IT’s been talking about the CapEx/OpEx benefits of cloud for years now – but that’s just a tiny fraction of the enterprise story. The economics of cloud computing go far beyond just monetary costs, spanning the entire mechanism of IT delivery from as-a-service models to just-in-time provisioning for urgent business needs. However, many CIOs have yet to grasp the basic principles of cloud economics, and they’ll need to swot up fast if they’re to maintain their rightful seat at the C-suite table.
Without an understanding of cloud economics, CIOs will struggle to justify their budgets to the rest of the business. The old adage that CIOs spend 70 percent of their budgets on “lights-on” maintenance has yet to change across the majority of industries. In fact, much of the other 30 percent goes into new technologies that don’t have a clear business case – further distancing IT from executive decision-makers and making it that much harder to maintain budgets.
This is because the true value of IT budgets isn’t transparent to the rest of the business. In the world of cloud economics, IT’s utility as a supplier isn’t just judged in terms of costs: factors like speed, agility, and scalability are all of far greater value to the business decision-makers generating demand. Yet most CIOs continue to represent their value solely in terms of new hardware, software, and capabilities which don’t resonate at all with business priorities. And because they measure value in this way, IT tends to be far less agile and responsive than business units need – one of the main drivers behind shadow IT, which is growing far faster than IT can react to.
CIOs can turn this around, and reclaim control of enterprise technology, by measuring their results according to new units of “currency”. They should aim to represent IT’s value as a unit cost of any business service. In a bank, for example, you’d report on how much IT spend the business would need to manage a single mortgage. This lets the bank’s CIO prove what value she’s providing to the business. It also allows her to demonstrate improvement: for example, driving the IT cost per mortgage down with greater infrastructure efficiencies. And it helps her justify her budget’s necessity, as happens when overall IT costs increase as a result of growth in mortgage sales.
Cloud economics operates in a number of different currencies: the most common ones are time, convenience, and scalability. These are the things which business units are willing to pay for, because they directly impact an enterprise’s ability to effectively go to market and compete. And when CIOs measure their infrastructure and services using these currencies, they can also see which areas of their operations they need to focus on improving. A huge cost per unit for one particular service, for example, may indicate that operational silos are resulting in large inefficiencies when it comes to provisioning.
If IT can’t break down its silos, take ownership of the processes that cross between business units, and prove that its services are the best choice for the enterprise, individual decision-makers will continue to go rogue with shadow IT. The security, privacy, and even cost issues of this are immense: we’ve seen some business units in the region purchase cloud services with their credit cards, then suddenly hit massive diseconomies of scale when their applications suddenly ramp up to peak demand. That’s the point when these decision-makers realise IT’s value as an end-to-end solutions provider, and run back to private or hybrid cloud – but by then, it’s often too late.
Every CIO today has to think not as a cost centre but a service provider. Your choice of infrastructure still matters: converged infrastructure solutions like Vblocks force IT teams to break their silos and streamline the hand-off between different areas of technical expertise, improving service levels and freeing up resources in the process. But that’s just the starting point: the CIO’s focus should be adopting the currencies and models of cloud economics, so that they and the business can see IT’s true value.