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Jefferies: From Black Box of Arbitrary Costs to Vital Business Partner

Jefferies used Apptio’s SaaS applications to enable consumption-based cost allocation in just three months, providing business owners with the true cost of their IT requirements and reducing costs by millions of dollars.

Jefferies corporate overview

Jefferies, the global investment banking firm, has served companies and investors for more than 50 years. Headquartered in New York, with offices in more than 30 cities around the world, the firm provides clients with capital markets and financial advisory services, institutional brokerage and securities research, as well as wealth management.

The firm provides research and execution services in equity, fixed income, and foreign exchange markets, as well as a full range of investment banking services including underwriting, mergers and acquisitions, restructuring and recapitalization, and other advisory services, with all businesses operating in the Americas, Europe, and Asia.

Mark Dianora faced a big challenge when he became Managing Director of Information Technology for Jefferies. He not only needed to know how much the business spent on IT. He needed to know exactly who was spending it.

“Technology drives the business,” Dianora explains. “Sales and trading organizations are very technology-intensive, involving large networks, complex desktops, heavily-secured trading applications, storage, and more. Technology is very much the lifeblood of the business.”

Responsible for Jefferies’ significant IT infrastructure spend, Dianora’s core mission was, in his own words, “to get more transparent, to get more advanced and strategic on how we allocate our costs.”

Dianora “definitely wanted to find ways to cut costs. But I also wanted to move as much cost out of my budget and into the budgets of the business units that were actually making that spend. And, I wanted to do that with precision, based on their actual usage. I also wanted to find ways to make those units more efficient in the way they used IT—to guide them to cost avoidance strategies, like eliminating servers or reducing storage on projects.”

Dianora achieved those goals, and more, with Apptio. Today, he uses Apptio as a strategic resource that reaches across the entire IT operation: from how individual infrastructure elements are costed and how those resources are allocated, through a sea change in how the chargeback system works, to fundamental strategic shifts in how business units think about and purchase IT products and services.

Today, with the help of Apptio, Jefferies BUs have shifted from thinking about IT as a black box of arbitrary costs to seeing it as a vital partner in helping them run their businesses better.

Guiding business choice

Jefferies had a chargeback structure in place for many years. While it provided a basic mechanism designed to make it easy to calculate and predict IT costs from the BUs, it did not reflect what or how much was delivered and consumed. “The way we recovered our costs,” Dianora says, “was to put data centers, the servers and communications, wide area network—everything—into broad ‘non-people’ cost centers. We would allocate that out to the business using headcount as the basis. Everybody was charged the same amount for products and services.”

Charging everyone the same amount for IT services, whether they used them often, rarely, or never, was not how Dianora wanted to structure chargebacks. Basic headcount allocation meant a small office placing a high demand on services would have their IT costs subsidized by a larger office that rarely used those services. Jefferies’ didn’t have a view into IT consumption beyond that basic headcount. “That was a big challenge” explains Dianora. “It was hard to articulate our costs. What are all these people working on? Why does the data center cost so much money? What is this expense? We didn’t have the ability to report or grab insight into where we were spending our money. It was a black hole.”

The concept of consumption-based cost allocation was something Dianora had been thinking about for a while. “Even before Apptio we had been brainstorming new allocation methodology,” Dianora recalls. “And not just about how to convey costs to the business. We also wanted to put costs in the right buckets so that the right businesses were getting charged.”

Unfortunately, there wasn’t a practical way to do this. Dianora explains the problem. “A spreadsheet-based approach can get you through a monthly period of conveying costs—maybe—but there’s just too much data for it be sustainable. Our GL alone is millions of rows of information.” And the GL wasn’t the only source of data to be analyzed. As Dianora’s use of Apptio grew, more and more datasets became part of the cost determination. “Today, we include our asset register, human resource information, servers, storage, layered products, telecommunications, WAN, and market data sub-ledgers associated with those servers. Managing all that with spreadsheets would be impossible.”

Apptio fit well into Dianora’s vision of costing. He says, “I described my situation and immediately the people working within the team understood what I wanted and how Apptio could help me. I used it to see which units, and which people within those units, were using servers, databases, networks, storage, WAN, and more. We started building these views of usage within Apptio. And once we tied in the firm’s GL things got really exciting.”

And it wasn’t just Dianora who got excited. Dianora used Apptio to show business owners the true cost of their IT requirements. That gave them a new way to understand and make informed decisions about their own IT costs. “These models got exciting for business owners too.”

“For the first time, they were able to see the true costs of their IT demands. More than that, they now could see which levers they could pull to reduce their costs— which would reduce overall IT spend. Now they have the knowledge and the tools to make informed strategic changes about the way they do business with IT.”

— Mark Dianora, Managing Director, Information Technology at Jefferies

Apptio had another benefit—one that Dianora hadn’t expected when he first put Apptio to work. “We brought in Apptio to manage cost allocations,” Dianora says, “which it did within three months. As far as I’m concerned, that would have been a success just like that. So I asked: what else can it do?”

One of those things was helping to justify new investments in technology. “I sensed a concern from Infrastructure and Operations that increased granularity and transparency would translate to a reduction in its budget—to its ability to buy new technology.” But just the opposite happened: Apptio became a powerful tool to justify additional investments. Dianora offers one example. “I saw a significant ROI opportunity in stepping up our virtualization footprint. So we asked the firm for millions of dollars to accelerate the effort. And with Apptio, we were able to show a return on investment of several million dollars over four years by doing that project. And that new investment reduced costs since we cost-avoided step functions, data center power and expansion, increased maintenance, and so on.”

Dianora now uses Apptio “as the authoritative source of how Jefferies’ IT allocates costs to different business units and their cost centers. It’s the engine that marries my cost pools to my inventories, to my business, to my headcounts. Apptio creates allocation maps for me: mapping what percent of costs should be billed to each of our well-over 3000 cost centers. I couldn’t do my job without it.”

Managing IT as a cloud business

For Jefferies, what seemed like a small change in IT infrastructure opened big doors in understanding how to run IT as a business.

Jefferies—along with most companies in the financial industry—is approaching the cloud cautiously. “We’re still looking at where the cloud is today in terms of cost, security of implementation, and speed,” explains Dianora. “We won’t be using public cloud services with a trading application or with data or transaction processing that demands low latency. But a good deal of our workloads are candidates for cloud computing.”

Jefferies’ has a small presence in the cloud through the Symphony consortium—a collaboration channel for the financial industry. There’s still uncertainty about where the value of the cloud is for Jefferies. “If I get a 40 to 1 ratio on a virtual machine,” Dianora comments, “I’m not sure how much I’m going to save with Amazon. But we’re still committed to standing up product for Symphony and we’re receiving some bills now from Amazon.”

Those bills have provided Dianora new perspectives: fresh insights into how the most sophisticated cloud services providers manage their business and their billing. “I’m gaining great knowledge from studying the Amazon bill and working on the automation of bringing it into Apptio,” Dianora says. “Apptio will let me compare my internal infrastructure to that offered by service providers. And, it’s important that I take a look at our cost pools and mirror how Amazon and Microsoft are pricing their infrastructure. We’re in the same business.”

Seeing the way cloud providers break down and look at their costs provided Dianora with a model for how to run his own IT organization. “I gained an understanding,” Dianora elaborates, “of costs and usage that paralleled Amazon and Microsoft. I started thinking about operating technology as a business, understanding my cost drivers, creating variability. How can I offer the business choice? How can Apptio help business owners make decisions?”

The relationship with Amazon also opened up a new point of view to Dianora. As he explains, “Once I started getting those bills from Amazon I realized: ‘hey, wait, I’m a customer now.’

And I realized that I don’t care about the granularity of the underlying infrastructure in the cloud data centers. I just want to be able to plug it in, understand costs and what drives those costs. And that’s what my customers want too.”

As Dianora used Apptio to solve his primary mission of cost takeout, he discovered that Apptio allowed him to look at his infrastructure exactly the way those providers do. “We happen to have the platform that talks the same language as the cloud. I call it luck. We didn’t have a ‘master plan’ for this. We brought Apptio in to handle cost takeout. As we used it we kept on bringing more and more sources of data into it. When we included the Amazon bill I discovered, and that’s why I call it luck, that we had a product that lets us view, manage and allocate costs the way a service provider does: we’re talking the same language as Amazon from a financial perspective. We can describe and articulate our infrastructure the same way Amazon does.”

Apptio provides cost and usage at a level deep enough to turn virtually any element of Jefferies IT offerings into an Amazon-like commoditized product. Dianora explains that today “I understand my cost of servers down to the virtual CPU level, down to the V memory level. That’s how Amazon conveys their cost. Now, by thinking about our infrastructure like a service provider, I can look at my virtual environment and say with confidence that I cost $90 a year per virtual CPU, $5 a gigabyte of memory a year, and so on. Down to the penny.”

The approach changed the way Dianora thinks about IT—a shift from considering it a kind of “technology supply center,” to a business providing value for money. “We’re thinking about the products and services that we offer as a true product catalog,” explains Dianora. “What does a virtual desktop cost a month? I don’t mean the capital expenditures and the cost of the project. I mean what does it cost my business users a month? And if they don’t want it anymore, what numbers are going away?”

The transformation wasn’t only for Dianora and his organization. The entire company is now able to understand the more important role that IT has in not just running the business but in growing the business.

“I see a change in the technology leadership where they’re looking at more than just the technology projects and deliveries. They’re very much closer to the business, and I operate as a business owner. That’s the most significant change that I’ve experienced.”

— Mark Dianora, Managing Director, Information Technology at Jefferies

For Dianora, working with Apptio has been especially valuable to him as he transitions to looking at IT as a business. Dianora says that he “realized that for every dollar I saved, it’s a multiple of revenue to the bottom line. I think of things in the context of the bottom line all the time.” That shift has been noticed and has enlarged his role within the company. “I’m very involved with not just technology but the entire budgeting process, not just corporate infrastructure but the entire global technology spend. I spend a lot of time with the CIO. It has me thinking differently. It has me thinking like a business owner.”

Infrastructure cost takeout

Using Apptio, Jefferies reduced IT costs by millions of dollars. Cost takeout involved three things at Jefferies: using IT more efficiently, changing the behavior of business owners, and finding innovative ways to allocate and manage infrastructure. Mark Dianora brought all three to bear on Jefferies using Apptio.

Storage was often overprovisioned for a BU—and that’s an expensive luxury. “We have a three petabyte storage footprint. Dianora says “it’s expensive infrastructure. When we bring in the storage inventories associated with servers, we can see that a business unit allocated a certain amount of storage for a project. They’re charged for that storage whether they use it, or whether it sits idle.” The dilemma was clear: while the cost of drives continues to drop, wasteful allocation meant Jefferies’ storage costs kept rising.

Today, Dianora solves this problem for his business owners two ways. The first is providing them with the knowledge and analyses that help them make wiser provisioning decisions. “I know the price per gigabyte a month in storage, “Dianora explains,” and I can show business owners which levers will reduce their storage footprint. We’ll show them that they allocated 10 terabytes to a project but they’re using one. That increases their costs 100%.”

That knowledge prompted the users to think about how they could change their own behaviors. Dianora recalls that “when I showed them their level of waste-driven overspending, they immediately said ‘Is there a cheaper way for me to do this? Can I reallocate my application to be 50% of that original allocation?’ That’s a 50% reduction in their cost immediately as soon as we execute those kinds of maintenance tasks to move data around. So one way of saving money is to go through the project and re-provision it with a smaller storage footprint, and off the tier-one drives.”

The second method was truly innovative, and directly the result of the knowledge gained through Apptio. Storage is fluid—it can be allocated and reallocated easily. Jefferies treated fluid assets the same way it treated fixed assets such as servers. Once allocated, storage stayed allocated. Dianora implemented a process he describes as “storage for sale. When one unit has over-allocated storage, we’ll flag it on Apptio as for sale. The original owner pays for it until I have a demand for it. “When I have a demand for it, as long as there is useful life in that asset, I can redeploy that and the new customer picks up depreciation as it moves forward.”

Using knowledge to drive conversations had a significant impact on lowering the cost of communications too. Dianora explains that “our communications have a significant run rate, with thousands of circuits involved and much detail to deal with for each circuit. It was very difficult for me, before Apptio, to articulate to business owners that the reason their communications and networking cost so much was because of the choices they were making. By associating it to the business by desk, so business owners could understand the specific cost of their share of the extra networking, the conversations changed.”

“One of the most dramatic successes I’ve had with Apptio involved our WAN. Previously, when WAN costs were spread by headcount, those business units with the most people were subsidizing others that might use proportionately more. Once the costs of specific circuits were shown by which offices were using them, we saw that one of our EMEA offices was costing a hugely disproportionate amount for wide area networking costs, and there are only three people in the branch office from wealth management. When the local wealth manager got the huge bill, the office quickly put a cancellation order in for one of their circuits and a conversation began, exploring other ways they could do things differently. That was an exciting and very productive conversation to have.”

Why Apptio

Mark Dianora relies on Apptio every day to deliver the information he needs to answer complex questions on the spot. “The real benefit of Apptio to me,” Dianora says, “is its ad-hoc nature. I’ll get five or six phone calls a day: ‘what does this number mean?’ And by leveraging the hierarchy and drilling in, I can quickly get to the source. I can tie it to the vendor. It’s this vendor, this is the number, this is the reason the number is what it is. And I can quickly answer those kind of ad hoc questions. My CIO calls me several times a week with those kinds of questions.

With Apptio and Technology Business Management (TBM), IT is no longer a black hole for the business. Now, the business units are asking IT to help them understand their business better. “I recall a road show I was doing. I work with the COOs of each business unit, so instead of bringing paper to a meeting with one of them, I went into a conference room with a large screen, and I brought Apptio up on it. And we showed the technology costs: ‘this is all your servers, all your storage, all your database, all your costs that we could find.’ He began to ask questions, ‘Well, what do U.S. rates do here? Show me international rates.’ And I drilled down into a certain storage number he was interested in. He got out of his chair and just walked to the screen, His thought process started moving away from technology, ‘You nailed this. Can you bring legal fees in? Can you bring commission reports in?’ He was actually enjoying the session!”


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