The downturn in the economy means Merrill Lynch can buy enterprise
IT and services far more cheaply.
At a financial conference last week, John McKinley, chief
technology officer at Merrill Lynch, said that in terms of IT
infrastructure the industry was undergoing a broad-based deflation
period, where the unit cost of almost everything was falling year
on year.
Sixteen months ago, Merrill Lynch was buying enterprise-class
storage systems at a cost of 19 cents per megabyte. "Now I'm buying
at 9 cents [per megabyte]," said McKinley.
Another example he cited involved buying bandwidth extensions from
New York to London. "I was able to triple the bandwidth at half the
cost."
Another strategy McKinley recommended was to take a strong
negotiating line. Through his drive for cost savings, McKinley said
he expected Merrill Lynch's IT team to buy software at 75% to 80%
off the retail price.
Outsourcing and offshore development also has a role to play in
cost cutting at Merrill Lynch. "Ninety-two percent of my
controllable cost at Merrill Lynch is labour," he said.
When the company was looking at re-engineering expenses, McKinley
looked at reducing the level of professional services being brought
in. He was able to see the bottom-line impact within two to four
weeks. "That's powerful when your trying to do real-time course
correction."
Consolidated storage-area networks, XML tagging and open systems
such as Linux also feature heavily in the overhaul of the
organisation's IT operations.
McKinley advised IT directors to buy cautiously during this period
of slow economic growth. "As a buyer during a deflationary period,
you always want to buy on a spot market. You don't want multiyear
contracts. You want to ride that price erosion as rapidly as you
can," he said.