WHITEPAPERS

THE RISING COST OF MAINFRAMES

IS RELIEF POSSIBLE?
Bob Hoey and Raj Kapoor

For decades, mainframes have been the backbone of industries such as banking, insurance, telecommunications, retail, and manufacturing . As mission-critical platforms, these systems are proven for running large-scale, complex workloads. However, businesses are facing an increasingly pressing issue: mainframe costs are spiraling upward, and many CIOs are unsure how to reverse this trend. 

 

FACING THE FACTS

Mainframes are not going away anytime soon. 

According to industry reports, mainframes handle a large portion of global financial transactions, including 90% of credit card transactions and 68% of IT production workloads.

For organizations that use the mainframe for mission critical applications, the rather inconvenient truth is that byte for byte, the mainframe is still, in most cases, the fastest, most secure, and most cost-efficient way to run those applications.  

Switching to more modern platforms like Cloud-based systems may seem like the obvious solution, but it is neither simple nor cheap. The sheer volume of legacy code means that migration costs can reach exorbitant levels. A rule of thumb puts this at $1 to $5 per line of code, though some cases have seen conversion costs soar to $20 per line. 

 

DOING THE MATH ON CONVERSIONS

Large applications start at ten million lines of code and can reach into the 100’s of millions of lines, so it is no wonder that conversions are not for the faint of heart. On top of that, these conversions can be extremely complex, and take years to complete, 

This is why most CFOs remain hesitant to green light such projects. It is a lot of time and money spent just to try and get what you already have.

While all this sounds like doom and gloom, it is not. 

Faced with the fact that mainframes are not going away for the foreseeable future, we turn our attention to what can be done to reduce mainframe-related costs and get much better platform value.  

Surprisingly, quite a few things can be done. 

 

MANAGEING MAINFRAME COSTS:  A PRAGMATIC APPROACH

The truth is that with the right approach, you should  be able to reduce up to 30% of your mainframe run costs, without rewriting a single line of code.

There are numerous ways to reduce your mainframe costs, but to succeed you must first have an in-depth understanding of:

1. Your IBM and related vendors’ contract terms and conditions
2. What IBM (and other vendors) will and will not do for you
3. Your ability to negotiate outside the box
4. Your mainframe and related environments 
5. Your future demand

 

CHALLENGING THE STATUS QUO

Your strategic sourcing group and your technology team may well tell you that they have already done everything possible to reduce costs, including what we discuss here.   Maybe they have, maybe they believe they have.  

But unless your costs have dropped by 10-30%, they have not.

Here are the four main categories of mainframe cost and in our experience, their approximate % of total mainframe related cost:

1. IBM hardware costs (15-20%)
2. IBM software costs  (20-25%)
3. 3rd Party software costs (25-30%)
4. People costs (35-50%)

Next, we dive deeper into each area in order to give a sense of some of the things that can be done.

 

REDUCING IBM HARDWARE COSTS 

This is a difficult category of mainframe spend to manage because IBM is the sole provider of most of the hardware. 

Without in-depth knowledge of how IBM pricing works, the only saving grace for many companies is that the purchase of hardware is a capital expense (CapEx) which is preferrable to an operational expense (OpEx).   

For those in the know, there are a few strategies one can use to try and reduce mainframe hardware-related costs:

• It will come as no surprise that the largest buyers of MIPs get the lowest price. What may be a surprise is that IBM sometimes prices Development, Test and Disaster Recovery MIPs less than Production  MIPs. 
• In addition, MIPs that are restricted (for example; MIPS dedicated for non-revenue generating purposes like queries of account balances) can be priced less than Production MIPs. 
• Although MIPs can’t be moved from CPU to CPU it’s possible to purchase something called Flex MIPs which can be moved between processors for predetermined times, resulting in far more cost-effective usage, and less leakage, of each MIP.
• There can also be cost relief through Rolling New Technology leases.  
• Taking advantage of virtualization and containerization often results in less resource usage, and therefore lower costs, and is another relatively simple option, at least compared to porting everything to the Cloud. 

An alternative approach that can generate a large positive hit to the balance sheet involves outsourcing part or all of the mainframe estate. By transferring hardware and software management to a third party, firms can shift their mainframe spending from CapEx (capital expenditure) to OpEx (operational expenditure), which can stabilize cash flows and free up capital for other investments. 

This approach can significantly reduce your costs but takes a lot of work to execute.

 

REDUCING IBM SOFTWARE COSTS 

Over time, the terms and conditions of IBM software agreements have become more complicated.  To the point where it is difficult to follow all the moving parts.  Many simply give up, sign the boilerplate terms, and pay the price. 

But if you know what you are doing and have deep IBM knowledge available to you, (which does not include golfing with your IBM rep),  there are ways to quickly and significantly reduce software-related costs.  

Successfully executing the strategies below can generate massive savings on a year over year basis.  

Large estates can easily spend over $100m per year, or $300m over the typical 3-year deal life cycle. In this scenario, taking out 10%-30% would save you a cool $30m to $90m over the term.

Here are some of the strategies we have used to successfully take out 10-30% of IBM S/W related costs.  More details on each can be found if you view this whitepaper on our website:

1. CBA Enhancements (Cross Brand Allotment)
2. Software Purchase Agreement (SPA) /Authorized Client Product (ACP) Enhancements 
3. MLC Enhancements (monthly license charge)
4. ELA Enhancements (Enterprise Licensing Agreement)
5. Using zIIP Specialty Processors
6. Consolidating Workloads based on the quirks of your s/w license terms
7. Running Linux on the Mainframe 
8. Reviewing existing S/W on an individual basis for opportunities
9. Leveraging the value of IBM Cloud
10. Proactive Audit Management

Note that the above list does not include Application Tuning.  Although a valid approach, we hesitate because this cash cow is the first thing that most large consulting firms will recommend.  And it’s a lot more work than renegotiating your contracts.  However, effectively done, which means targeting only those applications that are high volume and have a proper cost-benefit analysis, application tuning can generate legitimate cost reduction. 

 

REDUCING 3RD PARTY SOFTWARE COSTS

Third-party software costs present another challenge. With the market consolidating, businesses often find themselves at the mercy of vendors like Broadcom, who can demand hefty price increases with little recourse. However, this does not mean organizations are powerless.

Although competition has shrunk drastically in this space, most mainframe 3rd party software providers have at least one competitor. More often than not, this is IBM itself.

While indeed you can switch to or from IBM for some categories of software, the challenge is the amount of time it takes to do that migration.   

And this type of software is sticky.   In other words, hard to move off of.

As the CFO will ask, what value does it bring to switch?   If your answer is not “our cost savings more than cover the migration costs”, your odds of getting the green light are dim.

Without a sophisticated procurement or vendor management team that has a deep understanding of the interplay between these 3rd party suppliers and IBM, most organizations throw up their hands and simply pay the supplier-demanded increase.

But the hidden truth is, you do have some options.  

There are ways to reduce 3rd party costs, or at least, significantly reduce the increase.   Here are a few:

1. Buying Your Business
2. Switching Licensing Models
3. Managing Maintenance
4. The Volume Play
5. Terms And Conditions Matter
6. Asset Management

 

REDUCING MAINFRAME RELATED PEOPLE COSTS 

Another significant but often overlooked area is the cost of people. CIOs often state they are unwilling to reduce head count and people costs due to risk of performance impact. But given people costs can make up to 50% of the total costs of mainframe computing, leaving this area untouched means you’re leaving a lot of your potential savings on the table.

Mainframes are highly specialized systems, and the talent needed to manage them is both expensive and rare. However, with the right approach, firms can reduce headcount without risking performance. 

The most exciting answer to reducing headcount is the use of AI and AI Agents to take on repetitive and simple work.  In the longer term we expect that going down this road will significantly reduce headcount.  When this will kick in is still up for debate.

Other less exciting but effective strategies are as follows:

Standardizing software and infrastructure across the system can streamline management, while modern tools, such as AI-driven automation, can reduce the need for large teams of COBOL programmers. 

By implementing a disciplined strategy of only allowing a single brand of storage, a  single version of each software product (not allowing multiple versions of software), a single database, and other components, and doing other things like running Linux on zIFLs instead of other distributed platforms,  you’ll need fewer people to manage these different products. 

In fact, mainframe environments are uniquely scalable in this regard. While a distributed cloud setup might require a proportional increase in support staff with additional workloads, mainframe systems do not. Doubling the size of a mainframe environment often requires little to no additional staff, making it one of the most scalable platforms for large enterprises.

The discipline of strict adherence to  standards  can help reduce headcount by 10 percent or more of the people who run the mainframe, people who maintain the mainframe applications, and people who maintain the mainframe databases. 

Interestingly, the one way  to have no mainframe people costs, is to do what we talked about earlier:  Outsource the function.   By doing so you will be able to leverage the outsourcing vendor’s pool of talent, which is far larger and more stable than your own and take all their direct cost off your books. 

 

THE SECRET TO EVEN MORE MAINFRAME COST REDUCTION

If you remain with us, we are thankful, followed by impressed.  

We assume anyone still reading really and truly has a mainframe spend problem, and really and truly wants to do something about it.   So here it is, your bonus for being persistent:

Reducing mainframe costs is not just about squeezing more value from IBM and its software partners. Organizations should look beyond mainframes for opportunities to trim their overall IT spend. In many cases, reducing non-mainframe expenses in areas such as networking, cloud, distributed software, infrastructure and professional services can have an equally significant impact on the bottom line.

Think about it.  Cost reduction can come from anywhere.   

Let’s assume for a moment that you absolutely need to reduce your mainframe cost by $100m run rate (OpEx).    At the end of the day, does it really matter if you take out all $100m in mainframe, or take it out somewhere else?  

 What if you took it out of your Network spend (which is a complete gold mine and a topic for another day). Or your Application Development spend?  Or your Professional Services spend? Or your Cloud spend.  Or your non-IBM hardware/software/services spend? Or your facilities spend?

Taking cost out of your overall vendor spend is just as valuable and just as important.   

And just like in the mainframe space, there are a plethora of tricks and tactics needed to win big in these areas.  

 

FINAL THOUGHTS

It is absolutely possible to save up to 30% of your mainframe-related run costs, without rewriting a single line of code.    

Instead, optimizing the structure and terms of your usage and your various agreements with IBM and 3rd party vendors can result in rapid and significant cost savings.

The ability to properly execute what we have described requires a deep level of knowledge of IBM products, tactics, and strategies.   

This level and depth of knowledge is rarely found within the mainframe or procurement departments of most companies.  

 

Interested in learning more or diving deeper into certain aspects?   You can reach us anytime at costtakeout@whitestone.group.

www.whitestone.group/mainframecosttakeout 

The WhiteStone Group specializes in Mainframe and Vendor Spend Optimization and has taken out over $1.3B in hard costs for their clients.

Bob Hoey is a 30-year IBM veteran and the former IBM Global General Manager of Sales for IBM’s Systems & Technology Group, as well as the former IBM General Manager for the North American Financial Sector.  He knows more about IBM pricing than he would like.  He can be reached at bob.hoey@whitestone.group.

Raj Kapoor is a founder of The WhiteStone Group and has spent the last 25 years taking out a lot of cost via vendor cost optimization, and rapid technology transformation. He has negotiated many large and complex deals, many of which resulted in industry firsts. He can be reached at raj@whitestone.group