As CMOs grab IT budget from CIOs, cloud CapEx and OpEx shift

By Bernard Golden, CIO |  Cloud Computing

CMOs, by contrast, focus on ROI. CMO spend is bound to be focused on measurable business outcomes, and the applications they use (or have built on their behalf) are directed toward achieving those outcomes.

For a CMO, the question is, "If I spend an IT dollar, how much do I make?" Even more important, "If I spend a dollar, what is my margin on that dollar. Is it the same as the previous dollar I spent, less or more?"

The business case for a CMO is simple: If I can make as much or more margin by spending an additional dollar, I'm going to spend it. Moreover, if achieving that increased margin requires using a product or service that is not the lowest cost, I'll use the more expensive product, even if that part of my cost structure is higher than it might theoretically be.

This is not even to mention the topic of agility. For a CMO or LOB executive focused on making his or her numbers, getting to a solution and starting to earn margin more quickly is more important than getting the lowest possible cost for something. This is undoubtedly going to cause heartburn for IT executives planning private clouds because they can (putatively) be run less expensively than public cloud options. CMOs are focused on the here-and-now, not the someday-less-expensive.

How-to: Track Cost Allocation for Cloud Apps

LOB executives have to make their numbers. If they don't, they lose their jobs. No one will wait around for a supposedly better cloud service-if executives don't start making their numbers right away, they won't be around to see the results.

IT Must Understand Its Overall-and Marginal-Cost

In a world focused on margin achievement, buyers are laser-focused on marginal cost, asking "How much does making the next unit cost me?" With public cloud computing, understanding unit cost is much more transparent than traditional IT cost assessment models. Moreover, the OpEx model is much friendlier to margin assessment than a CapEx-based approach.

Consequently, for IT shops that seek to induce CMOs to place their applications into internal private clouds, offering fine-grained chargeback based on resource use is fundamental. Showback with deferred cost assessment is useless for CMOs or LOBs trying to assess a product's profitability. A different way of saying this is that CMOs will expect to be able to buy IT resource on a retail basis rather than being expected to fund a wholesale offering.


Originally published on CIO |  Click here to read the original story.
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