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Real Value - The Elusive Value of Infrastructure

By Howard Rubin

June 01, 2004 — CIO — The I.T. infrastructure is essentially the cosmic boiler room of your IT plant. When looked at this way, most business executives understand its importance?they consider IT infrastructure a necessary evil?but they also see it as an expensive one. In fact, during the past three years of IT cost pressure and real cost reduction, corporate executives around the world were heard to say: "I am spending $XX millions (or perhaps billions in the case of the Fortune 100) on my IT infrastructure this year?but just what am I getting for all that money?"

Explaining just what the business is getting is one of your most important jobs as CIO. IT infrastructure can comprise many things, including the data center, printers, network cabling or servers. These things are the IT backbone of any company. And here are some quick facts that you can use to benchmark your infrastructure spending. On average, 41 percent of IT spending is associated with the infrastructure and the personnel needed to operate it. And with the average company now spending about 3.8 percent of its revenue on IT in 2004, this means that a typical company spends 1.6 percent of its revenue on IT infrastructure. This is not a small amount of money. Read on for ways to break down infrastructure value so that you can more easily make your business case for it.

Value in the Eye of the Beholder

Some companies differentiate themselves on cost, others on service and service quality, still others on the ability to handle a wide range of conditions and rapid growth. And obviously, most businesses have a combination of differentiators. A discussion of the value of infrastructure?and even its measurement?can be done only in the context of business goals, strategies and outcomes. But there are some common threads for categorizing the kinds of value infrastructure provides.

Economic value. First, economic value is the contribution of the infrastructure to the profitability of the business. This category is derived from the underlying cost structure of the infrastructure in support of the revenue, profitability, financial performance, service level and other requirements of the business. Lots of attention is paid to this area today, especially with the focus on the balance between fixed and variable costs, and driving unit costs down through outsourcing or utility computing. An infrastructure with a cost structure that allows a business to quickly shed IT costs during a downturn and allows for economies of scale when business volumes rise is a major asset. Conversely, an infrastructure that has a high, fixed cost structure and whose costs are independent of demand in a downside is a liability. For example, imagine your company has 50,000 employees, and as a result of bad economic conditions, it decides to eliminate 5,000 middle managers. If the IT organization procured its desktop and laptop resources based on a fixed value for a fixed number of years, then the organization will continue carrying the cost burden of the equipment and related services long after the people have left.

 

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