gas and waste services bulk tenders for  ten years and sees them bringing real advantage to his clients.

“When we put out a bulk Request for Proposal to suppliers, the bigger the piece of business, the sharper the pricing tends to be.”

But Mr Gardiner is quick to stress that it’s not all about the price.  The terms of the contract have to be right and considerations like security of supply and quality of service are crucial.

With the increased administrative burden on schools taking its toll, the time saved by using external experts is often the factor that wins business managers over.  TUMG analysts assess each school’s utilities usage and needs before taking their supply requirements out to market in a tender. TUMG then provides a comparison of all supplier contract offers and presents them to the school along with a recommendation.

According to Bob Davies, Business Manager at Glendowie College this makes the decision-making process simple.

“TUMG produces a detailed report allowing us to compare the contracts and pricing on the table from various suppliers.  It’s very easy.  All I have to do is supply some utility accounts at the beginning of the process for benchmarking purposes and sign the best contract at the end.”

With savings of over $620,000 delivered to 102 schools in 2011, it’s hard to argue against handing utilities negotiations over to the experts.  Richard Gardiner at TUMG says, “We have spent the last ten years working with schools and have built up a detailed knowledge of the education sector’s particular requirements.  Some clients just want us to handle the negotiation process for them, others want more regular input scrutinising billing and checking for compliance with the original contract.  At the end of the day, whatever role we play, our promise to clients is: If we can’t deliver savings, clients don’t have to pay a cent for our services.”