We’re Past the Tipping Point in Datacenter Transformation

While cloud-based technologies can help a corporation to become more agile, many enterprise IT executives cling to the legacy systems running in on-premises data centers.  But new data shows we may be just past the tipping point in the transformation to newer technologies.

In Computer Economics’ 2015 report on IT funding, the research organization found the first clear sign that spending is shifting away from the on-prem approach toward cloud-based alternatives like Infrastructure as a Service and SaaS, according to the organization’s president, Frank Scavo.

We find between a 15 percent and 20 percent saving for companies that have moved the majority of their applications portfolio to the cloud. So, long term, cloud does save money.

Scavo said a modest 3.5 percent increase in operational expense, compared to flat spending on capital expense, suggests the shift to transformative technologies is well underway. The reason is that traditional datacenters are hardware centric, requiring massive long-term spending that is recorded as a capital expense. Cloud-based systems are typically funded through short-term spending, which is recorded as operating expense.

“We have been waiting to see this for some time now, and we believe that this does reflect the transition to the cloud. We’re seeing a push into Op-Ex and flatter Cap-Ex,” said Scavo, who is also president of the consulting firm Strativa.

“When you’re buying a new server, you’re basically committing to that investment over the useful life of that server, which might be three to five to seven years,” he added. “When you’re buying infrastructure as a service, you’re committing to the life of the contract, which can be as short as hour-to-hour.”

Economic indicators aside, Scavo said the rate of adoption varies substantially from company to company. Some follow a “why not” strategy that delays a shift to the cloud. When they want to create, say, a new application, they ask why not build it on the legacy system they already have rather than on a new cloud-based system that isn’t even integrated into their network.

“They’ll say, ‘Man, after four or five years, the on-premises system is cheaper than the cloud system.’ But they’re not factoring in the cost of doing version upgrades through that whole period,” said Scavo. “We find between a 15 percent and 20 percent saving for companies that have moved the majority of their applications portfolio to the cloud. So, long term, cloud does save money.”

Saving money is a big deal in IT these days because, as Scavo notes, that frees up more money for innovation, enhances flexibility and makes companies more agile. “We are big believers in the move to the cloud,” said the IT expert.

As companies transform their datacenters to a hybrid model, they need to be mindful that each application depends on data in a specific location, according to Kevin Leahy, Group General Manager for Data Centre Solutions at Dimension Data. They need to ask such questions as how long they want to retain the data, what’s the business value of different data and what different forms of data are involved.

“It may seem unimportant right now, but three years later you’ll realize you need to go back and have another look at it,” said Leahy. “In making data-related decisions, you may also need to balance our users’ desire to have all their data at their fingertips with governance rules regarding where certain data may or may not reside, and the need to ensure that multiple versions of the same data aren’t being kept unnecessarily.”

Seeking Innovation

In a global survey conducted over the summer for the Transform to Better Perform initiative, the BPI Network found most business managers were unhappy with the level of innovation coming from their own IT departments.  Their top priorities were to enhance innovation in a way that new services and applications can be delivered faster and cheaper.

Scavo said the perception that innovation is lacking is quite understandable when you consider that 65 percent to 70 percent of the resources within a typical IT organization are spent simply maintaining the system. “We call it, keeping the lights on,” he said. “You can’t increase your IT budget, and most of the budget is now going towards maintenance. There’s not a lot of room there for doing new stuff.”

This tends to lead to friction between the business execs who don’t want to be tied to costly, slower legacy systems and IT directors who want to minimize the demand for new resources.  “There can be tension between the business and IT from that point of view. I’ve seen that several times recently,” he said.

Asked what advice he would offer to business executives who want to increase the level of innovation in their companies, Scavo suggested inviting the IT leadership into the C-suite and challenging them to rise to the occasion. “If they can’t do that, and they insist on remaining the chief infrastructure officer, maybe it’s time to either split the job in half or go out to look for a new IT leader,” said Scavo.  “I think at that point, the IT leader has got to step up to the plate and fill that role.”

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Unlike the late ‘90s, when tech budgets were rising at 10 percent or 12 percent a year, IT directors today are lucky to see a 3 percent or 4 percent increase.

“At the same time, IT leaders are being asked to do more,” said Scavo. “They have got to become more efficient. They have got to become more productive, and they have got to be working at a higher level in terms of delivering value to the business.”


Frank Scavo
Computer Economics

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