Senior management may also pressure the ITO to adopt a fully flexible model not only for applications, but also for basic infrastructure (which is generally considered a cost center). The same tools that the ITO has adopted to improve communications with senior management (e.g., total cost of ownership) often encourage this view by focusing on IT costs rather than benefits. Such cost-modeling efforts need to be expanded to cover a more comprehensive concept of total technology economics, which compares costs to the value that the system in question provides to the business. Without this approach, whenever an IT system is created or expanded to meet the needs of a business unit, the extra costs are obvious in the IT budget while the benefits are realized in the budget of the business unit. All senior management sees on the IT side is the cost increase.
This expanded model of cost versus benefit is particularly important for analyzing the opportunities and dangers of flexible-computing models. For instance, if a flexible model can enable the organization to exploit variable business opportunities and thereby earn extra profits that go far beyond the premium that the vendor charges for the flexibility, it becomes worthwhile. And when senior management questions the increased IT costs, CIOs can show that those costs are an investment aligned with business benefit. A hypothetical case is presented by online retailers that face a huge increase in demand during the weeks before Christmas every year. If their ordering facilities are overloaded, business can be permanently lost. Worse, those locked-out customers may go to a rival to fill their Christmas orders and develop a loyalty to that rival, resulting in a loss of not only sales, but also customers. Flexible computing that automatically increases its capacity to match the increased demand is easily justified in such cases, but only if the analysis includes the extra IT cost and the additional profit that the user realizes through such flexibility.
USER ACTION: Two kinds of organizations will initially adopt
flexible-computing paradigms: those that are smart and understand the economics, and those that do not understand the economics but still pay a premium. CIOs need to ensure they are in the first category and can map extra value to the premium cost of flexible computing. IT organizations that do not closely watch the economics of flexible computing are likely to become candidates for outsourcing. META Group analysts William Snyder, Michael Buchheim, and Glenn O'Donnell contributed to this article.
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