Could the the cost of IT have anything to do with the rise of Cloud computing?

Hello,

Bob is looking to purchase his first house.  His ideal home is in a posh neighbourhood with white picket fences and costs a bargain 300K $.  Sounds great so far and, by the way, the costs of upkeep are at 120k $ per year.  Should Bob buy this house?

I don’t know about the rest of you, but I would think twice about it!

Replace Bob by Information Technology and you have essentially the way we have been selling IT assets (hardware and software) since the dawn of IT.  Wait, it gets better, you get to do it again for software roughly every 3 to 5 years since the new version is so much better and cooler than the previous one!  With hardware, at least, you can redeploy elsewhere or enrich your favourite IT guy’s personal “lab” !

A growing trend of CEO’s and CFO’s are asking tough questions along the lines.  Why are we buying all of this “stuff”?  What kind of value will it bring to the corporation’s bottom line.  As an IT professional, you better be ready to answer.  You can try the old, “but the new gear is like soooooo cool dude”, but take it from someone who has been there, it won’t fly!  New technology assets should be rigorously measured against the tangible benefits preferably in the form of the equity return it provides to the corporation.  If you can’t figure this out, your project is at risk.

The message here simple, IT needs to be visible.  Visible in the sense that it provides true value, true strategic differentiators.

If it can’t provide strategic differentiators, then that business function is at risk of being outsourced.  After all why should a CEO invest in something that may be important, but won’t provide anything in terms of competitiveness?

Where will that business function live?  How about SalesForce, NetSuite, Microsoft Dynamics, Workday etc… if it’s a standard business process, chances are, a Software as Service offering exists somewhere.

Samy “TheBenz” Benzekry

Inspiration for this blog:  one line in Paull Strassmann 1998 article on the value of Knowledge Capital.

“If someone would try to sell a house that requires an annual upkeep equal to a half of the purchase price, nobody would buy it. A rapidly deteriorating capital asset is not worth much. Yet the very high ratio of life-cycle maintenance costs to the original acquisition cost demonstrates that today’s application software is one of the flimsiest artifacts that management will ever buy.” (http://www.strassmann.com/pubs/valuekc/)

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About TheBenz

Corporate IT guy very interested in all matters that are high tech.
This entry was posted in Cloud, Economics. Bookmark the permalink.

3 Responses to Could the the cost of IT have anything to do with the rise of Cloud computing?

  1. All metaphors can only be stretched so much, and this one is no different. Can’t say I can make a direct comparison between house equity and the IT dept.

    I do, however, wholeheartedly agree with you that the IT function has to be visible, even if it is, eventually or already, outsourced. We at Claridion, had coined years ago the acronym BoIT™ (Business over IT) to bring attention to the fact that IT is indeed a BUSINESS function and as such it MUST be understood by executives.

    Yes, I think the “cloud” will evolve in a SaaS (Software as a service) repository and it will make so much sense for corporations to run the numbers and realize they can rent/buy a service without the hassle of having to take care of the plumbing.

    The IT people are better to look good and come up on top. 😉

  2. David says:

    SaaS is definitely a money saver. We use b2bfiles.net to store our large media files for our clients to access. It costs us pennies on the dollar vs building and maintaining our own internal system. As long as your data is backed up internally, the risks associated with using SaaS are minimized.

    • TheBenz says:

      Thank-you for your comment and the link, I did not know them. I agree that storage in the cloud can be very useful sometimes even a life saver. I have struggled with having big, multi Terabytes in the cloud. Having a local backup works great but it could also potentially be impossible if you don’t have a little bit of on-site IT knowledge. A second cloud hosting could be the solution. Keep track of you cost though, bytes out costs as much as bytes in but probably less than a full blown disaster recovery solution.

      Love your email address!

      Benz

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