Commodity, Business Value, New Opportunities – The IT spending conundrum (Part 1 of 2)

In many organisations most of the IT budget is spent where there is the least opportunity to create business value!

Those of you that have heard me talk over the last 6 months or so will know that I have focused a lot on where and how the IT budget is spent. I’m lucky enough to be able to get to speak with Senior people within IT across many different industries and across many different countries (56 unique countries in 2 years, at my last count). There is a definite theme that has emerged, a picture in the mind of the people that I meet, and that is how they are categorising what IT actually does. There are most often three categories…

Commodity IT – Those things that are important but cannot create much additional value to the business
Business Value IT – Typically apps that are core to the business where there is potential to create real business value
New Opportunities – What could we do? the breakthrough ideas that create the most significant value to the business

What’s interesting to me is how the money is currently spent

Typically around two thirds of the IT budget is spent on the things that create the least amount of value. Now I should say at this point that I have had people violently disagree with this, however in almost every one of these cases it was due to the spend on Commodity IT being significantly higher in their organisation.

This has led to a massive and sustained focus on efficiency for a number of years, how do you reduce the cost associated to Commodity IT so that you can spend more on Business Value IT and New Opportunities? IT was put under the control of the CFO who could scrutinise all spend, procurement departments set up aggressive processes to negotiate down the costs from suppliers. Vendors like NetApp came up with ever increasingly impressive technologies to reduce the impact of data growth.

So how did you do? IT has worked on and honed this efficiency strategy over many, many years now, so how much of an impact has it had on the numbers? hold on to your hat, this should be impressive…

In most organisations the spending pattern hasn’t changed!

(This is also supported by Gartner Research – IT Key Metrics Data 2014: Executive Summary)

The more you think about this the more it seems to make no sense, VMware came along during this time, with promises of economics and efficiencies the likes of which have never seen before, companies predicted huge savings…but what happened to the way the money is spent? …Nothing! NetApp helped companies avoid buying 10 Exabytes of Storage, that’s 10 Million Terabytes, or somewhere between 20 and 30 Million physical disk drives…and what happened to the way the money is spent? …Nothing!

Over time everything becomes a utility or a commodity

It’s my view that the reason for this is over time everything is moving toward Commodity IT. Every new application that comes into the business starts of with real business impact, but then over time, as you extract as much value as you can it becomes something that you have to run, to maintain, and the real issue is that you very rarely ever get rid of anything.

If we look at NetApp as an example, we started with email and it truly did transform the way that we communicate, we worked out ways to use it to accelerate support, procurement and many other parts of our business, but now, whilst being very important to us, there’s very little value left to extract. Then a couple of years back someone decided that Salesforce Chatter would be a great tool for us to begin to use, then we got Yammer and now Jabber, so that’s now 4 different tools we have for talking to each other and nothing went away.

It’s the same with Data, at the point of creation it probably has it’s highest value, then as it ages we may use it for analytics, trending etc but at some point it becomes a commodity and we simply have to keep it, as no one ever makes a decision to delete anything.

The fact is that you’ve been very successful at keeping the spend the way that it is, especially with so much trying to make you spend more and more on simply running what you have, and you must continue.

I’m not sure how much of a surprise this is to you, in part 2 of this blog I’ll look at some of the strategies IT can adopt that may well be able change this. I look forward to any comments in the meantime.