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Around and about
July 09, 2005
CIO Insight has published some of its readers' thoughtful responses to my column "The Next IT Revolution," which argued that the inefficiencies in the current corporate IT model will lead to a consolidation of computing assets and ultimately a shift of those assets to utility suppliers. In the first batch of letters, Perry Cherpes writes: "I applaud Mr. Carr's forward thinking, but personally I think the next IT revolution will arrive in much more powerful individual computers, with much improved security, networked in a geographically unconstrained peer-to-peer mesh. That kind of revolutionary change would be a more realistic way of reducing IT infrastructure inefficiencies." Rod Lindley says: "One of the main reasons a lot of systems are underutilized is that they are isolated from each other for security reasons and have special purposes. Another reason is that folks buy systems that are usually much bigger than initially needed so they can grow into them instead of replacing them every year or so." Dan Razzell warns that "Everybody wants to talk about grids and utility computing ... but those who promote them the most seem to have the least experience in what their deployment actually entails."
In a second batch, Thomas Stiehm writes: "While I agree with some of Mr. Carr's ideas, such as data center consolidation, I disagree with the idea that utilization rate is a solid measure of value for most computing systems ... If we start to take away the tools that improve our productivity in the guise of being more cost-effective, we are just being penny-wise and pound foolish." Gary Chernipeski says: "IT now serves the careers of its members. 15 years ago, why was there no 'Chief Telephone Officer' in the executive suite? Because the bloody phone mostly worked, and for what you get—the ability to talk to anyone anywhere any time—was incredibly inexpensive. How is it that IT has leveraged years over years of failure to deliver a stable, safe, low-cost, reliable business tool to the desktop, by asking for and obtaining a senior management-level voice—CIO/CTO? One can only assume blackmail and/or a lot of slick-talking BSers." Here's Mike Moxcey: "Carr is correct in that right now, too many businesses have 'departments of electricity' even though they aren't competing in any category that really needs that department. Those IT resources are unnecessary and will go away, turning into contract management departments before being absorbed completely into Finance. The other IT resources are immensely valuable and will not go away." And Frank A. Van de Kerkhove: "The first order of business is to keep the business operating. This requires an infrastructure that is reliable and, often, redundant. Consolidated data centers clearly save money, but also introduce single points of failure. The cost savings must be viewed as coming with added risk to business continuity."
CIO Insight also reports on the findings of a new study by research house Alinean comparing IT investment with business results. The most profitable companies, the study finds, "consistently prove to be the most frugal in their IT spending as a percentage of revenue, spending on average 0.5 percent less on IT as a percentage of revenue versus the average company." But these companies have, not surprisingly, picked up their spending since the aftermath of the dot-com bust. In 2003, they dedicated a very slim 0.8% of their sales to IT; by 2005 the percentage was back up to 2.8.
Finally, a study of manufacturers by consultants McKinsey & Company indicates that additional spending on IT has little impact on productivity unless it's combined with superior management practices. Greater IT spending produced only a 2% increase in total factor productivity, while superior management techniques produced an 8% gain. Those companies that combined superior management with aggressive IT use saw productivity go up 20%. It's important to remember, of course, that productivity gains don't necessarily translate into profit gains, as I discuss here.
Comments
On the comment made by Frank A. Van de Kerkhove:
I believe that keeping the business operating is going to be the key argument in favor of utility computing. Today, midsized businesses typically have their own application server. Normally, they will have a fail-over server standing by in case the main server goes down, a substantion investment already. Business must go on.
But recently, I was at a client site where burgulars had broken into the server room, where the most valuable IT assets were found. Had they been able to complete their work, then they would have taken not just the main servers but also the backup servers with them of several key business applications, obviously resulting in huge business problems. Fire is another reason how things could go terribly wrong for midsized companies. Midsized companies usually do not have geographically dislocated data centers.
However, most online service providers go to great length and expense to ensure their business cannot go down, ensuring there is no single point of failure in the provision of their service. Because these providers can do these investments for many customers, the effort is financially feasible.
It is also noteworthy that most companies that use IT, do not have a failover system for the electricity provided to desktop computers. That implies that businesses readily accept the risk of a single point of failure, on the condition that the failure is extremely rare, and very quickly fixed. The benefit of avoiding this failure is offset by the cost to do so.
So I believe that for an small to midsized company, an infrastructure that is reliable and, often, redundant, is almost inevitable provided as a utility.
Posted by: Filip Verhaeghe at July 12, 2005 03:28 AM
As Mr. Rose states in "The Cider House Rules,"
"What business are you in?"
Too often most companies are ALSO in the IT business.
Posted by: ordaj at July 29, 2005 12:34 PM
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