Why is operational expenditure (OpEx) good for IT spend?
Traditional IT infrastructure investment doesn’t always make for easy business cases.
IT investment has historically meant ploughing capital into datacentres, often for unclear direct business benefit, with periodic technology refreshes that can only be justified in terms of avoiding technical risk.
Cloud computing changed that model. Renting IT resources from someone else rather than maintaining your own datacentre means those resources become an operating cost.
This has created the reasonable expectation that all IT should be paid for at the point of consumption, regardless of whose datacentre runs it.
As IT becomes central to most businesses, and with the growth of automation and Artificial Intelligence (AI), this question of IT funding gets more critical.
This blog explores the bigger picture around ‘pay as you go’ IT in the context of automation and AI. Other blogs in this series look at the key role of data management, and the importance of aligning business processes, data and IT in an automated, AI enabled world. Our ebook on data management for AI complements the blogs.
It’s not just about budget meetings
An automated, AI enabled enterprise depends on perfect alignment of processes, data and IT, strong data management, and an IT investment model that facilitates innovation and growth. This means rethinking the approach to IT funding.
Shorter business planning cycles, freeing the enterprise from budget constraints, accelerating return on investment, minimising technical debt and reducing asset ownership are some of the key drivers for a new approach to IT funding.
Shorter business planning cycles
The 5-year business plan is fast becoming an anachronism. Increasing merger and acquisition activity and the demand for agility in changing digital markets are just two of the factors shortening business planning horizons to one or two years. IT finance planning needs to align with this change.
Freeing the enterprise from budget constraints
The increasingly dynamic business environment makes annual budget cycles less and less sustainable. Businesses that will prosper are those that can seize opportunities as they arise rather than having to wait for the next budget round. The ‘buy now, pay in 6 months’ type of flexible financing model is likely to be key in delivering this flexibility.
Accelerating return on investment
‘Pay as you go’ IT, and the growing capability to deploy new digital functions quickly using robotic process automation and low-code/no-code applications are turning the traditional ‘invest then build then deliver benefits’ model on its head. Functionality can be deployed rapidly to start generating returns quickly and scaled up as those returns grow.
Minimising Technical Debt
Capital investment in rapidly evolving technology, with 3-5 year depreciation cycles against perhaps two years technical currency, starts to build technical debt.
Using leasing models effectively can manage out existing technical debt and greatly reduce future exposure. Fixed term leases on replacement IT can also usefully focus minds by setting fixed exit dates.
Reducing Asset Ownership
The various exposures associated with a large asset base are not where businesses tend to want to be now, and IT assets are no exception.
There are trade-offs to consider in moving towards a consumption based IT spend model.
Cloud and data centre provider minimum commitment terms protect revenue but stand in the way of true ‘pay as you go’ IT funding. We can hope that these erode as demand and volumes grow.
You can’t sweat the cloud like you can sweat an asset you own. Extracting the last bit of value from your owned IT or standing by ‘good enough’ IT through lean times has helped businesses up until now, but they’re not an option in a consumption-based model.
The need to pay down technical debt can be a lever for wider change, for example reengineering processes from the ground up rather than just replacing the legacy systems that support the existing process.
These factors may play a part in short to medium term decisions on IT spend, but they are likely to become less compelling as the move towards consumption based spend accelerates.
Consumption based IT spend offers the best fit for the increasingly automated, AI enabled, dynamic, digital business. The journey towards it needs to be driven by business strategy, direction and goals rather than the narrow desire to get rid of tricky IT capital business cases.
Logicalis UK has helped many clients deliver success in their journey towards an automated, AI enabled business driven by process, data and ‘pay as you go’ IT.