Data Center Consolidation: Benefits and Costs

September, 2007

IT executives are under a never-ending mandate to increase the value they deliver to their organizations. Yet, in recent years, overall increases in IT spending have been somewhat limited. Therefore, to fund new development, IT managers need to find ways to reduce the cost of supporting existing systems. Fortunately, for many firms, there is a large opportunity for cost savings: reducing the number of data centers in the organization.

This Research Byte is a summary of our full report, Data Center Consolidation Reduces Costs and Improves Performance.

Many organizations have multiple data centers, even though a smaller number of data centers would be sufficient. This situation may be the result of one or more corporate acquisitions that bring new data centers into the network. Because those data centers support the target company’s systems and processes, it is often easier to leave them operational. Over a period of years or decades, some organizations find themselves with three, four, or even more data centers when they may need only one or two.

The costs for maintaining those additional data centers can be significant. Each must be staffed with computer operators, production control personnel, system administrators, facilities engineers, and other operational specialists. Hardware assets are most likely underutilized, as excess capacity must be maintained to handle spikes in demand for each individual data center. Some level of management personnel duplication probably occurs, as data centers may be in different time zones, or different parts of the world. Additional software licenses need to be maintained. Many other costs can be found to be duplicative among the various data centers.

Some duplication of data center assets is advisable to provide the basis for disaster recovery and business continuity. Yet many organizations have multiple data centers that exist not for reasons of business continuity but because efforts have not been taken to rationalize the number of data centers. Clearly, then, data center consolidation should be a fundamental strategy for many IT organizations.

Data center consolidation is a popular strategy showing powerful economic characteristics. Major organizations are reaping the benefits of consolidation, as shown by the following examples:

  • Hewlett Packard is cutting its 85 global data centers down to six–three of which will be mirrored disaster recovery sites. HP expects this move to save the company $1 billion annually.
  • IBM is consolidating 3,900 servers into 30 virtualized mainframes running under Linux. The company anticipates an 80% reduction in energy usage while significantly shrinking its current 8 million square feet of data center space.
  • Microsoft is well along in its data center consolidation efforts, producing a savings of $23.2 million–a 40% cut in its pre-consolidation spending levels.
  • Williams-Sonoma, Inc. is moving 100 stand-alone servers onto five IBM Regatta Unix servers. This effort eliminated the need to add 50 more stand-alone servers next year to handle increased processing demands.

The effectiveness of data center consolidation in driving costs out of IT is shown in the popularity of this strategy. Figure 1 shows the adoption trends in data center consolidation by company size.

DataCtrConsolid Fig1 New - Data Center Consolidation: Benefits and Costs

This full version of this report investigates the benefits of data center consolidation and provides recommendations based on our findings. Based on our survey of over 200 IT organizations, it provides the following metrics:

  • A comparison of  IT spending per user in companies with single data centers to those with multiple data centers
  • An analysis of data center consolidation adoption trends based on organization size.
  • A summary of the return on investment (ROI) experienced by organizations undergoing data center consolidation as well as their experiences with actual consolidation costs versus budgets.

The full report includes recommendations for maximizing the benefits and minimizing the risks of consolidation projects.

The proliferation of data centers that many organizations have experienced through mergers and acquisitions can be reversed with a thoughtful consolidation strategy. Concentrating computing resources into a small number of physical locations can boost the productivity of IT assets and personnel and simplify their management. Most organizations will realize quantifiable returns from such efforts.

This Research Byte is a brief overview of our report on this subject, Data Center Consolidation Reduces Costs and Improves Performance. The full report is available at no charge for Computer Economics clients, or it may be purchased by non-clients directly from our website at (click for pricing).