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1/16/2015
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How To Mess Up IT Budgeting In 2015

Two shifts have rocked the IT world: speed and constant upgrades. Factor those in or your budgets won't address reality.

It should be clear by now that massive change has ripped through the world of IT. Those of us who have been through sweeping organizational change projects, like an ERP implementation, understand that it is human nature to pretend that change has not occurred. If we allow that thinking, we're going to mess up a fundamental IT activity: budgeting.

There are two key shifts in the IT world that alter the budgeting landscape. First, businesses have fundamentally and forever changed their expectations for speed of technology deployment.

Second, the operating model for many successful technology suppliers has changed, to focus on recurring revenue.

IT leaders need to help our teams understand why the world isn't shifting back -- and to plan our budgets accordingly.

[Want exclusive survey insight on your CIO peers' 2015 IT budgets? Read IT Hiring, Budgets In 2015: 7 Telling Stats.]

It's impossible to understand entirely why business leaders at this moment in time have a new, faster expectation of IT, but the fact is that they do. Consumerization and cloud certainly have contributed. People don't have to wait six months and file an RFP to get amazing software. It takes a credit card and two minutes. It is what it is.

That speed expectation is true for initial procurement, but it's also true for updates. Those who use technology, both at home and at the office, expect to get the latest, the greatest, and the fastest. Phone lifecycle has contributed to this tremendously. If every year or two you get a startling upgrade to your user experience and design, you start to expect that of all of your technology.

And all of a sudden, that ERP, which wasn't exactly pretty, simple, or intuitive in the first place, starts to look like a pig on roller skates next to that sleek, Jony Ive-designed phone and its super-simple and super-intuitive interface.

Living up to this "it's always beautiful" expectation of technology requires continuous improvement. That means that there must always be continuous investment into product by the manufacturer. It also means that the buyer (you as an iPhone owner, or IT-as-a-business tech owner) will always be spending.

And that leads to my second IT world shift: the change in supplier operating model. The combined expectations of high-speed deployment and "it's always beautiful" constant updates lead to "as-a-service."

There's not a viable technology supplier out there that isn't thinking seriously about ongoing, quarterly revenue. The world of big-bang capital expenditure IT is rapidly drying up. And I would "venture" to say that venture capitalists are turning their noses up at anything that isn't "as-a-service."

This revenue shift isn't about CIO preference. I have done a lot of thinking about this. I've usually preferred in my technology life to make a capital acquisition and then vigorously attack operating costs, thus saving the organization lots of money.

However, that's not going to work anymore. You have to take into account what the dominant supplier business model is going to be, and it will be one of ongoing revenue.

Even if you, like me, find edge cases that still allow for one-time purchases, they will be beaten out of business by suppliers that have superior resourcing -- a.k.a. those that can charge ongoing revenue. As long as buyers prefer "it's always beautiful" and "fast is the default," IT will have to hire software suppliers who require constant resourcing. That's the new budget reality.

Don't like it? As far as I know, that hot tub time machine was just a movie, so going back in time and fixing it is not an option. For those of us who are moving forward, today's reality is unarguably one of constant operational expense. For now, at least, you'll want to adjust your IT budgets to match. It is what it is.

Jonathan Feldman is Chief Information Officer for the City of Asheville, North Carolina, where his business background and work as an InformationWeek columnist have helped him to innovate in government through better practices in business technology, process, and human ... View Full Bio
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yalanand
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yalanand,
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1/24/2015 | 10:18:49 PM
Re: Why services? Because on-premises installations become 'legacy systems'
@SunitaT0: We've had such problems in the past, the problem you call "stagnant fund" problem, but then management was quick to think on its footsteps and redesigned the entire stage by stage development and testing parts so that lag cannot be seen. Companies should improve their development but they must do so without having to destroy what they have built in the past.
yalanand
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yalanand,
User Rank: Ninja
1/24/2015 | 10:15:40 PM
Re: Rent versus Buy
@SachinEE: Mostly it is that, but also more sometimes. Regular updates come with nothing new, however updates that come after a healthy period means serious update and you cannot overlook that.
SunitaT0
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SunitaT0,
User Rank: Ninja
1/23/2015 | 1:15:06 PM
Re: Why services? Because on-premises installations become 'legacy systems'
@Charlie: The conditions are bad enough. Development stages are so clustered up and create so much work traffic that management has no choice but to delay them until tests are done. This creates the "stagnant fund" problem. Suppose a project has been posted for development, it has its funds cleared, but its not advancing towards the next stage because some other project is taking it place on the testing assembly line. If development and testing is done side by side then your legacy system won't have a problem after being installed.
SunitaT0
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SunitaT0,
User Rank: Ninja
1/23/2015 | 12:55:15 PM
Re: Rent versus Buy
@SachinEE: Not just the security updates, but sometimes the entire code structure is updated with new GUI designs. A software that is repeatedly updated is not a good software, because the company's IT spends too much time supporting the software for recent updates, and that is not good. A software should be atleast 2 years future proof.
TerryB
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TerryB,
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1/19/2015 | 1:41:47 PM
Re: Why services? Because on-premises installations become 'legacy systems'
Charlie, I respectfully submit you could not be more wrong when you look at business holistically. You are correct, to some degree, if you look at an individual SaaS offering in a standalone fashion. Assuming they maintain backwards compatibility in functions/features they offer, then yeah, they keep the core code updated for you to latest technical standards. But if you are running your business from it, who do you want making decision whether a particular feature/function is changed/removed in future. Your company or the vendor?

When you look at integration, which any truly successful business has to be good at to be World Class, these individual SaaS applications have to talk. And in the no source code world of SaaS, that means APIs. So now you are being jerked around by any one of a number of SaaS vendors who might want to change their APIs. If that's the world you want to live in, more power to you. I'll hold onto my source code, and complete end to end business integration, until they pull it from my cold dead hands.

That is a legacy I can live with. Legacy isn't necessarily a bad thing, means you have something that has proven it works. 
SachinEE
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SachinEE,
User Rank: Ninja
1/19/2015 | 1:15:14 PM
Re: Rent versus Buy
@TerryB: interesting perspective. True, that IT is moving more towards management that towards using technical skills because basically all the core functionalities an application uses (which will be used by the business) can be found in the archive of every IT department. It only takes some makeover to correspond to the application of the present time, however even the smallest updates count because mostly security designs are re-evaluated for the software after every update.
SachinEE
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SachinEE,
User Rank: Ninja
1/19/2015 | 1:11:32 PM
Re: Why services? Because on-premises installations become 'legacy systems'
"There's a reason why so many things are moving to "as a service" status. A service is centralized and can be frequently updated by its owner. A dozen changes can occur to a service in the time span that it takes to convince an IT manager to make a capital expense. Once the IT manager has made the purchase, the first thing the business want to do is customize what he's purchased. "

@charlie: Letting the customers uniquely customize their applications corresponding to their database and file structures comes with a lot of troubles for IT. There has to be endless point to point support from the IT for the business to understand anything that theapplication has to offer.
SachinEE
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SachinEE,
User Rank: Ninja
1/19/2015 | 1:03:51 PM
Re: How To Mess Up IT Budgeting In 2015
"Another interesting way I've heard this put is that no matter who you are, your business is digital now. No matter what you sell, where you are, digital is a concern for you - that's why IT is pulling double duty these days."

I really think that even with the double duty, IT is not compensated enough for their new and updated technology and technical support. Zerox203 is right. People expect a lot from IT. "Oh you work in IT? Could you please check the computer for me?" is the request no IT guy wants to hear.
zerox203
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zerox203,
User Rank: Ninja
1/17/2015 | 5:23:34 AM
Re: How To Mess Up IT Budgeting In 2015
I think we have a strange dichotomy when it comes to this kind of thinking in IT. There's the hype train that marches on endlessly, and then there's the reality. Where it gets weird is that many businesses very well do march right alongside the hype train, but many others do not, and we'd be remiss to leave them out of the equation. Maybe it's because 'IT' is a broad moniker to begin with. If you're the one guy who fixes desktops for a small furniture company, you still might be called 'IT'. Therefore, we end up with  a broad spectrum - from DevOps-addicted startups for whom this article was 2013's wakeup call, not 2015's, to companies that need to get themselves on the ball (you have unique insigt into this coming from the public setor, Johnathan), to plenty of diverse 'niche' (they're actually pretty big) cases like TerryB describes for whom the reality is quite different.

Another interesting way I've heard this put is that no matter who you are, your business is digital now. No matter what you sell, where you are, digital is a concern for you - that's why IT is pulling double duty these days. They have to 'keep the lights on' (but better, faster, and cheaper) while also delivering innovation and being apart of new pushes. Users who used to only turn on their PC to check e-mail now expect to have all kinds of cloud-facing apps work flawlessly (from devices other than PCs) - which means you have to support them. This spills from the top all the way down to the bottom of the business, and creates endless problems to solve - Security, mission creep, you name it. All that ties back into budgeting. It's definitely fair to say this is a wheel that's due for reinventing.
Charlie Babcock
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Charlie Babcock,
User Rank: Author
1/16/2015 | 3:03:59 PM
Why services? Because on-premises installations become 'legacy systems'
There's a reason why so many things are moving to "as a service" status. A service is centralized and can be frequently updated by its owner. A dozen changes can occur to a service in the time span that it takes to convince an IT manager to make a capital expense. Once the IT manager has made the purchase, the first thing the business want to do is customize what he's purchased. That means it's a struggle for him to update the system, when the vendor gets around to issuing the new version. David Linthicum once remarked to me, when I asked when does a new, on-premises application become a legacy system: "Three minutes after it's installed." These issues don't arise with services, which come from a source under the control of the vendor.
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