The Dirty (Not so Secret) Secret of IT Budgets

Some business users believe that every year IT is handed a budget, which is then fully used to drive new and productive ways to enable more business. This is, however, far from reality. In fact, in most instances the lion’s share of the IT budget is dedicated towards supporting legacy code and systems. With so precious few IT dollars to support experimentation with new technologies, it makes sense why pay-per-use cloud computing options are so alluring.

Courtesy of Flickr. By Val.Pearl
Courtesy of Flickr. By Val.Pearl

There’s an interesting story in the Financial Times, where author Gillian Tett discusses how in western economies most of the dollars lent by banks go to supporting existing assets, and not innovation. The problem is highlighted by former UK regulator Adair Turner who says, out of every dollar in credit “created” by UK banks; only 15% of financial flows go into “productive investment”. The other 85% goes to supporting “existing corporate assets, real estate and unsecured personal finance.”

Essentially, there are fewer dollars lent by banks for innovative projects, startups, and new construction with most of the monies dedicated to maintaining existing assets. Sounds a lot like today’s IT budgets.

As evidence, a Cap Gemini report mentions; “Most organizations do not have a clear strategy for retiring legacy applications and continue to spend up to three quarters of their IT budgets just “keeping the lights on” – supporting outdated, redundant and sometimes entirely obsolete systems.”  Now if this “75%” statistic is still in fashion, and there is evidence that it’s accurate, it leaves very little funds for high potential projects like mobile, analytics, and designing new algorithms that solve business problems.

Here’s where cloud computing can make a difference.  Cloud computing infrastructures, platforms and applications often allow users to try before they buy with very little risk. Users can test applications, explore new application functions and features, experiment with data, and stand up analytic capabilities with much less fuss than traditional IT routes. Best of all, much of this “experimentation” can be funded with operating budgets instead of going through the painful process of asking the CFO for a CAPEX check.

Speaking of innovation, the real value of cloud isn’t just the fact that information infrastructure is at the ready and scalable, but more what you can use it for. Take for example, the use of cloud based analytics to drive business value, such as sniffing out fraud in banking and online payment systems, exploring relationships between customers and products, optimizing advertising spend, analyzing warranty data to produce more quality products and many more types of analyses.

These kinds of analytics stretch far beyond the mundane “keeping the lights on” mindset that IT is sometimes associated with, and instead can really show line of business owners how IT can be more than a just a “game manager” but rather a “play-maker”.

Fortunately, the modernization of legacy systems is a top priority for CIOs. But much like turning an aircraft carrier, it’s going to take time to make a complete switch from maintaining legacy systems to supporting innovative use cases.

But in the meantime, with cloud, there’s no need to wait to experiment with the latest technologies and/or try before you buy. Cloud infrastructures, platforms and applications are waiting for you. The better question is, are you ready to take advantage of them?

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