IT Transformation is and has been a hot topic for >20 years. Wow! I was speaking to one of my analyst friends at Forrester not too long ago and we were chatting about how much waste exists in annual IT spend just “Keeping the Lights On” and how these metrics haven’t changed in >20 years. The answer has been simple, no competition, no catalyst for change.
This week I was reading an article from the NY Times Technology section, “Information Technology Spending to Hit $3.6 Trillion in 2012”, supported by information from Gartner and it pointed to this pent up demand for transformation within IT organizations. Much of the increase in spending is going to Cloud Service Providers and Consultancies even with economic challenges in Europe and China. There is an increase in Public Cloud spending by 20% representing considerable computing power and more efficient IT Systems due to complex systems, cloud computing and analytics. My reaction as I read the article was Wow again. Ironically, this comes on the heals of articles from the previous 2 weeks regarding the outage of the cloud and Amazon’s Ashburn, VA data center.
My first comment is no one outsources services because it is cheaper. Services are outsourced to create change that cannot be achieved from within. So let’s break this down into the great change that is underfoot and IT Transformation based upon cost, value and innovation.
Yes, Cloud Service Providers are providing good value propositions, flexible purchasing options and what appears as cheaper technology options. These options appear cheaper because they are transforming how an organization uses technology. They provide a highly standardized environment, some choice, but choice comes with cost forcing the business to decide what is really important now that there is cost associated that IT has not been able to communicate. Standard configurations and services do drive costs down and economies of scale with shared infrastructure.
How cost effective is it to have all parts of the organization contracting for their own services and managing multiple contracts with the same vendors or many vendors? So there are surface cost savings overcome by over usage and lack of economies in scale with multiple contracts. You must budget 3-7% of the contract value for vendor management and doing this with the same or similar vendors in many part of the organization eats the perceived cost savings.
Service Providers are excellent at having a cost and value discussion because it is their business, it isn’t business for IT. IT organizations trying to “run like a business” is sort of false. It is a cost to business regardless, it’s just a matter of how it gets allocated. The real conversation is the value that was delivered versus just “keeping the lights on” annually for 1-2% of the revenue. IT has not had the catalyst until now to have this conversation. Many business organizations are not well equipped to categorize their services and their requirements for availability, performance, responsiveness and risk as they see “all services created equal” as long as they have in-house IT organizations. Since the business has not been able to define these requirements to the internal organization to best manage the service with business impact priority, they are not well equipped to define these with external providers and put their services at risk.
Low cost, cheap options are chosen until the first outage of the service provider. What do you mean it won’t be up for XX hours? What are you talking about DR, I don’t need a doctor, what is that? Balancing across zones and/or data centers huh? Most Service Level Agreements are written to spread and balance outages over a year, maybe a half year, rarely a quarter so that they don’t have to pay for the one big outage. Writing agreements that restore service in a short window of time regardless of time frame and outage by outage comes at a cost and is the cost must be balanced by value. This is not the benefit IT organizations have experienced.
Redundancy also comes at a cost and is often overlooked. Thus categorizing services is extremely important to invest cost into those services that drive value. Some Service Providers offer a dashboard of their services, buyer beware is all I can say. Yes, this is a great differentiator of transparency into service performance, however, don’t get sucked into the illusion as many of these service providers are 1 outage away from being out of business and dashboard transparency does not auto-magically equal operational maturity and expertise. Test what that means and understand your service levels and the metrics presented in the dashboards.
This one is interesting because it is tightly related to change and meeting market time requirements. Rewinding to IT Generation #2 when the internet entered the picture and transacting business on the WWW and the first dot com bust, this was the first Service Provider Boom and Bust to provide organizations expertise in hosting a web face very quickly due to the lack of internal expertise.
Today there is little that is innovative other than the realization of things that are commodity and can be better purchased as SaaS rather than managing in-house and moving those resources to do innovative things with services and new technologies. Much of the Cloud and Service Provider market today is commodity and adding flexibility to the environment with on-demand capacity. The focus here is the ability to focus in-house staff on innovative services and sourcing the commodity and capacity fluctuations.
The graphic I include and these final stats indicate that our businesses see great strategic value in technology services. However, there is great pent up demand to get to innovation, drive revenue and create customer loyalty through quality customer experiences also driven by the requirement for access from anywhere, anytime and any device. All of this can be funded if the 1-2% of revenue that is spent annually just “keeping the lights on” can be re-directed to innovative services and transforming internal IT into the quality service brokers that they can be with their knowledge of negotiating service level agreements, defining proper DR and security governance policies when engaging with external providers.
Organizations must seek to manage services and transform into service brokers to manage these costs and best use the service providers as described above to gain the greatest value and drive innovation into their organizations.
How is your transformation progressing? What are the speed bumps? How are you addressing them?
Additional Links and Posts that May be Useful: