As a rule of thumb, the cost to manage software is about four times the purchase price of that software per year. For example, if you pay $4,000 for the software, you may end up spending $16,000 per user, per year to manage the security, availability, performance and change management required for the entire infrastructure running under the application. This roughly works out to be about $1,300 per user, per month.
In fact, most CIOs across multiple verticals can confirm that about 80 to 85 percent of their budget is spent managing their existing portfolio of applications and software.
Why is it so expensive? Because the underlying cost structure for managing hardware and software is human labor. While over the past 20 years many have already recognized the cost-savings in outsourcing labor to other countries, it’s still a major challenge to balance cost-savings with the necessary technology skills required of IT staff.
Specialists are the foundation of standardization
For those of you who’ve never read it, I recommend the book Guns, Germs and Steel written by a cultural anthropologist named Jared Diamond. The book – which inspired a PBS special of the same name - is the answer to a question from Diamond’s friend, a New Guinea aborigine. He asked, “Jared, how come you guys have all the stuff?” In other words: Why did civilization start and prosper in Europe and in Asia but never in New Guinea?
Human civilization took an enormous leap when we moved from being hunter-gatherers to farmers. We could specialize, having a group of people who farm, make weapons or build houses. People developed repeatable and scalable processes for their specialization. Human civilization advanced everywhere possible. Today, for example, we don’t just have doctors, we have endocrinologists, dermatologists, podiatrists, etc.
In the early days of the Oracle On-Demand business, the CIO of a large oil and gas company heard my company was managing Oracle applications and asked to compare processes. While he had IT staff managing things like release upgrades, we were using automation to improve efficiency and save time. But before we could automate, we needed specialists to pave the way.
After specialists perform actions like application release upgrades a number of times, you can take their actions and automate them on a much larger scale. This can decrease human error as well as costs. In fact, it’s completely possible not just to standardize upgrades, but also the hardware and software stack, security, availability, performance and change management processes.
Managing enterprise hardware and software purchases – including cloud services - can be a cumbersome demand. Not only can it be time-consuming, but there’s also the challenge of recruiting and employing inexpensive but talented employees to perform the necessary labor and management responsibilities. Instead, consider the cost-effective and viable option to find suppliers who focus on standardization, specialization, repetition and automation of security, availability and performance management.
Want to learn more about automation and the cloud? Check out the Business Models module.