It finally happened: IT inflation has hit 4.8%, exceeding GDP growth, the consumer price index, and both U.S and global inflation rates. IT inflation is even outpacing the rate of increase in IT spending for most organizations. Businesses are stretching their budgets just to keep up. Predictably, the squeeze makes it difficult for IT decision-makers to fund new investment. As a result, organizations must find ways to be increasingly strategic about the mix of technologies they include in their hybrid IT environment. Value is the name of the game. The trick is determining how best to maximize that value. Fortunately, Technology Asset Class Optimization, a technology investment model, enables you to make data-based decisions that will optimize the business performance you get from your tech stack.
Technology Asset Class Optimization, developed by technology economics expert Dr. Howard Rubin in partnership with Broadcom, is ingeniously practical. It provides a framework for evaluating and planning technology investments with the same rigor and language used to manage personal financial investments. The model cleverly treats various technology investments (e.g., public cloud, private cloud, mainframe, and distributed) as discrete asset classes, each with its own profile of benefits, risks, and returns. By leveraging the right mix of asset classes, you can create an optimized “technology investment portfolio” tailored to make you a best-in-class performer in the markets you serve.
Best-in-class organizations find ways to achieve the strongest business performance as demonstrated by such measures as their topline revenue, operating margin, infrastructure economic efficiency, availability, and DORA metrics. Dr. Rubin’s newly-released report shows how the distribution of technology asset classes within organizations is shifting and how these best-in-class organizations are investing to maintain and grow their leadership. Read on to see several of the key takeaways.
Recent Technology Trends
It’s evident that growth of the public cloud is cooling off and becoming significantly more measured. This is noteworthy but shouldn’t be surprising to those who’ve been watching the tech sector closely. The trend is due in large part to the rising cost of cloud, necessitated by price increases in areas such as compensation, hardware, software, SaaS, networks, and more. For many, the true cost of cloud had previously been opaque, adding to the “sticker shock” from these rising costs. While cloud continues to be a valuable part of many hybrid IT environments, organizations have become more selective concerning the workloads they decide to run or move there. This has resulted in a modest downward shift in cloud spending (measured both as a percent of global IT services and as a percent of global IT spending).
In contrast, private cloud and distributed technologies are holding fairly steady while the value organizations are getting back from their mainframe spend is actively rising. There are several reasons for this:
- Mainframes offer strong cost advantage from both scalability and cost efficiency perspectives. Over the past year, the unit cost reduction achievable from a 2x growth in mainframe capacity rose from 60% to 67%. In comparison, a 2x scale growth in cloud usage might net a hyper scaling cloud provider an 18% unit cost reduction. For distributed servers, a 2x scale growth brings a unit cost reduction of just 9%. This gives the mainframe a practical cost advantage over cloud, SaaS, and other technologies where organizations are feeling the impact of increased prices more acutely.
- In the past year alone, the breakeven point for mainframe with cloud in terms of each platform’s total cost of ownership (TCO) came down from 3,500 MIPS to approximately 2,000 MIPS. For anything above this point, mainframe’s cost advantage over cloud grows.
- For organizations with heavy transactional workloads, moving those workloads from mainframe to the cloud could cost in excess of 5x more in TCO.
- Mainframes continue to do more with less. The platform presently accounts for 74% of the world’s transaction workloads – this workload dominance is 2% higher than the previous year – yet the platform continues to account for just 8% of total IT spend. In contrast, public cloud accounts for 4% of the world’s workloads but takes 15% of overall spend, and distributed servers claim 11% of global transaction workloads while eating up an outsized 62% of total cost.
Taking all of the above into consideration, organizations are viewing the mainframe as a valuable and high-performing “safe harbor” in the midst of an IT inflation storm.
The Value of Optimization through Three Fiscal Measures
It’s a hybrid IT world. Virtually all organizations utilize a mix of assets in their IT environments. Despite that common baseline, however, clear differences are apparent when looking at the technology investment profile of average organizations versus top performers in a range of industries. For a start, best-in-class organizations use significantly more public cloud in their overall IT mix than their more average-performing counterparts (19.2% vs. 8.9%). They also use significantly more mainframe compute power (31.6% vs. 21.3%). In the area of distributed compute, the situation is reversed, with top performers using a lower level of distributed resources than the average performer (49.2% vs. 69.8%).
Over the past year, these established patterns grew slightly more pronounced, with best-in-class performers leaning even more into an optimized IT mix with growing percentages of both public cloud and mainframe. These organizations have found a successful model, and they’re sticking with it.
Three key fiscal measures reveal how the technology investment portfolio used by these best-in-class performers gives them an enviable return on investment:
- Revenue per IT Dollar Spent
For every dollar best-in-class performers spend on IT, they are getting back greater revenue compared to their more average-performing counterparts. For some industries, the contrast in revenue per IT dollar spent is quite substantial, with a differential in excess of $37. However, even when the difference is smaller, the advantage can still be dramatic when you multiply the per dollar cost differential by the size of the total IT spend. - Run:Change Ratio
The run:change ratio refers to the amount of resources an organization allocates to “keeping the lights on” vs. implementing change or innovation. By optimizing the value they get from their IT stack, best-in-class performers are able to devote a lower percentage of their IT spend toward maintaining normal business activities and daily operations compared with average performers. This means these organizations have higher levels of IT investment to devote toward efforts aimed at further enhancing their capabilities, launching new projects, transforming operations, and bringing new advances to market. - Technology Cost of Goods
Dr. Rubin performs a unique analysis of the impact different IT mixes have on the cost of specific business transactions, assets, or processes – a.k.a. the “technology cost of goods” – within multiple industries. His analysis shows that, across industry sectors, best-in-class organizations (those with an optimized hybrid mix of technology assets) are better able to reduce their cost per transaction. In other words, running the right workloads on the right platform leads to greater operational cost efficiency. Moreover, the analysis shows that businesses that miss the optimized mark by being “mainframe heavy” consistently outperform organizations that err on the side of being “cloud heavy.”
None of this minimizes the important role cloud plays in a healthy hybrid IT environment, but it does illustrate the importance of achieving the right mix: one that matches each workload to the most appropriate platform. Put simply, for each workload, determine where you are likely to derive the greatest value based on performance, benefit, risk, reward, and the underlying economics and go there. For more insights and a closer look at the underlying data, read the full report.