The real costs of owning the IT landscape
This is not one very technical text. But it might contain some pieces of information that might come handy to some CxO right now. Especially if the said CxO are given to “own” the IT in some medium or large organization. In this context, and perhaps because of this post, I might be called a bit of a pessimist which is calling himself a realist.
IT Really Hits
I am talking to you the CTO or CIO. Basically IT is absolutely necessary and IT is not cheap. And basically it is not possible, not to own “something” tangible that is IT related and stay in the business. Even if your clever model has provided completely virtual SMB1 that works (which is unlikely), someone has to own the licences, take care of IT Services, SLA’s and procedures in place, implement and plan the compliance (which costs money) , and so on and on.
The table bellow is about big expensive IT. IT that is as big as it can get in the context of “everything IT” that one large corporation will have in place. Corporation that uses combination of in-house developed and external IT solutions. Combination of legacy and new. Combination of (usually) older on-premises IT, and private or hybrid Cloud IT.
Through the life cycle of every modern corporation a lot of these combinations have been left around as results of many socio-techno-political compromises. So, now you might be inheriting the whole minefield of them. Expensive “IT solutions” combining old and new coexisting in precarious IT balance, that has to be “pruned and grafted” and “watered regularly” just like some orchard which must never stop yielding the fruit.
And each cell in this table costs money. Capital + Operational Expenditure that activity in each of them will incur. For example “Testing/Infrastructure” cell means new infrastructure has been procured (CAPEX) and now the team is going to formally test it (OPEX).
Columns in this table do represent procedural steps of (large organization) IT services. From Development to “Recovery Position”. Which is separate data center where redundant copy of the primary data center is gathering dust and waiting for the primary to go out of service for whichever reason. Yes, there are some clever solutions which can avoid this “dust gathering”. Dreaded by your CFO. But. Board has not made up their collective mind yet when and how to implement that fundamental change. So “tick,tick,tick” all the three cells in that column.
Not every cell in the table will be visited in each company cycle, for each and every IT activity. Neither every company will have IT requirements that will cover all this columns and rows. But whenever and wherever any of these cells comes into existence be prepared to see it clearly and to act.
Do not just take the global “board room” view on your IT costs. Each of these cells can “explode” if not managed on time. If you are not the luckiest CTO/CIO that ever was, you might “own” the full set of 18 of these cells.
For basic explanation on key costs terminology please follow the links.
- C = CAPEX
- O = OPEX
- R = REVEX
- money that a company spends on activities that are directly related to making sales in a particular period.
- This might be called “marketing” but every marketing campaign does require some IT resources, these days.
More Bad News?
Yes. And the bad news (like above is not enough) is that this is not all. There is also mirriad of additional Operational Expenditures that are arising of the markets regulators requirements, on the subject of your organization handling of:
In case you are not aware there is even a new CxO “kid on the block”: CCO. Aka Chief Compliance Officer. Whose job is to “help” to the CTO/CIO to firmly keep the organization in the sweet spot intersection of the three above.
Therefore calculate this three into every project costs and be sure that everyone understands which call is going to take which percentage of costs related to Compliance, Risk and Security.
The Legacy Issue
In every medium to large company, every CTO and/or CIO life is one endless waltz with suppliers of energy, goods, people and software. And they know it, and they are waiting for CTO/CIO to get tired. They are forever waiting for the right moment to insert the latest and greatest “solution” with nicely hidden costs inside.
And they are always close to you so that they know your weak points. They call them “pain points”. Which are very often in the form of some legacy IT that you can not just simply “switch off”. On one side you (the CTO/CIO) have company board demanding ever more cost cutting, because yes “IT is an overhead”. And yes they will never let you even plan a replacement, of some back end IT from mid 20-th Century. Unless you come with some “rabbit out of the IT hat”, which if you are clever enough can be some Cloud Computing solution. That is until “board security concerns” stop you.
But it is not as bleak as that. There are “legacy system failures” waiting to happen and to be happy about. You know they will happen and you are prepared. You have done the “blame delegation” and now The Board realises at last, “something has to be done” and all eyes are on you (the CTO/CIO). It is your moment. And. Hordes of VAR’s are already circling around. They have already smelled the BIG ORDER.
Ah. Good old Value Added Resellers aka VAR’s. You “just” have to be clever enough to choose the lean and hungry VAR’s which will do that 1% less in costs and that 1% more in services. And who will stay in the business long enough. For example, longer than your retiring date, would be good enough.
More than big orders, VAR’s do like long contracts. Some VAR’s will do anything to assure long contracts. But.Change in company IT, to make it more modern or cheaper,inevitably means few legacy contracts will have to end. I had quite a good VAR’s to support me when I need it most. But. I have seen situations where VAR’s have been allowed to play internal games in some organizations. That was the extent of the pressure when they realized they might lose decades old legacy contracts in place. Never sleep with both eyes closed when VAR’s are around.
Where Will it all End?
Or When. The fact is that markets today are tough. Especially regulators are becoming much tougher than any competitor ever will be. To get out of this “new reality” it seems the key thing that needs to happen is paradigm shift in the board rooms.
Each and every board has to realise that market regulations are driving the IT costs high, unless they are not properly responded to.
And this is where the opportunity lies. Implementing measures required by regulators is an opportunity to modernize the IT and make it much more controllable , predictable and thus feasible.
1SMB is Small to Medium Business. Preffered by me to “SME” which is overloaded with “Subject Matter Expert” meaning.