The 4 Forces That Will Shape IT Economics in 2012

Four major forces are blowing apart traditional models of managing a firm’s technology and related economics, says Rubin Worldwide's Howard Rubin.

While most firms in financial services are focusing on the “headwinds” of global market uncertainty and regulation, there also is a real need to look “under the hood” at the enterprise/business technology engines that drive operational efficiency, enable product innovation and deployment, and enact risk/regulatory compliance.

Since the economic upheaval began in 2007-8, it has been clear that the historical models of managing a firm’s technology and related economics don’t fit with the new economy or the “new normal.” Now it is even clearer that four major forces are at work to blow them apart as the winds of change in the technology economy:

1. Relentless Demand for Technology
2. Upward IT Spending Pressure
3. The Need for New Management Models
4. Transition Business Models

1. Relentless Demand for Technology

The demand for "computing" -- processors, storage, network bandwidth, access via alternate devices -- is growing faster than the global economy and faster than can be offset by Moore’s Law.

2. Upward IT Spending Pressure

With the force of technology demand blowing by the economics of Moore’s Law, we now have entered an era in which such upward technology pressure (and expense) will continue to increase in all possible business scenarios -- whether revenue increases, decreases or stagnates. Add to this the new demands of risk management and regulation, and there just is no escape from the pressure of rising IT costs.

3. Adapting Management Models to the New Rules of the Technology Economy

Neither technology nor business management (or government) are prepared to operate under the "rules" of the new technology economy (or know how to):

• After four to five years of cost cutting initiatives, the IT playbook is exhausted. (And with everyone using the same playbook, there is no competitive differentiation.)
• After four to five years of throttling back, discretionary spending demand is pent up.
• After four to five years of rapid innovation in consumer devices (e.g., the iPad and Android devices) and social networks, as well as the introduction of “Big Data," new options/capabilities are pressuring the IT portfolio.

4. Transitioning Business Models/The Need for Urgent Change

Current models by which companies manage the dynamics of their technology economics are failing. Moore's Law is being matched by the demand for computing and increasing computing complexity, and as such, most companies are "victims" of their technology economies and not the "masters" of their technology economies.

So what does this all mean? 2012 is the year that your organization needs to become the master of its technology economy. The new models by which organizations will accomplish this have 10 basic attributes. They:

1. Offer full business transparency ("IT Savvy”) as a foundation.
2. Focus on value production, risk management and cost optimization simultaneously and continuously.
3. Drive business innovation with technology and drive technology innovation based on business aspirations.
4. Are cognizant of the role of "data" in driving technology and business operations costs and business opportunities.
5. Tune fixed versus variable costs to the performance profile of the enterprise and tune staff distribution -- employee, contractor, outsourced, onshore, offshore, near-shore.
6. Place extreme value on talent --- in-house, external or in a network (or labor “cloud”) .
7. Use ongoing "mark to market" analysis for opportunity seeking while leveraging the marketplace, mega-scale technology "commons" and perhaps even "exchanges" for commodities, technology and labor.
8. Seek, explore and implement new/discontinuous models of computing, technology and labor to enable breakthrough economics (e.g., cloud).
9. Foster incubation of and investment in innovation.
10. Measure and navigate success from a business outcome perspective.

Distilling what is ahead into four forces of change and ten associated attributes is perhaps an oversimplification of what lies ahead in 2012. But think ahead to 2013-2015 -- without these basics in place, a new force will be evident. But it is likely that it will be more than a force; it will be a barrier -- a barrier to business success in the constantly growing and evolving globally driven economy.