Understanding the Dynamics of IT Spending in an I-SMAC World

We recently read another analysis of the purported inefficiency and waste in IT spending, this time the authors were aghast that 80-85% of IT spending is used, in Gartner Group terms, to “Keep the Lights On.”  They described this spending as wasteful maintenance and “troubling” ongoing enhancements.

One could argue that maintenance and break-fix is “keeping the lights on,” but making continual adjustments in application function to align with market and business need is a competitive imperative.  It’s not waste.

In many IT organizations the total IT budget is very tightly managed, often fixed and rarely rising more than a percentage point or three.  If a company keeps spending money on new systems it quickly comes to a cross-roads.  Either the amount of new systems development must be cut or the amount of maintenance, enhancement and operations must be cut, or, the enhancement and operations must become much more efficient.Spending model insert

Beyond the radical up-tick in systems capabilities, a key reason companies are pursuing I-SMAC-based solutions is that they have the ability to radically change the IT Activity-based Funding Model’s dynamics.  On the one hand I-SMAC tends to result in building systems faster which means a shorter time to the on-going enhancement and operations costs.  On the other hand the social, mobile and cloud costs are delivered as services with ongoing unit cost reductions.  The analytic costs mirror traditional enhancement costs but the returns are worth it.

Just as when we transitioned from the mainframe/mini era to client server, then to the internet and now to I-SMAC, the scope of what can be developed for a dollar invested has taken a significant leap ahead.  Also, the unit costs and gross costs, of maintaining and enhancement each unit, or dollar, of developed function has gone down.  The economics of this means that everything will change.  When I-SMAC matures we’ll be able to look back and see that significant amounts of spending still go to “keeping the lights on.” But, there will be so many more lights that it will clearly be money well spent.

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