Companies are hanging on to their IT equipment longer to stave off spending what they can't currently afford. But IT systems have to be disposed of eventually; what happens when they do?
As one of Australia's largest companies, Westpac Banking Corporation faces a very practical technological problem: what to do with the thousands of PCs that reach the end of their three-year lifecycle every year.
|"By the time you've paid for transport and the cost of the disposal system you may use, there's often not much change left."|
WorkVentures chief executive Steve Lawrence has big plans for the program, which is selling around 400 PCs a month and is expanding nationwide through partnerships with similar organisations in rural areas and other capital cities. Lawrence's goal is to eventually employ 100 people who process 40,000 PCs nationwide every year, building up a sustainable operational model as well as helping its workforce -- largely people who were previously unemployed -- develop marketable skills.
There's not much margin in the computer refurbishment business; after all, IT equipment that's written off after a typical three-year usage cycle has no paper value and may well be all but worthless on the open market.
"If companies were replacing their equipment every two years they'd probably get a good return [by selling it into the market]," Lawrence says. "But if they're holding off for three or four years, [the residual value of] their equipment doesn't really cover the whole cost of the decommissioning process. By the time you've paid for transport and the cost of the disposal system you may use, there's often not much change left."
In May, the challenge of maintaining a financially viable computer recycling operation hit the Dell Recycling Program, a Dell-backed initiative that was launched in June 2003 and recycled 17 tonnes of computer equipment in its first six months. But Dell's partner in the venture, HMR Australia, went into receivership in May. Dell expects the program to be up and running with a new supplier within weeks, but HMR's failure highlights the economic difficulties that accompany the model.
Old IT never dies...
The dark side of asset management
There are only a few successful refurbishers like WorkVentures, and their combined volume is falling far short of the entry of new systems into the market. WorkVentures, for example, isn't even selling enough systems to clear out its annual intake from Westpac. With more than 2.5 million new computers now sold in Australia every year, the recycling industry faces difficulties in keeping up with companies' need to dispose of old equipment into a market where there's only so much demand for old equipment.
End-of-life disposal is becoming increasingly important for technology consumers as equipment's useful life continues to shrink. With industry indicators suggesting we are in the midst of an IT investment upswing, new projects will hasten the retirement of millions of telephone handsets, network NICs, network hubs and switches, desktop and notebook PCs, projectors, servers, outdated network cabling, and the myriad other bits and pieces that make up a modern IT infrastructure.
By next year, Gartner has predicted, IT spending in the typical North American business will account for 10 percent of all capital spending, increasing from 7.5 percent this year and rising to 50 percent of the enterprise capital budget by 2010. In Europe, the figure will sit at 7.5 percent in 2005.
That means a lot more equipment will be making its way into the average business -- especially things that have been generally considered immune to obsolescence, such as telephones. The rise of Voice over IP (VoIP) will change all that, however: thousands of decade-old telephone handsets and PABXs now face the scrap heap, and steadily growing populations of desktops and servers must all be dealt with.
|"It's one thing to put it in a bin and say it's someone else's problem -- which has tended to be the attitude -- but people aren't aware of alternatives."|
"Typically, companies have pretty good purchasing strategies but don't give a lot of thought to disposal. It's one thing to put it in a bin and say it's someone else's problem -- which has tended to be the attitude -- but people aren't aware of alternatives. Companies need to start thinking about having a disposal strategy."
A rising tide of discontent is forcing vendors to become more proactive in helping customers manage their equipment through to its end-of-life: this month, new European Union legislation will require manufacturers to take back electronic equipment at their own expense -- and do something with it other than dumping it in a landfill or exporting it to another less environmentally conscious country.
Here, such requirements remain a distant vision. Some vendors may be willing to help you handle your old equipment, if only to generate additional consulting revenues. And while donating old equipment may seem a logical choice, warm feelings quickly front up to the reality of technological obsolescence: while a school might appreciate the gesture of donating your old 10Mbps Ethernet hubs and Token Ring network adaptors, that equipment won't have much value in today's switched 100Mbps networks.
Many companies avoid the issue altogether by leasing their equipment, which must be handed back to the lessor after the lease has run its course. That lessor, in turn, will eventually auction the surplus gear through a third-party auction house in an effort to extract whatever residual value it can get from the equipment. From there, equipment often ends up in the hands of computer refurbishers and, eventually, smelters. But with hundreds of systems typically on offer at such auctions, those residual values can be humble to say the least.
For companies that have bought their gear outright, it may be better to manage the auctions internally. Selling your gear through eBay is a quick and dirty solution, and one that was particularly popular in 2001 as administrators of imploding dotcom companies tried to salvage value from anything that could be plugged in. Even then, however, lots of equipment may struggle to find new owners.
Just because you can't sell your old gear doesn't mean you have to dump it off a cliff in the dead of night, however: there are ways of retasking equipment within the business to extend shelf life many times.
The dark side of asset management
Finding a new lease on life
Manufacturing giant Smorgon Steel has kept many of its desktop PCs for the better part of a decade. Smorgon, which has 2400 active desktops around Australia, began using thin-client technology from Citrix in 1998 in limited deployments, but now includes Citrix MetaFrame technology in its normal PC lifecycle.
|"At the end of three years, if a PC is still working and the user is still happy with it, we'll leave it there. If not, we pass it down the chain to someone who doesn't need as much power."|
Using this approach, Smorgon has managed to slow down its desktop buying cycle and stretch far more years out of its systems than would normally be anticipated. "Citrix has evolved over the years into a way we can get the most life out of a box," says Paul Simmonds, the company's infrastructure services manager.
"We'll run a PC until the cost of repair is greater than the cost of buying a thin client. At the end of three years, if a PC is still working and the user is still happy with it, we'll leave it there. If not, we pass it down the chain to someone who doesn't need as much power. Servers are the same: if we've got a high-end server that in three years' time ceases to be high end, it makes a great Citrix server."
Simmonds says nearly 95 percent of Smorgon's users are now relying on the Citrix client "in some way or another". Monitors are reused as long as they continue functioning. And on the network, Simmonds says, "the only thing we replace is the odd dead hub or router; most of the big-end stuff just seems to go on forever."
In the long term, this translates into significantly reduced IT capital costs, allowing expenditure to be funnelled away from desktop purchases into other priority areas. And once the systems are absolutely too old to do anything, Smorgon simply sends it to the company's internal recycling operations -- a normal part of the business that serves a convenient double purpose in the context of old IT gear.
Finding a new lease on life
Licence to reuse
For those businesses without their own inhouse recycling facility, external partners play a critical role in disposing of end-of-life gear. Many contract rubbish removalists are equipped with facilities to strip and dispose of the many different plastics and metals in electronics equipment, charging by the kilogram to remove your old gear.
In the end, paying to have equipment disposed of can cost more than it's worth. That's another reason why a clear and coherent disposal plan can keep your disposal costs down and maximise the value of your IT investment. Establishing an informal hierarchy of needs within the business highlights each user's relative needs; following this roadmap, systems can be routed from power users to mid-tier users and, eventually, low-end roles such as providing general system and Web access within an outlying depot.
Improvements in clustering technology are opening up another role for aging systems: Linux, Citrix MetaFrame Server, Windows Server, Oracle, and many other enterprise applications offer the ability to aggregate the computing power of whatever systems are available to them. This approach is a precursor to grid computing, in which computers farm out applications and contribute whatever they can to the overall computing infrastructure.
|"Not all organisations have a handle on what applications they've got deployed, and where those apps are deployed."|
There are, however, issues that must be considered before you refurbish yourself into a hole. Most prominent is software licensing, a hidden issue that can blow out your expenses in unforeseen ways if you don't monitor your systems carefully.
Licences are often allocated based on the specific machines they're used on. When those machines are retired or repurposed, it's critical to inventory the licenses associated with the software loaded on those machines. If you simply reformat a system and reload new software on it, you could well lose any record of which licences were allocated to it; with dozens of applications often loaded onto systems over time, you could easily lose track of hundreds or thousands of valuable licences. And if that happens, the cost of your obsolete equipment will quickly shoot through the roof.
"There is a significant value attached to licences," says Phil Hare, regional manager of license monitoring tool provider Centennial Australia. "We find that not all organisations have a handle on what applications they've actually got deployed, and where those apps are physically deployed within the organisation. Inventory tracking software is becoming an inherent management tool; without the visibility to look into licenses and where they're deployed, companies are just travelling blind."
Licence management is handled competently by a variety of standalone products or as a part of broader desktop management suites. It's a good idea to have this capability installed, since monitoring actual license usage against bulk license volumes is an excellent way to save costs -- particularly when licences are freed up as computers reach the end of their usable lives.
Microsoft weighed in on the issue in 2001, when it discovered Geelong charity PCs for Kids was loading old Windows versions onto systems destined for underprivileged children. The ensuing war of words between the two organisations fuelled establishment of MAR (Microsoft Authorised Refurbisher), a program that helps charity refurbishers get properly licensed copies of Windows for their donated systems.
|"When it's technology that clients no longer need, there's no incentive for us to help except that it's a nice thing to do."|
For most businesses, however, the protections afforded by MAR are irrelevant; the burden of licence compliance rests squarely on the shoulders of the companies doing the donating. By giving a working system to a charity, a company could well find itself in breach of volume licensing arrangements that saddle the charity with what are technically illegal applications. Similar problems could appear when companies resell old computers to their employees, whose use of Windows and other software might well not be covered by existing site licences.
This is a big problem for users of PABXs, who are abandoning their old systems in increasing numbers as VoIP continues its astronomical climb into the mainstream. Many PABX software licences are tied to a specific site; when the equipment is onsold during a system replacement, that licence restriction means the sale is effectively for hardware only; the new user must acquire a new maintenance contract and software licence. This issue negates many of the cost advantages of buying second-hand equipment, and also slashes the potential residual value that PABX users can expect to get back from their equipment.
Anandh Maistry, managing director of network and contact centre integration firm Touchbase, says the uncertain economics of the used equipment market drive many businesses to squeeze every last bit of life out of even their telephone handsets. Units might be kept on as critical spares, reassigned as devices for R&D laboratories, or sent to small branch offices while others end up going straight to charities; Touchbase, for example, helped RACQ CareFlight outfit its call centre with surplus phones from its inventory.
However they're managed, holding onto the equipment in perpetuity also introduces storage and inventory management costs -- which companies like Touchbase are equipped to handle, but end users might find to be higher than the actual value of the equipment. "There always seems to be another use for the equipment," says Maistry. "We work closely with clients to do technology mitigation. When it's technology that clients no longer need, there's no incentive for us to help except that it's a nice thing to do."
Licence to reuse
Aging IT gracefully
Even the best intentions, however, can easily go awry when it comes to disposing of old equipment. Many times, aged equipment is kept in a storeroom before being eventually disposed of during a spring clean. But if data on this equipment hasn't been properly wiped, confidential business or government information can easily end up in unknown hands when the equipment is snatched up at auction.
Such carelessness has resulted in embarrassment for more than a few government agencies in the past, underscoring the need to wipe hard drives clean effectively. The US Department of Defense DOD 5220.22-M standard contains generally accepted guidelines for properly erasing data -- a procedure that basically involves overwriting all data on the disk with alternating codes of 10101010 and 01010101 between five and seven times.
Hard drives aren't the only place where confidential information might hover, however. Routers, switches, and other network devices may well contain passwords, server IP addresses, and other information that could give potential intruders an open door into a corporate network. Wilkinson relates a story of the time he was at a computer fair and saw a vendor offering a used router from a leading telecommunications company with the company's name still written on a piece of masking tape on its side.
Licensing, security, and physical disposal issues highlight the many pitfalls that can trip up unsuspecting companies as their IT equipment reaches the end of its life. While the urge to preserve equipment as long as possible is natural, there also needs to be specific policies in place to dispose of that equipment quickly once its maintenance cost exceeds the cost of buying new systems.
Similarly, cumulative license costs need to be managed over time to ensure it's not more expensive to keep outdated devices licensed that it would be to get rid of them all and migrate to a small number of faster servers. In the end, knowing when to cut your losses is the key to maintaining a cost-effective IT lifecycle.
Aging IT gracefully
Case study: leftovers more than academic for ANU
With 130 buildings spread across 145 hectares, Australian National University (ANU) is a major user of IT in all its forms.
When it recently came time for a series of major technological refreshes, however, the university faced a very real issue: what to do with equipment destined for replacement during a series of technological upgrades.
With 1800-pair phone wiring dating back to the 1960s and data networking gear several generations old, there was no question it was time for a change. The gear was "at the end of its physical and economic lifecycle," says John McGee, manager of networks and communications within the ANU Division of Information. "The bulk of our analysis lay around that standard economic analysis. In the case of the voice, it had really reached its limit: we had reached a point of full capacity with an obsolete technology that was starting to constrain service delivery."
All were little more than vestigial remnants after a two-year period during which the ANU and implementation partner HP upgraded its data network from an Asynchronous Transfer Mode environment with shared 10/100Mbps hubs to newer Gigabit Ethernet and 100Mbps switched Ethernet desktops. At the same time, ANU replaced eight aging PABXs with newer VoIP-capable models from Avaya, and upgraded backbone microwave links to run over newly laid fibre-optic cabling.
The net result of these migrations: thousands of telephone handsets, kilometres of decades-old telephone cabling, and aging data cabling, hubs, and switches were suddenly left without a purpose.
Dealing with its PABXs was relatively straightforward: although license restrictions make it difficult to recover anywhere near the purchase price of a PABX, ANU moved the boxes into the second-hand market and was able to recover the cost of the hardware itself. VoIP handsets are being phased in gradually -- around half the 8500 end points on the campus are now VoIP-enabled -- with older handsets relocated to accommodation areas within the university.
Aging hubs, switches, and other networking gear proved harder to palm off: local schools had already moved past the technology ANU was offering. Such equipment, which could find no new home within ANU, was disposed of through an established green recycling process managed by the university.
Not all was lost, however. While the hundreds of kilometres of aging telephone cable spanning the university were unable to support new technologies, ANU found a new use for them: as an emergency backup network in lifts and other places. That network is backed up by a generator and will be maintained for years to come, with rationalisation of phones onto the VoIP network allowing future repairs to be made with smaller telephony cabling that reflects the reduced traffic load.
"It was a conscious strategy that will extend the infrastructure for the next five to ten years," says McGee. "We're moving to an asset management strategy that gets away from the forklift changeover."
Case study: leftovers more than academic for ANU
Executive summary: time for retirement
- Forget the three-year cycle. PC vendors love it, but you're paying for them. If your systems will be fine after four years, plan on it that way. Just remember to balance usable life with depreciation schedules, which are usually based on a three-year life.
- Not everyone is a power user, even if they think they are. Instead of automatically refreshing one-third of your systems every year, inventory your users according to their job function. If they can get by with old technology, buy half as many new PCs and push older models where they're still adequate.
- VoIP doesn't demand new handsets. Although they're cool and arguably easier to run, VoIP handsets are expensive. Most telephony providers allow you to maintain your existing analogue handsets and transition to VoIP gradually.
- Tips don't like tech. IT equipment is loaded with nasties that leach into the environment. Ensure you work with disposal companies that are outfitted to deal with e-waste appropriately.
- Know your licences. Disposing of old equipment will free up software licences that might be redeployed to other systems, or returned to the vendor during renegotiations. Of course, you can't do this unless you have an infrastructure for tracking licence usage.
- Employees love surplus gear. Well, some of them at least. While you may have some luck selling leftover PCs and networking gear to employees wanting them for their children or home networks, don't rely on it. Many home users love games and other applications that will cause years-old business PCs to collapse.
- Don't leave Easter eggs. Security of leftover systems is critical. Don't just format hard drives; scrub them with purpose-built commercial software. And make sure hubs, routers, and other networking gear are wiped clean of passwords or information about your network configuration.
- Consider leasing. Leasing may not allow you to squeeze every last bit of value out of your equipment, but it has one nice benefit: after three years, you don't have to worry about what happens to the equipment.
- Love your thin client. Thin-client applications have their place in every network, but they can be invaluable in finding new uses for old PCs. If that PC is too slow, why not reclaim your costly Windows license, format the system with DOS or Linux, and run a legacy-friendly thin client app on it.
- Know when to say when. It's great to extend the life of technology, but know when to quit. If the gear is costing more to maintain than it would be to replace, it's time to say goodbye.
Executive summary: time for retirement
This article was first published in Technology & Business magazine.
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