Every year at this time, we see the results of surveys that predict enterprise IT spending trends for the coming year. And each year it seems more companies are continuing to spend huge sums on IT infrastructure like servers, cabling, cooling equipment, buildings and the staff to keep their in-house data centers running.
For 2020, a Spiceworks survey reveals companies will spend 33 percent of their IT budgets on hardware — the most of all categories it measured. Sadly, every dollar that goes toward a replacement server is one less dollar you could have used to create an innovative IT project that could grow your firm or differentiate you from a competitor angling for more market share.
Yet, “When it comes to the top IT challenges in 2020, keeping IT infrastructure up to date will continue to be the top pain point,” shares Spiceworks.
Nerdery’s view is that with the rise of infinite cloud capacity, IT infrastructure has become a virtual commodity, a building block, that any company can “rent” for far less than it would cost to build out and operate its own data center.
So, why would any business spend more money on IT infrastructure than core projects that create value and increase revenue and profits? As Microsoft CEO Satya Nadella states, “You don’t want to be caught up in spending your scarce resources on what is essentially something that can be available as a commodity.”
We consider any technology project or initiative that supports your company’s value proposition to be a core project. These projects generate profits, grow the business, delight your customers and differentiate you from competitors. In other words, they are business-critical.
The best example of a business diverging from a core project focus is the company that buys the latest back-end systems with little regard for how it will improve the customer experience and drive sales. The decisions made around which IT projects companies should invest in comes down to the perspective in which they’re viewed — customers or technology.
Steve Jobs explained this subtlety in his vision for Apple when he said the company always started with what benefits can they give to the customer. “Not starting with engineers and figuring out what awesome technology we have and how we’re going to market it.”
“Good to Great” author Jim Collins says businesses that have a firm grip on what drives their economic engine have an advantage over companies that don’t. Understanding what propels the company’s economic engine also helps clarify what IT projects will grow the business, versus those that aren’t mission-critical. Viewing IT projects through this lens allows CIOs and senior business leaders to make more informed decisions, especially if you’re navigating a digital transformation, where costs can quickly add up.
The reality for business leaders in today’s intensely-competitive marketplace is that technology — especially software — will continue to be a strategic tool that’ll help you deliver better customer experiences and grow faster, regardless of your industry.
Vijay Gurbaxani, writing in the Harvard Business Review, says that “Every business is, willingly or unwillingly, a competitor on a software playing field, no matter which sector it’s in.”
A classic case of how software can disrupt a business model is Blockbuster versus Netflix. In the 1990s, industry leader Blockbuster had 2,800 stores when upstart Netflix appeared on the scene with a disruptive idea that allowed customers to order DVDs online and have them mailed to their homes. When streaming became economically viable around 2007, Netflix was able to leverage its technology leadership to quickly pivot its business model and dominate this newly created market for over a decade.
Blockbuster, on the other hand, missed the inflection point and didn’t invest in technology until much later. This mistake — combined with other strategic blunders — ultimately led to Blockbuster’s demise, even though both companies were generating enough cash to help reinvent themselves. In the end, it was Netflix that had the foresight to use technology to create a new market.
Software and tech have become so intertwined at all companies it’s impossible to distinguish the business from its technology. Notes Gurbaxani, “Software doesn’t simply make existing products smarter or existing processes more efficient; it enables new models of delivery, engagement and innovation.” Nadella encourages companies to swiftly adopt new technologies so they don’t fall behind in the innovation race — a mindset he describes as “tech intensity.”
Moreover, the ascendancy of technology is morphing your company’s IT organization from a cost center into an innovation center by focusing more on projects that deliver value and less on projects that simply keep the lights on. IT infrastructure, for instance.
To help align your company’s IT roadmap with your business strategy, consider asking this question at the onset of every significant IT initiative:
Is my team more excited about the technology involved, or the new/improved experience we will be delivering to our customers?
Our experience shows the most innovative business solutions come from a coalescence of business strategy, design and customer experience. Leveraging cloud services is how you return focus to your true business differentiators.