Today’s business climate places greater demand on IT organizations. They face a dual challenge of “keeping the lights on” while providing new services at unprecedented rates with reduced investment support from the business. At the same time, the very business model of IT is changing; how applications, content, information, and infrastructure are delivered. Organizations have come to rely on datacenter services for their external facing customer experience, corporate branding, and internal operational systems. Disruptions in this service can induce significant financial losses or even paralyze an organization completely.
One of the biggest barriers to business execution and innovation today is datacenter complexity. As a result, the major part of IT investment expenses (87 percent of the IT budget) 1 is earmarked for keeping operations running and containing infrastructure sprawl.
Approximately 83 percent of CEOs expect substantial change in the next three years, but only 39 percent did not feel their organizations were ready for that change. 2 The enterprise’s inability to devote a majority of its time and investment dollars on innovating and differentiating business through IT results in missed expectations and disappointment within the business user community.
1.1. State of the Datacenter Today
During the last decade, organizations have become increasingly dependent on their datacenter environments, which effectively house the digital backbone of the organization. The pressure to technologically keep up with the competition has created a proliferation of datacenters full of massive amounts of technology resources. This pressure particularly affected the banking and financial services sectors.
The February 2008 Gartner IT Budget Survey showed that banking and financial services firms led the way in IT spending at about 7 percent of total revenue (12.6 percent of all operating expenses). 3 This growth was sustained by the highest operating margin of any other industry (about 35 percent). The result was technological innovations in delivering financial services that were generating tremendous returns. In the process, datacenters with thousands of servers and other resources proliferated.
Several factors have come together to create the perfect storm:
1. The economic downturn of 2008 and expected increase in regulatory requirements
2. The increasing rate of change to the business model and its implementation in the infrastructure
3. The growth of IT spending versus revenue generation
4. The diminishing returns of additional optimizations
5. The exponential growth of data
6. The overall lack of efficiency from existing datacenters.
All of these factors will cause a change of behavior of IT and datacenters utilization in financial services organizations.
The end result is that the business must take a very hard look at all of its IT expenditures. Careers will be made and broken in the process. There’s a general sense that IT is spending too much for too little. Controlling the rate of spending just to keep existing datacenters operational will be a challenge for some organizations. Altogether, the current trends in datacenter growth do not bode well for the future of IT and businesses.
1.1.1. Credit crisis and regulatory requirements
The credit crisis and the economic climate of 2008 have radically altered the banking and financial services landscape. 4 In short, the securitization of debt—the engine that has driven the financial industry for the past twenty years—is now out of favor. This, combined with the resulting government bailout, will impact financial institutions for years to come. Transactions and their related fees are depressed and entire business models in structured products no longer function. As a result, revenue is down significantly, and the banking industry will be preoccupied with reinventing its business model for the foreseeable future.
IT budgets will be negatively affected by the poor performance of the organization. This comes at a time when funds will be needed to drive business innovation as the organization not only reinvents itself but meets the increased regulatory requirements the government will undoubtedly impose. IT will be challenged in meeting these two objectives, but it must be done if it is to survive. Reusing existing assets and repurposing those assets from defunct businesses will be critical to success (see Chapter 3).
1.1.2. Trends in real-time enterprise transformation
One recent trend in business is to become more reactive to real-time events. The traditional organization is slow to react to events as they take place and tends to sporadically adjust its activities. In contrast, the real-time enterprise works continuously to remove lag in response to events. By being more responsive, it’s possible to rapidly change direction and affect the outcome of events. The current datacenter model is poorly prepared to support a real-time enterprise. Changes in the environment often take weeks or months, which is much too long. The business may be aware of events as they occur, but without the proper support mechanisms in place, it is unable to respond appropriately. Then IT is seen as an impediment rather than a solution. As this trend grows, pressure will mount for IT to get out of the way or get on board (see Chapter 3).
1.1.3. IT spending versus revenue growth
Traditionally, when a datacenter reached capacity, IT made a business case for building a new facility. But with a modern datacenter costing hundreds of millions of dollars, preparing the facility for the first server is costly indeed. When the economy was humming along, the business was content to feed funds into IT to continue the growth of the datacenter. Now that the economy is on the rocks, the business will have difficulty investing funds into datacenters, never mind building entire new ones. If the organization is short on any capacity, it’s unlikely that IT will get any support for building yet another multimillion-dollar facility.
To avoid these challenges, IT must begin to track directly with business growth. Initiatives like utility computing have made headway, but they aren’t enough. The challenge is that while the business operates in terms of transactions, applications, and services, IT operates silos of resources like servers, network, and SAN. Being aligned will require IT to define its services as directly mapped with business activities (see Chapter 3).
1.1.4. Diminishing returns of further optimization
The last decade saw IT devote a lot of attention to optimizing the process of deploying resources into the datacenter and operating the applications running on them. This improvement process is at a point of diminishing returns that can no longer keep up with the accelerating business demand. IT groups are very thinly sliced in their capabilities such that in large organizations it takes the coordination of many disparate groups to effect a change. As the business continues pushing to increase the rate of change to be able to respond to business events, IT will need to figure out how to meet these goals. Provisioning servers and other resources is only a small part of the overall challenge of making rapid changes and increasing utilization. As will be discussed in depth in Chapter 4, virtualization is part of the solution, but it is not the solution in and of itself.
Technology alone can provide moments of competitive advantage, but they are not sustainable in isolation. The competition also has access to the latest technology and will catch up sooner or later (usually sooner). The creation of sustainable competitive advantages has long been promised by IT, though few organizations can actually claim they’ve accomplished this goal. The creation of tailored IT services in direct alignment with business operations can create the desired sustainable competitive advantage (see Chapter 3).
1.1.5. Exponential data growth
Markets are witnessing an unprecedented explosion in the availability of data, and firms are eager to leverage this information to increase their profits and expand their opportunities in a global world. Firms are capturing more data than ever before. Not only is the number of transactions increasing due to volatility, but the velocity of transactions is increasing as well. In some industries, such as capital markets, the volume of trades has increased by as much as 100 percent. In addition, there is increasing regulatory pressure from governments to store information for accounting and reporting purposes. With data also comes a new breed of experts who are helping firms crunch and mine this data to make analytical forecasts and use this information to enter new markets and float new products. These analytical tools and methods in turn create additional data to process and utilize.
The amount of data that firms must store today is unprecedented. Chris Anderson, author of The Long Tail, calls this the Petabyte5 Age (a petabyte is a unit of information or computer storage equal to one quadrillion bytes, or 1000 terabytes). In such an environment, the CIO needs the ability to lead an effective data strategy to capture, process, and connect data to all the relevant lines of business (see Chapter 4).
1.1.6. Lack of efficiency
In order to keep up with demand, firms have been rushing to invest in datacenters, but they are finding that just throwing technology at the problem is not ...