How should you treat IT infrastructure investments in a recession? I was listening to an interesting piece that got me thinking about this question on NPR this morning titled “Obama’s ‘Big Fix,’ And Investment Deficit Disorder.” Renee Montagne interviewed New York Times columnist David Leonhardt about his January 27 article, “The Big Fix.”
Determining IT Infrastructure Investments
Arguing that the US economy has been “far too dependent on consumption over the past couple decades and not dependent enough on investment,” Leonhardt points out that in the 1950s, the government spent the equivalent of about 7 percent of GDP investing in highways, buildings and other infrastructure. But that amount has declined to 4 percent in recent years.
This got me thinking about IT infrastructure, and how investment levels are determined, and how these levels are typically impacted in an economic downturn. I think there is an analogy between “government and infrastructure investment” with “business-IT governance and IT infrastructure investment.” I further believe that the role of business-IT governance in IT infrastructure investment takes on an especially crucial role in an economic downturn. When “the tide is rising,” as the aphorism goes, it is relatively easier to fund infrastructure, but in the current recession, the temptation will be to starve IT infrastructure.
One of the key roles of business-IT governance is setting the level of IT infrastructure investment. I use the term “business-IT governance” to describe the highest level of business-IT decision-making, typically the Executive Committee and CIO, who is hopefully a member of that body, or if not, is a member of a special Business-IT Governance body, along with the CEO, CFO and business unit leaders.
The Tragedy of the IT Commons
Extrapolating from Garrett Hardin’s “Tragedy of the Commons” article written first published in 1968 in the journal Science, it is in each business unit’s self-interest to leverage and load the IT infrastructure as much as possible (i.e., put as many cows as possible onto the land) even if that infrastructure suffers as a result (i.e., even if the commons is damaged.) The business unit receives all of the benefits from over-leveraging the IT infrastructure (i.e., the herder receives all of the benefits from the additional cows) while the damage to the infrastructure is shared by the entire enterprise (i.e., the damage to the commons is shared by the entire group.) If all business units make this individually rational decision, the IT infrastructure is degraded and all its users suffer.
Three Key Disciplines for IT Infrastructure Investment
Discipline #1. Business-IT Governance
The metaphor of the commons is a good one, and points out why a robust, intelligent, and forward-looking business-IT governance capability is crucial for planning and guiding the level of IT infrastructure investment and the relative portion of the overall IT spend that goes to common capabilities – i.e., IT infrastructure. Another reason that increasing IT infrastructure investments may make sense in recessionary times is that business agility becomes increasingly important. The ability to try new things, to be able to rapidly scale up, scale down and seize market opportunities often requires a more agile IT infrastructure than is typically in place at most companies today. The good news is that the types of IT infrastructure change that increase agility, such as server virtualization, infrastructure consolidation and rationalization, and the shift to cloud computing, all show promise for actually lowering ongoing IT infrastructure operating costs.
Discipline #2. IT Portfolio Management
Closely related to Business-IT governance is the discipline of IT Portfolio Management – and here I’m really referring to the top down strategic aspects of this important discipline. (Some organizations practice IT portfolio management more as a bottom up aggregation and rationalization of projects – a practice that I find does not typically work well, and actually masks the fact that top down portfolio decisions are not being made.)
Just as in any market, personal investors have to decide their investment goals (funding college, building wealth for retirement, creating income in retirement, etc.) then formulate an investment strategy that meets those goals, businesses have to determine their IT investment goals, then formulate an IT investment strategy, including:
- What should the level of IT investment be?
- How much of this should go into common and shared IT infrastructure?
- How much, and in what proportion, should go into individual business units and functions?
- How much should go into “risky” but potentially high return “strategic” investments?
- How much should go into pure IT research and development?
- How should smaller business units or opportunities be subsidized by larger, cash-generating investments or business capabilities?
Discipline #3. Enterprise Architecture
The organizing logic for business processes and IT infrastructure reflecting the integration and standardization requirements of the firm’s operating model.”
Enterprise Architecture offers the grand blueprint for IT investments – including technology roadmaps, standards and models that help simplify, unify and rationalize information and technology decisions. Just as the personal investor will determine their investment goals, then the investment strategy to reach those goals, they will then create (or work with some type of agent or specialist) the roadmap that helps determine when and what investments to buy, what to hold, and when to sell. Perhaps a better analogy for Enterprise Architecture is the grand design for a city, including forms and designs for transportation (streets, highways, rail lines, bus routes), for energy distribution, for sewers and waterlines, for public facilities such as schools, town halls, libraries, and so on. One of the most important issues that Enterprise Architecture should address is the question as to what IT capabilities are common and shared – i.e., IT infrastructure, versus business unit specific?
This turned out to be a much longer post than I envisioned as I was shaving this morning while enjoying NPR’s Morning Edition, but my key point is – do you have an IT Infrastructure Investment Deficit Disorder? Is this exascerbated due to the economic climate? Is now a good time to be increasing your IT infrastructure investment strategy? Would your firm be better positioned for the current economy if the IT infrastructre were more agile and responsive to change and opportunity?