Are you Spending Too Much in IT? Likely.

IT infrastructure vs applications When you intuitively ask yourself the question, “Is my IT costing me too much?”, you’re probably already on the road to thinking about switching to the Cloud. Instead of talking about the Cloud and all its benefits, let’s break IT into two major areas and see how these open or close competitive advantages.

IT Infrastructure Produces Costs

The first area is IT infrastructure. The infrastructure is comprised of all the things that are essential, but not necessarily valuable.  It includes areas such as equipment, networks, security, printers, power, operating systems and databases. For this discussion, I will also include commodity business functions such as calendars, contact management, email, word processing, and so forth, as part of an IT infrastructure.

To work in the global economy and meet any level of business standard for service, the need to be competent and reliable in email communications, use word processing and so forth is paramount.  However, the most that an excellent IT infrastructure can do is to help avoid breakdowns. For the most part, because the infrastructure is invisible when it is working, you only notice it when it breaks. And when it breaks, it causes an upheaval in business operations, thwarting your attempts to deliver promises to customers.  Being really good at IT infrastructure did not increase your competitiveness and make you a winner; it was simply the ante to play the game.  When IT infrastructure breaks down, you quickly become losers.  IT infrastructure is all downside risk with no upside.

IT Applications can Drive Revenue and Produce Profits

IT infrastructure differs from IT applications, which can produce competitive advantages in the hands of the right people.  IT Applications ride on top of the IT Infrastructure (yours or others).  IT applications are tools such as CRM and ERP systems.  These tools track your commitments and allow you to expand your ability to make good assessments and design powerful action.  Companies that understand the power of IT Applications use it to make their customer offers.  For example, ecommerce companies invest in developing software because they use the Internet as a communication space to offer customers their unique product or service  — they use software development to assist them in gaining a marketplace competitive advantage.

I recently met a business owner who is in the ecommerce audio electronics business. He created a web database application that organizes amplifiers, speakers, and different audio accessories into meaningful bundles that work together to produce audio systems. This application helped customers articulate their desired outcome and get educated quickly.  For example, if you wanted to create a whole house audio system, the combination of components demands superior knowledge. The web app was useful in helping customers view the way various options work together to produce the desired experience.  This app significantly increased sales.   This tool is analogous to having on staff a great salesperson who understands how to listen to a customer, educate them about what is possible and then recommend an ideal solution for purchase. This app produced true competitive advantage; and economically, it scales dramatically better than hiring an army of salespeople.

Apps like these show that software, in the hands of the right people, is the play-dough for your business.  IT Applications allow you the opportunity to mold your practices, make new offers to your customers, produce new co-ordinations, reach new audiences, and bring forth new thinking. Without software and the Internet, the traditional way of conducting business in most industries is simply no longer competitive.

But I Don’t Trust the Cloud!

Companies that see “IT as a Strategy” succeed by using and building software applications. This means that they will make investments in people – not IT infrastructure — to drive competitive advantage.  Today, the market agrees, the Cloud has dramatically reduced the investment required to build and maintain an IT infrastructure, freeing you to invest in what matters most: IT Applications.

This statement may not be true for every company.  In my assessment, only the largest companies should invest in IT Infrastructure.  Why?  Because at their scale, it may still economically make more sense for them to invest in the people, equipment, and tools to run their business relative to Cloud offerings. But I suspect that every year, that margin of value is being eroded by new Cloud capacities.  Watching the capacities of Amazon Web Services expand and seeing the number of customers adopting it clearly shows the trend.

For those companies that don’t trust the cloud and refuse to consider the architecture, I understand your concerns.  My goal is to not convince you to adopt it.  My goal is to show you where the competitive advantages lie.  If you agree that infrastructure does not make you more competitive, but only allows you to play in the game of business without breakdown, then the question naturally becomes, “how much should I invest in infrastructure it if it really only produces costs?”  How much insurance is enough?  How much private security services do you need to protect your assets?  That’s your call.  In the meantime, many companies assess that the risk to embrace Cloud Computing is low enough and they feel they can free their capital and energy to become more competitive.

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Marty Zigman

Holding all three official certifications, Marty is Southern California's NetSuite expert and leads a team of senior professionals at Prolecto Resources, Inc. He is a former Deloitte & Touche CPA and has held CTO roles. For over 25 years, Marty has produced leadership in ERP, CRM and eCommerce business systems. Contact Marty to set up a conversation.

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| Tags: , | Category: Infrastructure, Management, Strategy | 1 Comment

One Comment

  1. Posted October 29, 2012 at 5:32 am | Permalink

    When we are having IT problems it really hurts are bottom line. We are trying to convert over to a cloud system. Some people are skeptical but the cloud will be a must for us an other companies.

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