For many CFOs, the IT group is a cost center to be minimized. Ironically, the cost of IT systems remains flat (actually falling on the basis of cost per unit of capacity delivered). It’s the cost of administration, management, operations, and power that keeps going up.
But as Mills noted, the big economic burden does not come from a handful of servers sitting around idle while awaiting the next spike. The biggest economic toll comes from the cost of people.
Cloud computing certainly can be useful to augment corporate IT. The public cloud saves a company from investing in IT capabilities that may be used only occasionally, such as to meet a spike in demand. In that sense it changes the economics of IT.
Many managers hope cloud computing will free them from escalating IT costs. Sorry, it can change the economics to some extent, but it won’t eliminate the overall corporate IT spend or even much reduce it.
IBM has been offering such packaged systems as early as 2008 for integrated SAP hardware/software systems. Lately, it offers the Migration Factory for companies that want to move to new, more efficient IBM systems and its first factory-built system packaged as an appliance, Netezza, for data warehousing.
Other vendors offer versions of the factory approach. Check out Oracle’s migration factory. HP offers HP Factory Express, a server blade system factory. Dell offers the Custom Factory Integration for hardware, images, applications, peripherals, and documents.
The factory approach starts to change the economics of IT by reducing the amount of pricy IT expertise a company has to hire and retain. The tradeoff is fewer IT options offered. By selectively combining the factory model with the cloud Big Fat Finance, however, CFOs can begin to impact the economics of IT.
Steve Mills, Senior Vice President and Group Executive, IBM Software & Systems, made this point at a recent briefing: “Server management and administrative costs keep going up and the cost of servers drop and the cost of power keeps rising. These are the [IT] economics facing business today.”
One possible solution, Mills suggests, is adoption of a factory model. In the factory model, the company doesn’t buy the IT piece parts and cobble them together but buys a ready-to-use system pre-assembled, pre-integrated, and pre-optimized by the vendor. The vendor has the tools, experts, and process efficiencies to do this better and cheaper.
Traditionally, IT groups were staffed to acquire hardware and software, connect and integrate it, and support it going forward, changing things as needed when the business changed while supporting users along the way. To do this, companies had to hire and retain people skilled in hardware platforms, applications, system integration, data management, and more. Even with the growing interest in cloud computing, the traditional approach remains the dominant model despite getting more expensive each year.
The economics Mills cites are changing the way IT systems and capabilities are bought and deployed. The challenge to rein in IT costs has, in part, fueled the interest in cloud computing. Forbes Magazine looked at the issue here and found that there isn’t a simple answer.
The problem as Mills lays it out is that of the three main buckets of IT costs—hardware, people, and power—only one is flat or dropping. The other two continue to go up.
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