Technology has democratized and become cheaper. These days, it is fairly typical for a technology executive to come to a meeting with Marketing or Product Development and suddenly learn that a whole new customer facing system has been developed and rolled out, using the intern’s credit card and AWS. This is a fairly disorienting change for all concerned. This new world brings much risk, and much opportunity.

Thirty years ago, buying a system was a major commitment of capital and operating expense. You had to purchase physical servers, licenses and you had to buy (or hire) the expertise to install, maintain and grow the system. Systems tended to be proprietary and did not interoperate with other systems. Life was relatively simple, and change easy to manage, and everything was expensive – and in-house, with occasional support from large consulting companies.

Twenty years ago, systems got cheaper. Such systems proliferated within the enterprise and started to connect with each other. Software, servers and clients became more standardized. CIOs and IT Departments became commonplace in the coordination of technology and management of costs.

With the Internet, system use exploded and technology became ubiquitous. Enterprises piled on the systems, and often over-customized solutions. Managing the resulting processes, silos of data and sheer technological complexity became a great burden and greater overall cost (despite the fact that individual components of technology continued to decrease in cost). To cope with the overall rising operational costs and unnecessary complexity, outsourcing and right-shoring were adopted as strategies.

The result was that you turned over your assets and most of your employees to someone else, to fix your mess for less. If you were fortunate, you saved money (or at least it didn’t cost you more); you also moved capital expenses and depreciation to other lines in the balance sheet.

If you were less fortunate, you didn’t understand your own service levels and what assets you truly had (infrastructure and people) and other hidden costs. Not only did you get into a long term contract that was difficult to extricate, and a vendor that ceased to be a partner, but also your business lost agility while at the same time costing more to operate.

In short, technology organizations became (and still are) “basket cases.” The practical effect on internal business partners (such as Engineering, Marketing, Product Development, HR and Finance) is to avoid dealing with you altogether, or micromanaging you to death with endless requests (not all of which add value to the corporation) – or both. Worse, the effect on the corporation as a whole is disastrous: overall costs rise (because of lack of efficiency and excessive rework), functionality and agility fall (because of silos, lack of automation and inability to make changes in a manner that is timely) and reliability fails (affecting brand, revenue streams, security exposure and increasing residual risk).

Meanwhile, the real world continues to operate and two trends in computing radically affect your customers: Cloud computing, and Consumerization.

Cloud computing is an economic phenomenon in addition to being a technical one. The practical effect is that anyone with a credit card can bring up one server, or several hundred servers, for a short or long period of time. This means that anyone can run a program with little or no investment in capital, and scale the program as demand surges, and scale back the program when demand falls. This is in contrast to a typical IT system where you purchase all that you expect to need to run a program in advance, and step scale the system – without any real opportunity of scaling down to zero at minimal cost if a project or system fails.

Given that the barriers to entry for setting up a system are close to zero, combined with the “pay as you go” scale, Cloud systems have little financial risk (other than the residual risk of a security breach or reputational hit if an application is compromised). This makes AWS and similar services popular with “shadow IT” in Marketing, Engineering, Product Management, etc. And increasingly popular with CEOs (tell me, would you trust someone to set up a system that should cost =>$1M in capital to start up before any work begins, or try out a “pay as you go” bootstrap solution for the same system?).

Given that Cloud computing is reputed to reduce overall costs by 25% is it any wonder that Marketing already has contracted with outside vendors to deliver CRM and BI solutions running on their partner’s cloud? (By the way, they want you to provide just some data feeds and some punches in the firewall).

Therefore you must assume that your customers already know and use Cloud technology and that you must embrace this change because it may be EXACTLY the right decision and the best solution for the company.

If this already has happened, hopefully you were part of the process and engaged as a partner with the business. Best case, you were solving infrastructure nimbleness and cost issues by examining your own cost and delivery structure. Then you had already determined a path to embrace and implement private, hybrid or public cloud for new applications and services and migration / extension of legacy environments. On a future blog, I will speak to dealing with toxic economics of your operations organization and infrastructure. If not, prepare three envelopes.

IT Consumerization is another economic, technical and social phenomenon. This is important because it has raised the expectations of your user base who demand the same level of technology that is available to them in their consumer lives in their business life. What’s more, the skill set of the user base is much more sophisticated than previously existed even 5 years ago.

This consumerization trend is anathema to traditional IT shops who are used to control, or attempting to control, complex environments by providing standardized equipment and services – often funded by a technology “tax” on each department’s budget.

Combine BYOD (“Bring Your Own Device”) with more savvy users who leverage Cloud economics, railing against the control of a Totalitarian technology department, and you have the recipe for revolution. At the very least, the business will be increasingly critical of those chagebacks as they started to compare CostCo, AWS, Azure, Office365 and Google email / Google Docs pricing for compute and storage and e-mail vs. what rates they were paying IT.

Your business partners now have options (vetted with you or not) and can convince decision makers over your head to adopt a given non-traditional solution and non-traditional form factor.

If you are in this situation, beware. If the right business person agrees to accept the risk and the right CxO supports, you are now dragged in, and not leading the organization. Any professional advice you can give (on security, integration, cost, brand risk) is added after the fact – and may be ignored, to the detriment of your career and the company’s residual risk stance.

Leadership, management and rank and file employees are all much more technology saavy than they were five years ago. They have to survive and thrive in today’s industry and job market. They know the value of technology and have been exposed or using it on a personal basis for years now. They are being exposed to what is technically possible and looking at the IT organization as either a laggard or leader. Are you making them proud or embarrassed?

So, the question is, what are you going to do?

At the very least, you must be prepared to engage with your partners and think out of the box. Your legacy systems are vested interests themselves, and it may be time to “leap frog” to different (lower) levels of the cost curve. Oh, and have a BYOD strategy while you are about it. Embrace the Cloud, and bring your professionalism and expertise to deal with the technologies, compliance and security issues, potential efficiencies and improvements to process, and improved economics.

This is a large topic, with plenty of scope for digression. If you’d like to discuss further, join me in the conversation.

Mike Ross <TechOpsExec@gmail.com>.

#techopsexec

Links

Below are some links to see what off-the-shelf IT can cost from the perspective of the Non-IT VP – without the real hidden costs of integration, data feeds, network pipes. Her way still may be cheaper, but you should know your costs vs. these costs and make sure you know and can articulate the value of the premium you are charging.

Costco 16TB Features:Includes 1 Year Guardian™ Express Services, Easy Set Up and Management,  LCD Display Panel Readily Offers Critical Information, Comprehensive Data Protection, Built-in secure remote access. $1,699. http://www.costco.com/WD-Sentinel-DX4000-16TB-Small-Business-Storage-Server-and-1-Year-Guardian-Express-Service-Bundle.product.100018771.html

AWS Compute  as low as $0.02 / hour compute.   http://aws.amazon.com/ec2/pricing/

AWS  Storage  as low as $0.01 – $0.095 / GB / month + usage http://aws.amazon.com/s3/

Azure Compute      http://www.windowsazure.com/en-us/pricing/details/virtual-machines/

Azure Storage        http://www.windowsazure.com/en-us/pricing/details/storage/

Google Cloud Storage https://cloud.google.com/pricing/

Rackspace Compute http://www.rackspace.com/cloud/servers/pricing/

Rackspace Storage http://www.rackspace.com/cloud/block-storage/pricing/