Why Digital Transformation will Drive Increased Enterprise Ownership of Infrastructure

Digtial Transformation

Whoa there Nelly, did he just say enterprises will increase the size of their infrastructure ownership” or digital footprint? I sure did. Draw your sabers, prime your pumps, tighten your belts, do whatever you gotta do when someone says something that really chaps your hide!

Where do I get these crazy ideas?

Throughout history we have as individuals, groups or companies, outsourced work for different reasons. We all outsource 10s if not 100s of different activities on a weekly basis, you don’t milk your own cow for the milk for your breakfast cereal and you don’t drive across town to make payments on your bills.

We historically have outsourced activities for a wide range of reasons, like me outsourcing the yard work because, well, I just don’t want to do it. On the other hand, if you own a large property with daily yard work to do, the reasons and choices for outsourcing are different.

  • Don’t want to add to payroll
  • There isn’t enough work on a daily basis to keep the appropriate skill sets (I.e., garden upkeep vs. soil management) on staff and cost effective
  • You like options

What happens though if the business in question is actually a company that sells into the gardening/yard maintenance market? Now the work you do, and the strategies employed have a direct impact on how your product or service is viewed in the market. Since you’re also likely to be needing skilled staff to manage your gardens it only makes sense to leverage their availability.

How does outsourcing yard work relate to the digital economy?

In 1985 when Google first started, it was a library. In 1985, Sergey and Larry were only grade school age and they had no idea that their library idea, when digitized, would become a global behemoth worth $1 trillion. When Elon Musk was just a wee lad, he and some school yard chums started a bank. Little did little Elon know that his bank would grow into a digital business called Paypal. Neither Larry and Sergey or Elon would have expected that going digital would require that they spend 40% plus of revenue on technology. They likely also didn’t suspect that the technology they employed would become the business.

A successful DX journey will determine the future success of most businesses

Each business struggles with determining how digital (business) transformation should be employed specific to them. There are fundamental notions of replacing human process with digital solutions and more importantly building a stronger more active relationship with customers. However, even if you’re successful with employing digital tools and improving customer engagement, you’re still only polishing the same old platform. It doesn’t matter how much you improve on your 1975 Pinto or 1990s Yugo, it will never be an EV with integrated connectivity, entertainment and personalization. Nor will either of these two old “classics” create additional adjacent businesses.

Regardless of the industry you’re in today, the only thing keeping you from having your Google or Paypal moment is the imagination and innovation needed to visualize what a “digital” future might mean for your company. Not every future will require that you spend 40% or more of revenue on technology, but in some cases it will. Your business will have to make the strategy decisions on when to own, how much to own and how best to own technology. What is certain to occur in that process is the realization that as you scale and make technology into a business driver, not just a cost center, you’ll recognize the potential profit and innovation benefits. Keep in mind that Amazon, Google and Microsoft make a significant percentage of their profits on the “commodity, no value” hardware that make up their infrastructure offerings. There is no reason why your business can’t leverage hardware in similar ways. When technology spend is 10-40% of your revenue, saving 20% on the cost of ownership and operations becomes a meaningful and real opportunity for improved competitiveness and profitability.

Example:

  • Digital Enterprise/Technology Company: $1 billion in revenue with 25% annual spend on technology or $250 million: Infrastructure usually equates to 25% or less of IT spend, so 25% of $250 million is $62.5 million X 25% = $15.6 million. So if you could save just 20% (low estimate) of your infrastructure spend by owning your own, that’s $15.6 million annually

You can see by the above example that the incentive to save becomes more pronounced when technology becomes the driver of your business success

Remain flexible and agile relative to Cloud and internal IT choices

I recommend thinking of your IT as manufacturing and as an innovation platform and yes, this means IT infrastructure not just applications. Cloud is your outlet for a number of reasons, like early growth, global distribution, massive scale or lack of internal skills, among other things, but it can’t be the only answer. Manufacturing is best outsourced when it provides cost benefits or risk avoidance. However, as many have learned, giving up all your manufacturing can be a risk to your supply chain and to innovation. I believe you must consider your internal ability to effectively and efficiently make choices on how much IT to own versus move to cloud. You must also consider organizational and cultural requirements for building a staffing model that is meant to create market differentiation for you through improved ownership and employment of technology solutions.

Yes, I know, what about Edge?

I’m the self-ascribed Edge guy, so how could I leave out mention of edge in this blog. In simple terms, I think of edge as a natural by-product of a business’s transformation journey and as such, the same rules apply to your edge deployment and management strategy as they do to solutions you maintain in a private data center or colocation facility. Edge will be a part of most companies digital footprint going forward.