The 4th Industrial Revolution is advancing at such a fast pace that it has no historical precedent. Even in the world of economics, we live in a new kind of economy: a technological economy. In this changing landscape, companies that understand the principles of the technology economy and use them to guide their decisions are among the most successful in the industry.
What does this mean for evaluating the cost and effectiveness of your technology stack and planned IT investments? I'm glad you asked. Here's a framework for managing your tech economy.
New asset classes are born
An important part of any economy is assessing risk and identifying value. When calculating the value of technology, you need to consider how technology influences operating costs, efficiency, customer satisfaction, and the ability to bring products to market. As in traditional economies, in a technological economy, each investment in a particular technology has relative levels of value and risk. However, rather than measuring these variables on a scale of gains, losses and volatility, value and risk in a technological context correspond to attributes such as economics, scalability, software capabilities, information security, reliability, availability and impact on sustainability.
Infrastructure, applications, network technology, and other components, in addition to building and maintaining systems, add up to one thing: lots of options. What would happen if you changed your way of thinking? What if risk assessment was not a technology issue but a financial investment option?
Changing your mindset allows you to adopt a technology economics framework, a framework in which IT investment decisions focus on balancing risk to achieve a stable set of assets. For example, you can make a financial decision to invest in stocks, bonds, cryptocurrencies, or bitcoins; all options are based on a balance of relative risk. The goal is to have a portfolio of assets that tries to match the truth with the stakes.
Within the technology economy, new asset classes are emerging: mainframe, distributed and cloud. Like traditional asset classes, each in the tech economy has a particular value and value proposition. And they have the same characteristics as the traditional economy: scalability, risk profile and business impact. The goal, in this case, is to achieve the proper balance in assets by retaining the most economically efficient.
For example, people rarely ditch all their stocks and bonds and jump straight into cryptocurrencies or NFTs, so why would they do that with tech assets? However, those who do not view their technology assets from a technology economics perspective are too often tempted to bet on the public cloud or other current headline-grabbing technologies without looking at the balance of the assets or the direct relationship with commercial performance.
The importance of a mix of technology investments
Managing the technology economy of a company involves evaluating technology asset classes over time. Making these decisions means being smart about how to combine technology investments to achieve critical business goals.
These days it seems like everyone is moving all the way, which is the opposite of a mix. However, when you compare revenue attributed to public cloud at Amazon Web Services, Microsoft, Google Cloud, and IBM to $8 trillion in global IT spending, it's not even 10%. These figures reveal that not everyone is in the cloud. In reality, organizations rely on a mix of asset classes and make decisions to create a balance based on scalability, risk, and business impact. The final thought is no longer "cloud first", but "cloud to the right". It is more important to make the right technology investments at the right time on the right platform, including but not limited to cloud, to achieve the highest total value.
Assessing the right mix of technology assets is about understanding business value. Across 20 different industries, the best have about 15% more mainframe computing power than average, 14% less distributed computing power, and 80% more public cloud power. The data also shows that cloud usage is well below the mainframe for average and high-performing organizations. Despite all the focus on the cloud, 85% of global IT is still on premises. The conclusion is inescapable. The most successful companies are not only moving more to the cloud, they are also using more mainframes in their hybrid cloud environment. The numbers clearly show that top-performing companies make decisions for their technology asset mix based on customer needs and business performance.
A closer look at how you pay for assets
Another part of thinking about the economics of computing is how you access and pay for assets today. Take the cloud, for example. There are more things to consider beyond its benefits and features. From an economic perspective, contractual agreements obscure the true economics of the public cloud.
Think of the payment structure of most cloud provider contracts as an all-you-can-eat buffet. It costs €19.95, but only if you can finish everything on your plate. The price goes up to €209.95 if you can't finish all the food on your plate. This scenario illustrates the economics of the cloud. There is a threshold, and if you don't reach it, you will pay for it. Literally. This goes against the promise of elasticity with the cloud.
How you reward assets is part of evaluating how to better understand your investments and strike a better balance between them. Achieving the balance is also known as Technology Asset Class Optimization (TACO). We now have the data and models that enable IT managers to assess and plan technology investments with the same rigor and language as financial investments, taking into account desired risk profiles and ROI.
Ultimately, technology costs translate into business results. Tracking your IT spend versus business profitability is an essential metric for running an organization in today's tech economy.
Apply an economic point of view.
Although the technology economy is relatively new, technology in business is mature enough to be treated as an investment and managed like any other investment. Here are some key things to remember:
- Adopt a tech savings mindset and value your tech stack like an investment portfolio.
- Evaluate your asset classes based on performance and impact on business results.
- Take a closer look at what you pay for assets and how you pay for them.
The benefits of applying an economic framework to your technology investments include improving risk management, maximizing return, and unlocking value. The result is balanced assets and a better understanding of where and how you should invest in IT in the future.
Tech stacks reflect choices, but should not be treated as fashion statements. There is no need to jump to the latest trend. However, you need to select asset classes and manage a technology economy based on your organization's unique performance needs and desired outcomes. Achieving this goal future-proofs your technology, strengthens your business, and positions your organization with a critical competitive advantage.
When it comes to changing your mindset, we have some ideas. Learn more here.
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