The trend in IT today is to simplify infrastructure by improving component design, unifying components that were previously separate, and integrating components into large building blocks (or stacks) that are installed and maintained as a single element. Recent examples of simplified design include:
- The "tier 1.5" storage vendors that have virtualized storage arrays and improved automation and ease of use,
- The CNA vendors that have unified multiple protocols that originally required multiple cards onto a single card, and,
- EMC, VMware and Cisco, that have integrated storage, servers, networking, OS hypervisor and VDI into a single stack VCE Vblock offering.
Wikibon developed an IT Budgets model for a Wikibon standard organization with revenues of $1 billion, 4,000 employees and an IT budget of $40 million (4% revenue). Using this model, Wikibon recently investigated the business value of integrated stacks, looking at the cost impact on a $1 million project.
Impact of Simplification and Integration Trends
This time Wikibon has taken a broader perspective on the impact of the simplification, unification, and integration trends on the IT budget over five years. The current allocation of budget is shown in Figure 1, which shows the allocation of a current budget of $40 million, or 4% of an organization with $1 billion in revenue. The allocation shown is either in internal costs or external services. The model assumes that 14% of the current spend is on external services (not broken out in Figure 1).
Table 1 shows the current budget line items (as in Figure 1) in the first two columns. The model assumes that the budget is split 75% on current projects and 25% on new projects/applications. The Wikibon five-year projection of the impact of simplification and integration is shown as a percentage of the current budget line item for existing projects (column 3) and new projects (column 5). The percentage line item in five years for existing applications is shown in column 4 (column 3 x 75%), and similarly column 6 is column 5 x 25%. The overall impact of simplification and integration is shown in column 7 (column 4 + column 6). Column 8 shows the new budget allocation. The assumption is that the level of spending on IT will remain constant at $40 million, and the savings will go into new external services. The reasons for the simplification and reduction or increase in costs are shown in column 9.
Figure 2 shown a straight line projection of the current line items to the future line items over the five year. The line items that increase are new external services and management.
As stated above, the assumption in the current projection is that external services (not broken out in figure 1) are about 14% ($5.6 million). The five-year projection shows that the new external services will grown to $15.67 million, or 39% of the budget. The model projects that the overall external services will grow from 14% to 53% ($21.27 million) of the IT budget. This part of the budget will mainly be led by individual lines of business.
A summary of the budget transformation is given in Figure 3.
The main conclusion of this projection is that simplification, unification and integration are very strong trends within IT that will have a profound impact on IT budgets. The major impact of these trends are:
- The cost of supporting existing applications will be reduced by 39% over five years;
- These cost savings will go into additional external services, including cloud services;
- The percentage of budget spend on external services will rise from 14% to 53% over the five-year period.
The additional benefits of this trend are:
- The improvement in time to implement new projects and applications will be significantly reduced;
- The business risks of new projects will be reduced from later and faster implementation, and the use of external services.
The availability of simplified stacks will come from large IT vendors who will put together their own integrated stacks and coalitions of vendors who will join together to create integrated stacks based on simplified components.
Action Item: CIOs and CTOs should strongly embrace the trends toward simplification and integration of stacks. One of the major challenges will be getting the buy-in from existing practitioners who have deep component skills in the current infrastructure. Senior IT management will need to create and reward IT generalists who can work with the business to facilitate rapid transformation.