This case study is part of a Computer Weekly roundtable on budget for innovation where IT leaders discussed the balance between spending on maintenance and innovation.
Dell's CIO, Robin Johnson, has stripped out costs in a transformation project that has made spending on operations and innovation equal. Last year, the company took out more than $150m of costs. The same target is predicted for this year.
"Every company thinks it is unique, but IT problems are actually very similar," he said.
Nonetheless, Dell's size and global reach creates challenges on a huge scale. For example, between Thanksgiving and New Year, Dell.com experienced a seven-fold increase in transactions, with one million orders for unique configurations online per day. Johnson's IT function must support 400,000 user devices, but keeping the lights on is not enough.
"If every device worked perfectly every day, 24/7, Michael (Dell CEO) would look at me and say, 'average'. If they were down I would be fired. Compliance, stability and operational efficiency have a huge downside, but there is no upside," he said.
Dell's previously non-standardised IT environment meant "a ton of legacy stuff where packages did not scale," said Johnson. An example of the "stupidity" this created was hand-coding the tax rules for 136 countries.
To root out this complexity, Johnson embarked on "ruthless standardisation". The company had a "highly exotic datacentre" with a mixture of servers, and the decision was made to standardise on Dell x86 servers.
"Scale, not brand, was the driver - we could not afford to buy the way we bought. The capacity planning department would add 25% at every level of the plan and we would still screw up on capacity at peak periods with processors sitting around or not enough processor power. The more standardisation you have the more money you save," said Johnson.
The 25,000 server estate now has only two images - a .Net SQL image for web development and a Linux/Oracle image for back-office financials and transactional systems.
"We have the most boring datacentre - every row looks identical," he said, adding that driving standardisation has led to a "ton of secondary savings," including cutting out middleware and support tool costs.
Cost-stripping was accelerated by automated server provisioning and virtualisation, which have reduced spend by $38m.
Last year Dell's server estate shrunk, whereas two years ago, pre-virtualisation, the company was looking to build a datacentre that would have cost about $250m.
"The big savings from virtualisation are not the five-to-one server ratio savings, but the savings around hardware, such as engineering hours and particularly power," said Johnson.
He said that over three years the biggest cost of the datacentre is power. If Dell can replace 25% of the footprint, the power savings in the year will pay for all the hardware.
Application rationalisation over the last 18 months has been the second biggest driver of cost reduction. Dell went from 10,000 applications to 2,800 in 14 months.
A global roll-out of PayPal was the turning point. Johnson showed how cleaning up the application base in advance and reducing the 24 interfaces needed to deliver PayPal would increase speed of delivery from nine months to eight weeks.
"Speed was the lightbulb moment for the business," he said.
The net effect of the efficiency drive is that half of $165m cost savings goes back to the company and half goes to IT development.
Out of Dell's $1.2bn annual IT budget, $585m is earmarked for running IT, while $600m will be spent on development for three major strategies - a 20-30% swing over the last 36 months.
"This is how you help the bottom line," said Johnson.