Recession And Cloud To Sweep Away Dated IT Services

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Firms will choose an IT provider based on its finance, not its technology, an analyst predicts

Three years from now, the tech services market will be utterly changed by the combined forces of recession and cloud computing, and users will choose services based on financing, not technology, according to Forrester Research.

CIOs and IT managers will no longer provide technology to their companies, but will become “brokers” stitching together internal and external services, according to the report, The Coming Upheaval In Tech Services by Forrester analysts John McCarthy and Pascal Matzke. Although the change will be driven by short-term cost-cutting, the authors say it will produce long-term benefits.

The IT department won’t go away

“It’s a significant change, but it doesn’t mean the IT department will go away,” said Matzke. “It doesn’t mean everything will move to the cloud, but there is a strong shift towards moving capital expenditure away from buying to a rental or services utility.”

Short-term capital budget cuts, such as those currently under way in the UK’s public sector, are widely expected to boost cloud services or other pay-as-you-go options, as organisations move IT out of the capital budget and into operating costs, in the face of the worst recesion for 70 years.

The move has been criticised as one which will produce short-term savings and long-term costs as IT staff lose control of their organisation’s technology – but Forrester’s analysts believes it is a good thing, and CIOs have to accept that they most lose direct control in order to adapt to the changing circumstances of the IT world.

“The CIO will effectively be freed from a focus on operating expenditure, to a focus on things that can contribute to the business, growing revenue through innovation,” said Matzke. “He has been trapped in a scenario where IT budgets are not rising, but the business demands faster time to market and revenue growth.  He will ultimately be in a much better position to be a real strategic parner, rather than an internal cost centre.”

Building flexibility

A large organisation can still build IT services cheaper, Matzke agreed but, he asked: “How can they build out the same level of flexibility around internally provided services?” Only a service offering from a partner will be flexible enough he said.

Traditional IT service models have been undermined by software as a service (SaaS) and other ideas, but Matzke does not think everything will go to public clouds. For instance, vendors such as Hitachi are now offering storage “as a service” on hardware which is within the enterprise, “We believe in a hybrid model,” he said.

CIOs who fail to move with the times will face chaos, as “shadow IT” services multiply in their organisations, with people in the organisation buying IT as a service without the CIO’s approval.

IT vendors will also have to adapt, says Matzke: “The industry is changing from one that produces fixed capital assets in hardware and software, to one which deals with circulating capital. There are huge ramifications on vendors’ business models.”

Choose your vendor on its financial strengh?

As with much else in the industry, the change will lead to a somewhat familiar place, he said. “Traditional licensing models are changing towards more transaction-oriented and user-oriented models – but we are already familiar with those in the consumer world. For instance in our mobile phone bills.”

Bizarrely, Matzke predicted that end users will eventually choose an IT provider, not on the basis of technical excellence, but on financial strength: “Companies like IBM and HP who have a financing arm, will find traction for services. The crucial thing vendors have to bring to the table is their balance sheets.”

Financially strong IT companies will be best able to aggregate services into pre-packaged offerings, which can be composed and decomposed according to need, said Matzke.

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