Information Technology started out as a business support function. Technology leaders were internally focused and their role was to manage infrastructure, systems and applications. IT leaders were caretakers, not innovators. However, as digital technology advanced and digital customers matured, IT no longer stayed a supporting player.
Today we have reached a complex and transformative stage in digital business as the pace of innovation reaches hyper speed. Technology investments today are often two or three generations behind new models by the time they reach the end of their depreciation schedules, delivering declining business value, yet expected to contend with increasingly excessive demands.
For example, a report by IDC shows that while the pace of digital transformation is accelerating in Asia Pacific, organizations in the region are lagging behind their global counterparts in terms of digital transformation maturity. Businesses in Asia Pacific need to concentrate on accelerating their digital capabilities or face irrelevance.
Here are some reasons why new business models can offer renewed options and benefit enterprises.
The ever-changing business role of IT
IDC predicts that by 2020, 80 percent of software and hardware purchases by enterprises will be based on subscription, and that by 2018, 65 percent of all companies' assets will be offsite while a third of their IT staff will be employees of third party service providers. This highlights the evolving role of IT into a hybrid ‘business technologist’.
Today's enterprises find themselves running on two simultaneous tracks – the analogue past and the digital present. The past is where large systems owned and run by the enterprise support huge volumes of transactions and securely store massive amounts of data. The present is where on-demand resources are available as and when they are needed, freeing the enterprise from the burden of ownership and creating a nimbler and more responsive organization.
Meanwhile, the future is where competitive digital enterprises need to go. Hence, a seamless blend of the two contrasting approaches can help enterprises achieve an ideal balance of flexibility and stability, in order to be faster and stronger.
Consume vs. buy
Technology business models are evolving for vendors and customers alike.
As new technologies are introduced in a CAPEX model, complexity and management costs also increase. On the other hand, a consumption-based model better manages the burden of complexity as it allows customers to scale the approach and drive outcome for the business more effectively.
For example, seasonal industries like education and hospitality are well suited for pay-per-use arrangements that allow them to manage IT assets based on use and occupancy.
It is a common mistake in today's business environment to underestimate the importance of adapting quickly to change. New opportunities and threats emerge quickly but new cost models can elastically align to revenue and consumption cycles, and adapt to the business seamlessly.
Economies of scale, expertise at scale
One of the major advantages of cloud and consumption-based models is scale and elasticity. As infrastructure becomes commoditized, consumption-based models highlight vendor differentiation through services and expertise.
Cloud, consumption, and outcome based models are alternatives to the traditional B2B CAPEX model of ‘make, sell, ship’, transitioning the relationship between vendor and customer toward a partnership based on mutual success.
Economies of scale apply at many levels beyond price in a consumption-based model. Risk is minimized, technology teams are better able to focus on innovation, and access to technical expertise can be infinitely greater than in an ‘own and operate’ model. This allows enterprises to operate and frame the right business technology decision accordingly.
This is the future of business technology
Consumption-based models allow for technology cost and elasticity to be both granular and a business-driven operational expense. New models providing simple, immediate access to technology resources is an important digital business evolution. While both immediate and flexible, often the greatest value is the partnership between vendor and customer, which ultimately defines success based on mutual business objectives and outcomes.
Agile, consumption-based IT models achieve balance between IT and the business. When IT consumption patterns match the business activity they are designed to support, strategic alignment happens, eliminating waste and inefficiency. The result is an overall improved balance sheet, allowing enterprises to increase focus on the core business, and increase liquidity of capital for business development.
Pierre Samson is VP Sales APAC, ALE