The Price of Tech: The Challenge of Managing Technology Costs

How much did your business spend on IT and other related tech services last year? Now ask yourself if that investment had a positive impact on your company’s bottom line? Unfortunately, these are questions enterprises often don’t ask, assuming that investing in new technologies will always give a return.

Deloitte succinctly summarises the challenges businesses face when assessing their IT spending: “Considering the centrality of IT to businesses, it is noteworthy how susceptible IT spending is to changes and forces within the business environment and society in general. As IT spending is expected to continue its upward trajectory in the coming years (57% of business leader see technology as a priority to achieving their strategic goals), it is now more important than ever to ensure that your company’s IT cost base is transparent.”

Henrik Nilsson, Vice President, EMEA, Apptio, told Silicon UK that spending on new technology is moving through a renaissance: “CFOs and CEOs crave precise data. The CIO’s challenge is to take the raw, complex IT costs and translate them into a language that can be clearly understood while ensuring that the functions of the business are not impeded by cumbersome reporting and measurement.”

Nilsson continued: “For example, one current challenge is agile. It’s growing in popularity as a way to help dev teams optimise their output, but its sprint-focused nature is at odds with how CFOs plan ahead. As a result, CIOs are having to combine these labour costs with tech costs to help CFOs understand the fully burdened cost of tech investments.”

Where to spend on new technologies must always be driven by a clearly defined strategic plan. Smart spending is critical as your business re-draws its digital transformation roadmap in the wake of COVID-19.

Spend or not to spend?

Jim DuBois, former Corporate VP and CIO, Microsoft Corporation, says: “Every CIO and finance leader is challenged to ensure their budget and resources are driving efficiency and creating value for the business. Increasingly, the oversight of those resources and governance of IT is both within and outside the traditional IT structure. TBM helps connect the supply and demand of IT, making transparent the consumption of IT.”

Speaking to Silicon UK, James Petter, VP International at Pure Storage, commented: “The pandemic has dramatically changed how business leaders view IT spend. Over the last 18-24 months, businesses witnessed a power struggle between the CEO’s growth perspective and the CFO’s pullback perspective. With businesses under huge duress, the CFO came to the fore and dominated. However, we’re now at a tipping point with the power shift more finely balanced between the two — and the CEO winning back the conversation.”

To understand the value of an investment, TBM (Technology Business Management) has been developed to aid enterprises in their understanding of where IT investments should be made and how much these new technologies should cost. Using systems like TBM can bridge the gaps that can often become debilitating between IT, the CFO and the CEO.

The ultimate goal of TBM is to deliver a level of cost transparency that leads to a deep understanding of how the cost of technologies correlates with their value across the business and how TBM can be used as a critical component for all future strategic planning.

The price of innovation

Gaining a clear insight into the cost of IT and what that spending delivers to your business is critical. A well-defined understanding needs to be communicated to all stakeholders, who then evolve their appreciation of what IT is being bought and how these technologies will be implemented. The often-adversarial relationship the CFO, CTO and CEO can have when spending is considered can be mitigated with systems like TBM that offer the data spreadsheets or ERP systems that are not well suited to deliver.

Apptio’s Henrik Nilsson concluded: “After many organisations moved quickly to rationalise IT projects and spending at the start of the pandemic, we’ve since seen a large-scale shift to increased investment in technology to secure future growth. But, in the short term, growth, not cost reduction, is the most important goal.

“A recent survey by Apptio and the Harvard Business Review showed that while 92% of business leaders rated the business value of technology as very high, only 62% had confidence in the quality of their information supporting this. As a result, TBM-focused tools are becoming a mainstay of modern tech stacks to bridge this confidence gap, enabling IT leaders to gather effectively, clean and analyse IT data in a timely manner to be used for making informed investment decisions.

Many have pointed out that technology is no longer just an enabler of a business; technology is the business. In this scenario, making the right buying decisions is critical to get right.

How technology drives a business forward must be clearly articulated to ensure all stakeholders understand the value proposition of each purchase. Here, TBM is a tool that can be used to help focus the conversation and provide tangible evidence of value and not just a cost centre.

Silicon In Focus

Nick Mills, General Manager, EMEA at CircleCI.

Previously Head of UK&I Revenue, Stripe, and Head of EMEA Sales, Facebook, Nick had a blend of experience in sales leadership and general management, in building markets with integrated sales and marketing knowledge. He is responsible for building CircleCI’s revenue and non-engineering teams to increase regional adoption and help users better understand how CircleCI can help them optimise their software development processes to deliver software with maximum performance, scale and stability.

In your view, what is the current state of IT costs?

“As the CBI states, the benefits of investing in R&D are hard to argue with: businesses that innovate are more likely to experience boosts in growth, productivity, and turnover. In a digital world, companies need high-performing software development teams and tools to help them build, test, and iterate without clunky legacy technology slowing things down. Investing in the right tools and development techniques will increase developer velocity, shorten build times, reduce maintenance overhead, and lower both infrastructure and development costs.

“However, according to Forrester, enterprises are struggling to offer innovative digital experiences to customers at pace. Many still lack cloud-native DevOps software development practices and best-in-breed developer tools (the key drivers of modern software-enabled innovation). This leads to operational inefficiencies and reduces flexibility, agility, and speed in developing digital products and services.

“A failure to invest has a fundamental short-term cost implication (as expensive software engineers are less efficient, less productive and likely to be less happy in their roles) and a long-term commercial impact which becomes a drag on innovation and growth (as untapped productive potential is left on the table, and, over time, companies will struggle to hire or retain the best software engineers in a tight labour market with a growing developer skills gap).”

How has the pandemic impacted IT costs?

“In the past year, those organisations that weren’t ready for, or struggled adapting to, remote and distributed modes of working had to reckon with the number of manual processes they may not have realised a point of failure. For example, many will have rapidly realised that they could no longer rely on a physical build machine under an engineer’s desk.

“Increased use of cloud and API services quickly became a necessity (since these systems could be accessed from anywhere on any device), along with increased use of technology process automation (running processes more efficiently by replacing manual people-based repetitive tasks).

“As a result, software development teams using automation created significant cost savings (since the typical per-minute cost of computing is $0.006, which is materially lower than the average $1.65 per-minute cost of a developer). Further, these changes created tangible upside gains for the fastest-moving organisations, including more robust system security and resilience, improved customer satisfaction, increased pace of innovation, and positive impact on top-line business goals.”

How have the changes to enterprise IT architectures impacted tech costs?

“A recent Accenture report highlighted that Europe is now marginally ahead of the US in cloud adoption. Lowering operating costs and improving financial flexibility are currently the critical motivations for company executives. Increased use of loosely coupled service-oriented architectures and API-based third-party services (such as Stripe for payments, Twilio for communications, and Auth0 for identity management) has reduced both the up-front development costs and the total cost of ownership for what were previously internally owned and operated services. This is good news.

“However, most enterprises are yet to see investing in cloud technology as a strategic driver of innovation and building competitive advantage (unlike home-grown tech start-ups and scale-ups, and indeed many enterprises in regions such as North America). As the CBI report shows, companies using modern product and infrastructure architecture to innovate see increased turnover and profit margins.

“At a UK level, enterprise R&D investment has stagnated for many years, contributing to lower national productivity and weak aggregate GDP growth. This needs to change if UK companies are going to raise business productivity, create more high-value jobs, bring more break-through innovations to market, and remain competitive on a global scale.”

What is your practical advice to business owners to reduce their tech costs?

“Invest in your software development infrastructure. This is the platform ‘machine’ that streamlines your ability to quickly and confidently ship quality software. Doing so means your developers can focus more time on innovating by building your core customer-facing products.

“Automate, automate, and automate. Eliminate manual repetitive tasks to minimise risk of human error and maximise developer productivity. Put developer experience at the centre of your company; the way you build software (using best practices like DevOps and continuous delivery principles) will create an environment where your developers are highly productive, happy and fulfilled, and will not only drive cost efficiencies but can also become a competitive advantage for your company.”

Do we need more alignment between CIO, CFO, and CEO around shared expectations when IT costs are concerned?

“Today’s company executives and boards are operating in a world of highly rapid and profound technological change. This pace of change is forcing companies to reconfigure the expertise needed and the contributions expected from senior leaders. The most successful companies already see their software engineering teams and the technologies they build not as cost centres to be minimised but as strategically important assets to invest in.

“In other companies that are on the digital transformation journey, execs need to – at a minimum – ensure their companies remain operationally resilient in the face of new technologies and threats and recognise the competitive opportunities digitisation presents. Alignment across the executive team on a shared expectation around IT costs is table stakes, but for enterprises to thrive, this shared understanding must view IT through the lens of strategically critical R&D investment.

“It is, therefore, crucial that technology specialists are represented at both board and company executive levels. Internally, this role typically sits with the CTO and means that your most senior technologist must be an equal contributor (alongside the CEO, CFO, CxO) to building strategy and making investment decisions. Further, the greater the technology expertise of a company’s other execs, the better. Seeking out at least one technology expert for non-executive director seats will add important depth of understanding to board-level discussions.

“Beyond senior leadership, it is crucial that the people that write code are at the heart of a company’s business decisions. This means getting your developers in close and frequent contact with both your external customers (who will use the products they build) and your internal teams (that make resource allocation decisions). Getting technology investment right can have a big impact for ambitious organisations seeking to be at the innovation frontier while delivering top-line business performance.”

What do you think a future tech stack looks like?

“Being able to move quickly — without sacrificing reliability — has become the backbone of software delivery. However, modern tech stacks (and the associated proliferation of cloud, service-oriented architectures, API services and Open Source code) are incredibly complex. It is no longer just your in-house developers committing changes to your code via a git push in this environment. Changes can now come from anywhere, including from outside of the organisation, and those changes can impact core parts of your application.

“Even the most gifted engineers cannot comprehend all the components and moving parts that go into the products they build, yet they’re still expected to deliver scalable, secure and resilient software incredibly fast. The software industry will need to embrace a methodology known as testing in production to account for the unknowns that come with multiple shared dependencies.

“Teams have long used continuous integration tools to test the code they write before deploying it rigorously. But code that’s not written in-house cannot be tested this way. Furthermore, when code changes can come from multiple directions, the software delivery lifecycle can no longer be linear. Testing “in production” means releasing applications into the wild, then keeping a close eye on what’s breaking where, and quickly rolling back to the last good version if needed. This type of testing has become indispensable in today’s modern software environment. In the future, the highest performing software development teams will seek to validate change as a central operating principle continuously.

“Leaders looking to scale confidently and with stability must understand that highly productive engineering teams make a huge difference in bringing products to market quicker and realising business ambitions such as market share, revenue growth, innovation goals, and adapting and surviving through changing market conditions.

“For companies with limited resources, being deliberate and efficient with resources is key to growth. Using developers’ time in the most effective way possible is just as important as having the right product or idea to begin with. Investing in the developer experience will enable companies to attract top talent, create environments where they can do their best work, and maximise returns on investment.”

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