by Peter Bendor-Samuel

How the IT model impacts realities of changing economic conditions

Jun 16, 2016
CIOData CenterIT Strategy

How CIOs can scale IT costs to fit challenges of oil and gas and other commodity businesses.

A downward stock market trend 94512975
Credit: Thinkstock

Businesses dealing with cyclical commodities face ongoing challenges from fluctuating market pricing forces. It’s easy to understand in the context of a business in the oil and gas industry today. The price of their product recently dropped from $110 a barrel to $30 a barrel. So they have an extreme need to scale down their IT and business environment to fit that new reality.

But incremental steps won’t achieve enough savings. For instance, a labor arbitrage tactic of shipping more work to India is interesting but unhelpful. It would achieve a 20 percent savings; but they need 60 or 70 percent savings to match the new reality.

Here’s the other part of the reality oil and gas and businesses in other cyclical industries face. They are in a cycle, and the price of the commodity eventually will go back up. When the economic conditions change, the companies that survived the down cycle will have a flood of new things for IT or business services to do. It’s not that they will want to spend money because they have it; it’s that they will need to respond to different business conditions.

So companies need to variabilize this cost to make it consistent with their business environment. In working with companies in cyclical industries, we’re finding that they not only have to scale their costs down, but they also need to completely rethink how they deliver IT services in that way that is far less costly yet also matches the business needs.

To address this dilemma, leading companies are shifting to an integrated services model. This gives them the ability to create breakthrough performance in IT. By breakthrough performance, I mean IT is more responsive to the business, more consistent and reliable — but at a price point that is an order of magnitude lower than traditional IT services delivery.

How do they do this? They move away from the traditional shared services construct that has dominated IT delivery platforms to date and shift instead to integrated services platforms such as a Platform-as-a-Service (PaaS) model or DevOps. A shared services construct focuses on segmenting services by function (infrastructure, apps development, apps maintenance, security, compliance, telecommunications, etc.), which doesn’t fit into the new reality of how IT needs to support the business. An integrated model enables companies to quickly match IT service delivery to their new business environment.

An integrated model has the capability to dramatically change the performance level of IT — not by 10, 20 or 30 percent, but by a huge degree on costs, responsiveness, cycle time. In this consumption-based model, companies pay only for the IT services they use instead of paying for greater capacity they end up not using.

The old shared services structure is a big impediment to aligning IT and the business to achieve desired outcomes. Moving to an integrated services model doesn’t necessarily mean that all of IT moves out of the legacy environment and into the cloud. The model is more about how to organize and manage IT. The end result is that it fundamentally changes the relationship between IT or business services and the business users, allowing tighter alignment with the business needs.