It is imperative that an organisation’s digtal investment portfolio is aligned with its overall business strategy, so that it is able to contribute to the organisation’s overall objectives. IT and Digital spending can be categorized into four categories, each category having its own characteristics.
To a large extent, digital and IT investments are spent on infrastructure, back-end systems, and applications that process transactions, the lower 2 categories of the above pyramid. These form the engine of IT and are at the basis of reliable and efficient IT services; however, they have little or no market differentiation capability.
In the longer term, when evolving towards a strategic role for digitalisation, spending must move up the value chain, with more means becoming available for informational and strategic initiatives rather than for infrastructure and transactional initiatives.
A pre-requisite for this evolution is that, first, both infrastructure and transactional asset classes are optimized so that the means become available for investing in informational and strategic initiatives instead, as these can lead to competitive advantages and increased sales. Moving means moving up the value chain, to the asset classes of the top of the pyramid; moreover, it involves a constant effort for smart investment and must lead to greater returns and customer value.
An increasing number of organisations are opting to outsource their infrastructure to public or private cloud infrastructure. This shift from self-owned infrastructure that is either purchased or leased towards rented solutions which are often on pay-per-use basis is shifting CAPEX to OPEX. The same trends is visible with transactional systems that are often shifted to SaaS-solutions (Software-as-a-Service) over developing and running these inhouse.
As executive management requires digital services that enable market differentiation and offer a competitive advantage, more means must shift towards informational and strategic systems, the upper two categories of the value pyramid. By categorizing each significant item of the digitalisation budget as one of these four categories and consequently attempting to come up with intelligent suggestions to decrease the costs for the lower two catgories, it becomes a sound practice to shift investments to the upper two categories instead.
A similar exercise can be performed based on the current application landscape. Label each application with one of these four asset categories and assess how these numbers per category relate to each other. An imbalance between the two bottom and two top categories may trigger application consolidation, cloud migration, and slimming down back-end applications by looking for SaaS opportunities.
This exercise must involve both enterprise and application architects as they ‘own’ the application landscape. The success of this exercise is determined by business participation, as they are the application owners from a business perspective.
Jan Verbruggen
Managing Partner Xperian bv
