It is said that variety is the spice of life. It's also how consumers, in other words we as individuals, determine our own, unique approach to our personal productivity, including our choices of the technology we buy and how we use them. It reflects our individuality, the differences that make each us like no one else on the planet. I choose a Motorola RAZR v3, an Apple iPod Touch and a 19" HP laptop. I prefer powering my Griffen Evolve wireless speakers with Pandora. Your choices are undoubtedly different and reflect your values and preferences.
Business have a totally different approach to productivity. As much as possible they want standardization, from vacation policy to the email system. This drives costs down and enables everyone to have an equal playing field. So I have a choice of one laptop or desktop, one Blackberry, one cell phone provider, etc., although choice is limited mainly if I want one or not. This has worked well during the last twenty years when technology has mainly been used only between employees of their own companies. It's also worked well since the rate of technology change needed solely within a business has decreased significantly, so not only are we standard, we're also increasingly out of date.
As businesses have continued to increase leverage to gain further cost reductions, they have had to go outside their four walls to achieve it. This may be a acquisition or an outsourcing contract. This has the consequence of needing to accommodate a greater variety of technologies, which runs counter to cost-effective standardization they've accomplished, and they're not prepared to handle.
Is it any wonder that Internet-based services have begun to dominate the Communications and Collaboration space? You're a Mac, I'm a PC and we both can use that web-based conferencing service, although neither of us could use each others internal service. These services, born to handle the consumer's wide selection of choice, are perfectly positioned to win the heart and dollars of business users.
One way that consumers and business users are alike? They want it now. Game, set and match to the web. Not a fair fight anymore.
Tuesday, August 25, 2009
Thursday, August 20, 2009
70% / 30%
I heard a quote a few weeks back that took me in a far different direction than I'm sure the speaker had intended. "Only thirty percent of an IT budget is typically spent on new capabilities!". I'm sure this was intended to shock us, that so little was being done to help our business and it simply could not be tolerated. But as I dug deeper into this statistic, a very different picture emerged, and one that helps put many of the struggles IT deals with into perspective.
A 70%/30% ratio of maintenance dollars to new capability dollars, at its simplest, means that if your budget is constant, that next year's additional maintenance cost caused by the new capabilities being created is exactly equal to the improved productivity savings in supporting the existing capabilities. If the ratio stays constant, and the budget stays constant, your business can continue to add new capabilities year-in and year-out, forever.
Neat trick. What other segment of your business can boast so loudly. Could you have a house built, add 30% to it each year and have your maintenance bill stay the same? Of course not.
IT has two things going for it, both pulling to make the equation work.
First, Moore's Law has continued to make the hardware cheaper. Mainframe MIPs (Millions of Instructions per Second) were millions of dollars on the 1960's, reduced to thousands of dollars today. Voice calls have been reduced to less than 10% of their previous levels just a decade or so ago. Just a couple of the amazing changes that have occurred along the path of Moore's insight.
Second, IT continues to innovate, bringing a more connected world, fewer inefficiencies and enabling new business models. Without new innovations, the maintenance budget could stay constant, life would be boring and IT demoted to the least important of professions.
If IT can't keep the equation balanced, then something has to give. Either we no longer can afford the new innovations or we spend ever increasing amounts of money on IT. Neither scenario is good for the overall economy or the IT industry. Maintaining, or even improving, on the 70%/30% is an imperative.
So maintenance spend must continue to decrease. Increasing leverage (e.g. virtualization, cloud computing), using cheaper alternatives (e.g. web mail, open source, offshore programmers) and eliminating under-used or redundant services (e.g. portfolio management) are all levers that are being pulled in today's world.
When SAP announced their maintenance cost increase from 17% to 22%, a huge backlash resulted. Why? They dared to increase our maintenance costs, the very side of the IT equation we're working so hard to decrease. But most companies had to grin and bear that cost; the switching cost was far too high, at least in the short-term.
Microsoft, which for many years has delivered valuable new capabilities to our companies, now finds its cash cows predominantly on the maintenance side of the equation. New Windows operating systems and new Office suites are nice, but so what? The action is happening on the Internet, and how many new features can we really use? Unlike SAP, Microsoft's switching costs are relatively low and the alternatives are "good enough".
Given a choice, which one do you think has got to give? Not a trick question.
And the scenario will play out for every maintenance budget item. Do we need that? Is there a cheaper replacement? How can we avoid getting boxed in with vendors, particularly the ones we write the largest checks to? But understanding the underlying, fundamental forces at work here can turn this from a thankless chore to the most important work we can be involved in. We're keeping the innovation engine going strong!
A 70%/30% ratio of maintenance dollars to new capability dollars, at its simplest, means that if your budget is constant, that next year's additional maintenance cost caused by the new capabilities being created is exactly equal to the improved productivity savings in supporting the existing capabilities. If the ratio stays constant, and the budget stays constant, your business can continue to add new capabilities year-in and year-out, forever.
Neat trick. What other segment of your business can boast so loudly. Could you have a house built, add 30% to it each year and have your maintenance bill stay the same? Of course not.
IT has two things going for it, both pulling to make the equation work.
First, Moore's Law has continued to make the hardware cheaper. Mainframe MIPs (Millions of Instructions per Second) were millions of dollars on the 1960's, reduced to thousands of dollars today. Voice calls have been reduced to less than 10% of their previous levels just a decade or so ago. Just a couple of the amazing changes that have occurred along the path of Moore's insight.
Second, IT continues to innovate, bringing a more connected world, fewer inefficiencies and enabling new business models. Without new innovations, the maintenance budget could stay constant, life would be boring and IT demoted to the least important of professions.
If IT can't keep the equation balanced, then something has to give. Either we no longer can afford the new innovations or we spend ever increasing amounts of money on IT. Neither scenario is good for the overall economy or the IT industry. Maintaining, or even improving, on the 70%/30% is an imperative.
So maintenance spend must continue to decrease. Increasing leverage (e.g. virtualization, cloud computing), using cheaper alternatives (e.g. web mail, open source, offshore programmers) and eliminating under-used or redundant services (e.g. portfolio management) are all levers that are being pulled in today's world.
When SAP announced their maintenance cost increase from 17% to 22%, a huge backlash resulted. Why? They dared to increase our maintenance costs, the very side of the IT equation we're working so hard to decrease. But most companies had to grin and bear that cost; the switching cost was far too high, at least in the short-term.
Microsoft, which for many years has delivered valuable new capabilities to our companies, now finds its cash cows predominantly on the maintenance side of the equation. New Windows operating systems and new Office suites are nice, but so what? The action is happening on the Internet, and how many new features can we really use? Unlike SAP, Microsoft's switching costs are relatively low and the alternatives are "good enough".
Given a choice, which one do you think has got to give? Not a trick question.
And the scenario will play out for every maintenance budget item. Do we need that? Is there a cheaper replacement? How can we avoid getting boxed in with vendors, particularly the ones we write the largest checks to? But understanding the underlying, fundamental forces at work here can turn this from a thankless chore to the most important work we can be involved in. We're keeping the innovation engine going strong!
Subscribe to:
Comments (Atom)