Is OPEX the new black?

Written by
Etienne Gadient

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Is OPEX the new black?

Written by
Etienne Gadient

Is OPEX the new black?

Written by
Etienne Gadient

Is Open the new black

By Etienne Gadient

We've seen a recent shift in the focus of
many of our client companies. Over the last year, we have seen a remarkable
number of clients who have shifted from "cloud weary" to "cloud
first" strategies. 


We always try to understand why they have
chosen that strategy and what was driving the action.   To some, the focus is on going to SaaS
offerings to address application portfolio limitations.  Others want to get out of the data center
business.  Still others are trying to
address significant technology debt and want to avoid a complete refresh of
their environment.  While all of these
approaches are viable, they each fail to realize one of the true benefits of
cloud services. 


We focus in other articles about the benefits
of refactoring and optimizing applications for the cloud…but today I want to
focus on a different perspective. 
Transforming ITs role as a result of cloud computing. 


In order to capture the essence of the
change, we must first look at how we got here.  
In the early 2000s, most CIO's reported to the CEO with a focus on
productivity and innovation.  In 2008, we
started to see a trend of CIO's reporting to the CFO which fundamentally
changes ITs goals and relationship to their budget.  Over those years, we saw IT organizations move
from being innovation and capability centered to focus on cost center savings,
payback periods and TCO. 


CIO magazine captured elements of this trend.

"At Genex Cooperative and Cooperative
Resources International, Vice President of IT Troy Klement said he’s watched
the reporting structure transition between the CFO and CEO a few times in the
last dozen years. When he moved into his post in 2014, IT’s importance was
increasingly apparent, but performance levels were lagging.  'The IT organization reporting to the CFO put
too much focus on the financial impact of IT operations and not enough focus on
IT’s impact on business operations and growth,' he said. 'Moving the IT
organization up to the C-suite allowed for more direct visibility of business
initiatives, challenges and operations.'"


And we are seeing that trend reverse today,
with nearly half of CIOs reporting to the CEO and only 23% reporting to the
CFO, according to one survey of mid-market CIOs.  Yet, this is only half of the puzzle to
solve.  By elevating the CIO closer to
business decisions, we are seeing IT leaders refocus away from commodity
functions including systems and Infrastructure management to focus on
partnering with business units to deliver innovation faster and closer to the
customer.  To be successful, one more
fundamental mismatch needed to be fixed…the budget cycle and role of IT within
the enterprise.


the budget cycle is evolving and changing the role of IT

In the past, many IT budgets were driven
through a "project budgeting" strategy.  In short, whenever a new application was
delivered, built or upgraded, the project allocated a fixed percentage of the
total fees (20%-30%) that would be applied through each subsequent budget cycle
for the amortization period (usually 3-5 years).  At that point, the responsibility for
operating the application, infrastructure and all other related components
shifted to IT to own and deliver within that allocated budget regardless of
whether the budget accurately reflected the operational costs.  Sound familiar?  IT as an "HMO" was the dominant
model for IT budgeting over the last two decades. 


But this fixed cost approach creates its own
issues. After all, what incentives does IT have to risk and innovate rather
than try to just protect the steady state?


What we see is that most clients who are
adopting a cloud first mentality are also fundamentally shifting the role IT
has within the enterprise.  Leveraging
the public cloud and SaaS providers as the infrastructure provider evolves IT
from an Infrastructure and operations centric approach to embrace the role of a
value added integrator, shifting IT's priorities to creating value and
accelerating adoption of innovation. 


This is exciting for our industry! The true
costs of application decisions and design are passed back directly to the
business unit making those decisions while IT provides both key services and
enhancements to help the BU with adoption and delivery.  This fundamentally changes the role of IT
from budget adversary to supporting partner…


So is OPEX the new black?  With cloud computing enabling the alignment
of cost and consumption and IT pivoting to an enhanced role, the ability for
the enterprise to adapt and evolve to the market is unlike anything we have
seen before.