IT does not matter - honestly

Nick Carr has a series of posts - he is up to part 7 rehashing his 2003 best seller HBS article "IT Doesn't matter."

Let me say it in one simple blog: IT does not matter. But not using Nick's logic.

Give or take a little, if you analyze IT line items (including IT spend in business user budgets) of any western company and total the spend on software, services, hardware and telecomm, and internal IT staff costs, the last item only makes up 10 to 20 % of the total.

So, yes IT does not matter. Quit beating on the 15% tail and focus on the 85% that is spent on vendors.

I mentioned this to a sourcing exec recently - and she lit up. So the biggest single skillset IT really needs is vendor management, not architects, not DBAs - she asked.

Bingo.

Comments

[Mark Ontkush]

Hi Vinnie,

Last article you mention IT spend was 75 percent, this one you mention 85 percent. ?

I agree with your analysis, but how much can vendor spending be cut, percentage wise? And exactly what would one do - open source solutions, virtualization, etc?

[vinnie mirchandani]

Mark, eagle eyes! I said 75% on large vendors in the other note, 85% on all vendors here.

My whole blog is about economics of technology...so savings in software could come from reducing license shelfware, third party maintenance (or lowered rates from the ISV), swapping out with SaaS or Open source alternatives; in outsourcing more utility models, global/rural delivery, shared services; in telecom with more bundling, VoIP, , in hardware with lowered capex, as a service...lots of innovations in tech sourcing and through use of disruptive technologies and vendors

[Ric]

And the 15% that is the people cost is where 85% of your future is ...

[vinnie mirchandani]

Ric, agreed - especially if they are innovation focused. It's a huge opportunity for so many IT folks today ...

The point of my post was to take attention away from core IT staff - too many people want to paint the CIO and IT staff as the problem. It is a small - very small part - of IT issues,

[Ric]

I must tell the boss on Monday that I'm only a small part of his problem - :-) I'm sure he thinks otherwise now and then!

[vinnie mirchandani]

Ric, try telling him he is the big part of the small overall problem...Go ahead be like me -)

[Mark Ontkush]

Hi Vin,

aha, thanks. So what might a realistic percentage cut for 'IT spend' be, as compared to 'business as usual'? And, do you see this savings from vendors being put back in people and business specific innovations, or is it more of a savings thing ala Nick Carr where IT is just going away?

[vinnie mirchandani]

Mark, my philosophy is summarized in the note below - the Ginat Crunching Sound. If a vendor is providing what I define as utility services they should be squeezed down. The money saved should then be used to beef up innovation oriented IT staff and vendors. I don't have a problem with 70 to 80% spent with vendors. I just think too much of that today is for keep the lights on products and services/ Nick blindly beats up on the 15% internal IT without going after the 85% IT vendor spend. That needs to be reshaped even more.

http://dealarchitect.typepad.com/deal_architect/2005/06/the_giant_crunc.html

[vinnie mirchandani]

Loek adds his perspective

http://loekb.blogspot.com/2007/01/wag-dog-it-vendor-management.html

My addition would be - industries like aerospace and auto and retail which buy 50 to 90% from suppliers have sophisticated supply chain and IT vendor management techniques. IT needs to similarly become more sophsiticated in its management of 70 to 80% of its spend with suppliers

[rajagopal sukumar]

Vinnie,
Are you sure about the 15% number for IT Staff? I have come across a lot of IT budgets in my experience and most of them have Hardware/Software/Telecom at 40-50% and IT Staff at 50-60%.
Thanks
Sukumar

[vinnie mirchandani]

Sukumar, in most companies telecom itself is greater than software and hardware and services all put together. But often it is not bundled in IT budget but in customer service/call center budgets. So normalized for that IT staff costs at 15% is a reasonable estimate

[rajagopal sukumar]

That's interesting Vinnie. But i still find it difficult to believe that telecom expenses are that high given the slump in telecom prices so as to make staffing just 15% of the hw+sw+telecom budget. I will investigate.

[vinnie mirchandani]

Sukumar, you may find article below interesting - yes fixed line voice prices have dropped. But broadband, cell phone, PDA, calling cards (as global travel increases), remote office workers, sensor traffic are in different stages of maturity and cost cycles - and they are exploding in growth. Just SaaS and global delivery, as you know has driven a whole new set of telecom demand...

http://dealarchitect.typepad.com/deal_architect/2006/06/us_patent_17446.html

[vinnie mirchandani]

Sukumar, see below - just US telecom/cable spend is $ 1 trillion a year. World wide it is almost $ 2.5 trillion. The top 10 telecoms - Verizon, Nippon Deustche - make $ 600 bm a year...it does not include the fastest groiwng ones in Chinca, India, Brazil and the telcos in each other country in the world.

http://www.itfacts.biz/index.php?id=P2512

Assuming half of the telecom is consumer oriented, the business telecom spend equals what IDC estimates is spent on hardware, software and services

http://news.com.com/IDC+Bright+spots+ahead+for+IT+spending/2100-1014_3-5060896.html