The old model of procuring IT is no longer relevant
Traditionally, when organisations went about compiling their IT portfolios, the building blocks were made up of two things: the perceived IT infrastructure and the technological capabilities of both software and hardware. During this time, innovation was driving raw business differentiation, which fuelled greater demand from end users. This, in turn, justified an organisation’s long-term business case and made it much easier to get buy-in for future technology investments. And so the circle continued.
This seemed like a sensible and straightforward approach, but there was devil in the technical detail. If you were in procurement, your job was harder as the business case options between vendors was less ‘apples for apples’ but more ‘chip for chip.’ The choice was less about what you bought and more who you bought it from.
In recent years, however, the technological impacts of product differentiation are less marked, so business scrutiny has moved to one of commoditised service and value. OPEX is replacing CAPEX and the financial impact is significant.
The new question facing organisations is: ‘how do we equate on-going costs against business value in today’s commoditised cloud world?’
To find the answer, businesses not only have to measure how technology delivers business benefit (for example, with cheaper IT and/or by supporting better and faster business), they must also consider how to actually account for the cost of their IT consumption. Do these costs relate the true cost of doing business? Would it be more appropriate to account for these costs by relating them to productivity gains?
Buy in haste, repent at leisure: the perils of going ‘all in’
Covid has been a cultural catalyst and, consequently, a cloud accelerator. Businesses have clamoured to take advantage of cloud applications (often technology that has, in the large part, been around for eons). Synergy Research estimates that spend on cloud infrastructure services increased 37 percent in Q1 of this year alone, with Amazon and Microsoft unsurprisingly leading the charge.
Indeed, vendors are capitalising on the service world, offering more and more subscription-based tools and marketplace services have make it easier for organisations – specifically non-technologists – to purchase cloud-based applications.
As the Covid dust settles and new norms are established, another new question therefore emerges: ‘how should organisations control the costs of their cloud deployments and also be sure that their new portfolios deliver value against rationalised business requirements?’
The era of business-led application portfolio management has begun and the stakes could not be higher. Whilst it seems the choice of applications and service providers is continually widening, the truth is that many businesses are investing in more critical business applications from fewer service providers. They find themselves ‘all in’ with one or a few vendors, which could mean then soon end up on a commercial cul-de-sac of pain.
The emergence of Application Portfolio Management
One of the key aspects of a ‘portfolio of service’, is that service requirements are now assessed by business stakeholders, not just the IT team. User based SaaS products – as well as some IaaS and PaaS services – can be justified and deployed across an organisation, accessible from any device connected to the internet, without the integration hassle and expense associated with on-premise solutions. All this can happen on the budget holder’s whim, with no lengthy procurement processes to slow down things down.
But this convenience comes at a cost. Decisions are often made rapidly, using poor information and data to validate requirements. Optimising the bill of materials can be difficult when you can only guess at quantities. After all, when you actually ask people what they want, they will always tell you ‘everything.’
This approach is clearly unsustainable. Getting a better overview of what is required across an organisation is essential to Asset Portfolio Management and, here at Livingstone, we advise organisations to add focus to their activities by asking themselves the following questions:
Finding answers to these questions will help an organisation understand the portfolio requirements for application services, making it easier to agree value-driven contracts that are flexible and agile. Not only does this provide far greater commercial control, by going through the exercise of establishing your organisation’s application portfolio requirements, it is possible to identify the ongoing consequences of an initial purchase. It may also illustrate the importance of safeguarding against inflexible contracts, which could lead to spiralling commercial costs as your business grows or adapts.
Indeed, as organisations wake up to the consequences of signing up to bigger and bigger ‘all in’ deals, this process will help them align costs to business metrics, something that has become even more key as a result of the current crisis.
The impact of Covid-19
As the coronavirus pandemic fundamentally changes the way we work, undoubtedly there’ll be greater attention paid to the service portfolio as businesses take stock of what they have on file as they adapt to new ways of working. According to Gartner, 36 percent of businesses have already renegotiated or plan to renegotiate their software contracts with vendors as a result of Covid-19.As remote productivity becomes more of a permanent fixture in the future of work, this number is sure to rise.
Organisations must change their software usage to facilitate this increase in home and flexible working, but they must do this effectively. The first step would be to take a portfolio-led approach to applications. Knowing what you need will help you put effective cost governance around new deployments. Plus, with GDP figures still markedly down for the year, cost management and agility will be critical.
If you have entered a cul-de-sac of commercial pain by going ‘all in’ with a vendor, or by entering into too rigid contractual terms, now is definitely time
About the Author
Author: Chris Gough, Chief Strategy Officer
Chris has worked in the IT Industry for over 20 years, starting as a consultant he then took on more senior practice management roles, focusing on networking, security, data centre and unified communications and in recent years specialising in data centre optimisation and particularly in software licensing. Having worked with large enterprise organisations, Chris understands the challenges faced in data centre licensing and the lack of expertise in the marketplace.
Having founded the Derive Logic business until its acquisition by the Carlyle Group in April 2019, Chris is now on the senior executive board for the world’s largest independent IT Transformation Assurance and Software/Cloud Risk Management business, Livingstone Group.