Consumer technology spending will surpass business tech spending for the first time in 2019, according to some estimates. This is partly because the typical consumer buys a new smartphone, set of headphones, fitness tracker, productivity app, home automation system, smart TV, and other tech “must-have” every two to four years, while the typical business hangs on to its technology for a decade or more. The core applications at some companies predate the commercial internet.
The most important difference between consumer and business technology isn’t the amount of spending; it’s how the money is spent. Consumer tech spending is mostly on offense, as people buy the latest, most innovative devices, applications, and services to improve their lives. The vast majority of business tech spending is still on defense: maintaining, integrating, and protecting legacy systems.
In fact, most company CIOs still spend 80% or more of their IT budgets in this defensive mode, managing the applications and infrastructure they’ve had for a long time. That leaves precious little time and money for innovative new technologies, digital capabilities, and digitally inspired business strategies.
Those legacy applications, as well as the servers, storage, and other infrastructure that support them, amount to a form of technology debt. Think of the staff time and maintenance fees companies must keep plowing into their on-premises systems as mounting interest on the tech debt—time and money that do nothing but keep companies at status quo.
Transitioning to the Cloud
For most CIOs, the question isn’t whether their companies need to get out from under that tech debt. They understand what’s at stake; their CEOs and boards are on their backs to modernize technology and cut costs at the same time.
The question is how to get out from under that tech debt—and how quickly. Because if that technology transition doesn’t happen seamlessly, things go bad fast: deals don’t close, supply chains break down, products aren’t delivered, bills don’t get paid.
So how can companies go on the offensive? The first thing they should do is ditch the tech strategy that keeps them in a defensive mindset. They’re on defense because most of the applications that run their core business processes have been so highly customized that they’re costly to keep running, difficult to rip out, and next to impossible to modernize.
It’s why the shift to cloud services is so critical, as it allows companies to pay off their tech debt in manageable installments. Instead of having to own data centers and manage their applications (and related infrastructure) themselves, companies can turn to cloud providers to do that heavy lifting for them—one application at a time.
What’s more, customers automatically receive the latest application updates—incorporating artificial intelligence, blockchain, and other emerging technologies—rather than have to spend a year or more working with systems integrators on complex, expensive upgrades to get that modern functionality. Because cloud subscriptions cover all of the supporting server and storage capacity as well as the people needed to support it, those services can cost about 25% less than on-premises alternatives, and they’re more secure by design.
Explain just the cost savings part to any CEO, and he or she will agree to that deal by morning. More important than the absolute cost savings, however, is the ability for companies to reinvest those savings in new and expanded commerce, personalized marketing, talent development, financial planning, predictive analytics, and other digital initiatives.
The most astute CIOs already are measuring exactly how much of their IT budgets their organizations are spending on legacy versus new systems and processes, and they’ve developed a long-term plan for shifting that spending from the old to the new. Their main challenge now is to make that cloud transition with minimal disruption to their core operations. They understand that the future of their businesses is on the line.