There has been a huge amount of investment in IT over the last few years. According to IDC, total spending on IT infrastructure will be approximately $100 billion in 2015. While investment in new technology will always be seen as necessary, this growth in spending increasingly has to be justified to the CFO and the rest of the business.
More than ever, IT needs to prove its worth to the wider organisation. By retaining a focus on cost and value, CIOs can ensure that their organisations’ IT decisions always follow the right lines.
Size doesn’t matter: value does
Regardless of their exact size and IT budget, all organisations need their IT to work harder in order to meet business demands. The IT department can measure its success in many ways: whether the number of IT issues it successfully firefights, the number of projects it undertakes, or the speed at which projects are delivered to the business.
Above all, the ultimate goal should be value; providing the services the business needs for the best possible return on investment (ROI). Yet having a goal is one thing: being able to demonstrate that decisions will provide optimum ROI is another entirely. Without this ability, the IT department will always find itself at risk of being just another utility to the business, rather than a crucial strategic asset.
Focus on TCO
To change this, the first step to understanding value is understanding where IT costs come from. Every item of software, hardware and underlying infrastructure has its own Total Cost of Ownership (TCO).
Understanding this TCO allows the department to see whether IT delivers the value expected. For example, you may have invested hundreds and thousands of pounds in the most energy efficient servers, but if the data centre is half empty all the time the TCO will be far higher than any value those servers might provide.
Similarly, if the business invests in new cooling technology for a data centre will the TCO rise, fall or stay the same? How will this compare to the importance of the services run from that data centre? And does the data centre actually need extra cooling in the first place?
IT departments also need to know that IT is subject to market factors and commoditisation like any other piece of capital. For instance, the server market once showed a wide range of differentiation, with different manufacturers offering different products that would suit different needs and budgets.
Today, commoditisation means that any server is much the same as another: the only difference being the amount of horsepower it provides, and the cost of that horsepower. As a result, the business will be less forgiving of spending extra on supposedly high-quality servers that have a higher TCO for little additional value: essentially buying a Ferrari badge with Fiat performance.
Understand the cost of your service
Once IT understands TCO to this level, it can go one further and demonstrate the costs of individual IT services. After all, the real value IT provides an organisation isn’t in the hardware or software itself, but in the services it allows the business to provide to its customers and employees. For instance, for an enterprise’s CRM systems, the IT department needs to understand how much a single customer interaction costs in order to determine if they are getting the best return on their IT investment.
By developing their understanding to this level, companies can calculate whether their IT is providing value and, if not, take the appropriate action; whether that is modernisation, consolidation, or turning off some areas completely.
Understanding value doesn’t stop at the present. For organisations to invest intelligently in IT, they also need to understand how it will perform in future. This means being able to accurately predict how any changes will impact IT performance, cost and ROI.
The business can then map these potential impacts and decide the best avenues for investment. By taking this approach, the organisation can ensure that if any changes need to be made to IT, they can be made before any commitments are made – and before a whole year’s budget has been sunk into new IT that may not benefit the business.
Value is the key to future success
Quite simply, IT now has to deliver the best return on investment. By understanding the TCO and role of IT services, IT departments can ensure decisions make the best financial sense for the business. Being able to accurately predict future performance is the final piece in the jigsaw that will help IT departments keep the business on track, both now and well into the future.
Zahl Limbuwala is CEO of Romonet