Rethinking How We Measure IT Infrastructure Value
Planning needs a rethink. Else, IT leaders risk hobbling their companies’ growth potential or becoming blindsided by risks.
For many, justifying an IT decision to the CFO or the Board begins with a business case. Often, they use the total cost of ownership (TCO) to convince. Using return on investment (ROI) goes a step further than IT costs and savings, and looks at user efficiency and business effectiveness.
Both measures fall short on correctly highlighting the true impact to the business of an enabling technology or infrastructure. Either the metric is too narrow, the timeline is too short, or the investment is not mature enough. It warrants a more holistic approach that looks at multiple aspects of risks, costs and benefits, and compares different components of ROI.
At the recent Virtual Workshop “Digital Infrastructure Planning for the Future”, organized by CDOTrends together with Equinix and Forrester, Reggie Lau from Forrester suggests a more exhaustive approach: Forrester’s Total Economic Impact (TEI) method.
“Essentially, Forrester’s TEI takes two steps further than current approaches to business case development,” explains Lau, who is Forrester’s principal consultant for TEI serving B2B marketing professionals.
The hidden value
The roots of TEI can be traced to how IT leaders are finding it difficult to measure the success of multi-year digital transformation journeys.
For example, Lau notes that while “66% of APAC firms said [in their research] that they are undergoing digital transformation, 22% saying that they have completed it is surprising.” Rather, he sees digital transformation as a continuous journey.
Timeline is another issue. “A lot of business cases just show year one or initial benefits in costs. But how you measure and how long you measure can determine the attractiveness [of the business case],” Lau adds.
Measuring innovation is becoming a struggle. Lau points to the 60% of APAC firms having an innovation unit and 70% increase in such investments. “Yet, only 23% admitted that these units delivered a significant innovation,” he says, adding that it reflects the difficulties in creating the right business case for innovation.
The forecast is cloud-y
Cloud decisions on the infrastructure is another challenge — especially when 60% of APAC firms are describing their cloud strategy as hybrid, with 94% saying that they work with two or more cloud platform providers.
“Why? Because you have already measured a new kind of state [the cloud], and it offers a baseline which then becomes the norm. Then the incremental benefit [e.g., moving from one cloud platform to another or working with a few] will not be high, and so value will be less clear,” Lau says.
For example, it makes the business case for moving from Office 365 to Google for Work less appealing than moving from the on-premises Microsoft Exchange to Office 365.
The evolving enterprise network architecture makes traditional business case approaches even more challenging. Based on observations from her company’s Global Interconnection Index (GXI) report, Tejaswini Tilak, senior director, digital transformation & GTM, APAC, Equinix sees many companies have already embarked on network optimization and hybrid multicloud journeys. In its third edition, the report attempts to offer an insider’s perspective into shifting trends, the rising role of interconnection, regional differences, and 5 IT transformational steps that offer a digital-ready infrastructure framework.
“The role of the corporate data center is shrinking and core apps are moving out of them and closer to the edge where customers/ partners/ employees are. This is where companies are connecting to their ecosystems - locally and privately,” says Tilak. “As IT stacks get distributed to multiple locations, it is becoming a truly hybrid world.”
Such a hybrid world now runs on private interconnections, which Equinix sees as locations where data exchange occurs. She adds that Asia Pacific will be the second largest interconnection market and Hong Kong to grow the second fastest.
Tilak points out that the future infrastructure will be an ecosystem of partners, which will redefine IT’s role from builders of apps into “brokers of IT services and apps.” They will work through these interconnections to distribute security and data — increasingly to the edge — and work with so-called application exchanges.
Creating a business case using TEI offers a better approach in understanding the risk mitigation needs, risk vs. rewards, scalability needs and flexibility when investing in Equinix interconnection offerings. By considering these additional areas, the approach goes beyond traditional TCO or ROI calculations.
Deconstructing TEI
TEI begins with finding out the value of an infrastructure decision to a company by creating a composite financial model.
In the Virtual Workshop, Lau shared his insights into creating such a model based on four real-world large enterprises from different industries that used Equinix.
“We then gave this financial model a narrative and life with a storyline,” says Lau. The storyline, in this case, was that Equinix reduces cloud connectivity and network traffic costs, decreases latency and improves time taken to complete audits.
In the example, the composite financial model showed that adopting Equinix solutions reduced network costs by 60-70%, reduced latency by 30%, increased revenues by USD 7 billion, positively impacted 8,000 to 15,000 staff and sped up audit and compliance processes by 60%.
The solutions also reduced the risks of having to rely on a single carrier for all locations (and being curtailed by the carrier's network availability), removed the vendor lock-in risks, improved choices and options in different locations, and increased end user productivity.
Diving into the specifics, Lau notes that cloud connectivity costs came down by 70% while network traffic costs were slashed by 60%. Each staff saved 0.5 hours per week, making them 50% more productive. The 60% reduction in audit times resulted in a 30% savings in related costs. These metrics were then used to calculate a three-year, risk-adjusted present value benefit.
Based on the analysis, Forrester TEI revealed a 328% increase in ROI, USD 17.1 million increase in net present value and 60-70% reduction in network traffic costs over a three-year period. It also highlighed the intangible benefits of faster adoption of services, improved planning and budgeting, and better employee experience.
Real picture
Lau argues that the TEI approach offers a more realistic picture of the impact of infrastructure decisions that goes beyond traditional business case development.
He adds that it allows you to understand the multi-year impact of decisions on IT infrastructure that can enable your business to do more.
Here, the composite financial model highlights the positive value of choosing Equinix for building out the network foundation for a cloud journey.
Next step: Watch a Webinar featuring Zoom, Equinix and Forrester
Expand your TEI knowledge and learn how Equinix and Forrester are helping companies apply it, while hearing from Zoom why interconnection will be vital in 2020 and beyond. To watch the webinar, click here.
Photo credit: iStockphoto/ipopba
