Demand Design: Beyond 'Keeping the Lights On'

Hani Elbeyali is a data center strategist for Dell. He has 18 years of IT experience and is the author of Business Demand Design methodology (B2D), which details how to align your business drivers with your IT strategy.

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In a typical company, “only 36 percent of IT expense is variable, meaning that 64 percent of IT costs are fixed and constant,” according to Rubin Worldwide¹. In some organizations, the percentage of IT spending that’s variable is even lower. This means “organizations that are stuck with high fixed IT costs have less flexibility than their competitors to react to changing market conditions and surgically injected IT investments in new business projects.”² This is called keeping the lights-on syndrome.

Six contributors to keeping the lights-on syndrome:

These contributors make it hard for IT strategists to leapfrog beyond “keeping the lights on syndrome.” Moreover, the IT budget needs to shrink 10 percent year over year. Yet, we continue to see some organizations trying to overcome “keeping the lights on syndrome” using one or more of these approaches:

Classical OpEx Savings Approaches are Unsustainable

While some of these IT efficiency tactics, such as consolidation, virtualization, outsourcing, off-shoring and under-funding, IT projects are perceived to improve the income statement or "the P&L”, they are not sustainable and don’t hold.

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As shown in the graph, initially, OpEx is reduced and business agility improves, but only for short time, which is called “Sweet Zone”. In a couple years, OpEx starts to go up again and business agility goes down; this is showing at the inflection point. With the exception of cloud, these quick solutions are not strategic, and they usually don’t contribute to the long term growth revenue of the company. They impede IT business value creation and IT innovations for the firm, and inflate Total Cost of Ownership (TCO) over the consumption life-cycle time. Therefore, organizations that follow these approaches can’t get a head of the “keeping lights-on” problem.

This vicious cycle causes business people to say, “IT failed us, and we are not sure why IT budget is close to eight percent of total company OpEx?” Even if we assume, some firms could continue to reduce IT budget by 10 percent year over year. Essentially, in a few forthcoming years, the organization will run out of IT budget, and therefore, reach the inflection point of diminishing return of further optimization. This is a clearly unsustainable model.

To put it simply, what’s needed is a new practical approach, striking the balance between:

What is Business Demand Design?

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Business Demand Design (B2D) is an overall framework. It provides abstraction view asserting two facts:

The Peak Zone

Organizations that invest the most in IT don’t necessarily outperform their peers. Instead, it’s those companies that make the most effective use of their IT investments that are the biggest return-on-investment beneficiaries.⁴ Business Demand Design framework is about sustaining the equilibrium between IT, TCO and the business demands.

Comparison between Traditional "One Size Fits All" and Business Demand Design

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These charts are comparing two firms. The company depicted in the top chart is running three enterprise applications (ERP, OMS, and CIF). These applications’ characteristics can be demonstrated in distinct diamond, oval, and triangle shapes, respectively. These applications’ characteristics are dragged down into the identical “one size fits all” infrastructure represented in square shapes. Naturally, three distinct shapes cannot fit properly into one model. This leads to much wasted and diluted data center resources and increased operating expense to maintain.

The company on the bottom, although running the same three enterprise applications, utilizes three distinct infrastructures that are simultaneously identical to the applications’ characteristics. This effectively squeezes out the waste, reduces TCO and eliminates diluted resources.

Business Demand Design achieves seven major goals

Please note the opinions expressed here are those of the author and do not reflect those of his employer.

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