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Total Cost of IT (and Cloud) to Business (TCB)

Stephen_Spector

Guest Post: Alex Factor, Master Cloud Strategist, HPE 

Part 1

The concepts of Invention and Co-Invention were described in my previous blog “Innovation in IT and… Cloud” published on 8/31/2015. http://community.hpe.com/t5/Grounded-in-the-Cloud/Innovation-in-IT-and-Cloud/ba-p/6779835#.VkzmsHarT4Z

Both Invention and Co-Invention are essential to the Total Cost of IT (and Cloud) to Business (or TCB). Indeed, while IT vendors – like HPE – design and implement the original technologies (Inventions) IT users adopt these Inventions to address their business needs and create Co-Inventions.  Co-Inventions are broader and more diverse than Inventions and are, undeniably, the most critical drivers of IT progress.

In-and-of-themselves, conventional IT, and its nascent new paradigm Cloud do not produce economic benefits. IT is just a means of production – ‘a possibility frontier’ (as economists call it) while the real engines of value are the IT applications themselves or, ‘production frontiers’. It is relevant and useful therefore for both vendors and users to understand how IT adds value to users and summarily society at large.

Traditionally, IT vendors focus on the costs of their products and what customers want to pay for them. Hence, the common metric used for competitive selling is the Total Cost of Ownership (TCO.) While useful, TCO is limited. Why? Because TCO captures the costs of IT Invention borne by IT vendors and ignores the costs of Co-Invention borne by IT users. Thus the conventional TCO underestimates the relationship of Co-Invention to the true economic value of IT.

It is therefore posited here that in today’s competitive environment, vendors must address the Total Costs to Business (TCB) that includes TCO but all the costs of Co-Invention. By understanding these costs, vendors could refine their technologies and strategies to minimize user’s TCB and subsequently increase sales, competitive advantages, and user satisfaction.

Part 2.

The second part of this blog substitutes the word ‘Cloud’ for the word ‘IT.’ And the results are as compelling for the Cloud as they would be for IT. Yet, the logic should become more relevant to our (HPE’s) current mind share and our technical and marketing environment.

The components of TCB are three: traditional TCO, Total Cost of the Cloud Adoption (TCA), and Total Cost of cloud’s Impact on business (TCI): 

TCB = TCO + TCI + TCA

  1. As is well known, TCO includes the acquisition and life cycle costs of the cloud (or its consumption regime) and its components. It doesn’t matter if the cloud is an in-house private one (hence, based on CAPEX) or public (based on OPEX) because in today’s flexible world of finance, CAPEX and OPEX are interchangeable. To test if the cloud cost item belongs in TCO ask yourself a question “will this cost item exist if we didn’t use this item in our cloud strategy?”
  2. TCI sums up the costs of discovery, learning and planning how to use the cloud to address business needs. A user bears these costs upfront, before even deciding how to extract value from the cloud; the costs of inventing cloud uses. These costs include visioning, strategizing, and planning cloud uses; the costs of organizational change and governance; the costs of hiring, training and managing cloud-savvy personnel; communication and cultural changes, etc. To test if the cost item belongs in TCI ask yourself a question “how can we learn and prepare ourselves for using cloud in our business?”
  3. Finally, TCA covers the costs of implementing the cloud such as the costs of developing cloud solutions, testing and managing, piloting and prototyping and, of course, failed projects, false starts and altered decisions. Further costs may include cloud user and cloud provider training; monitoring and quality assurance; governance design and implementation; ensuring security and business continuity; and so on and so forth. To test if the cost item belongs to Cloud TCA ask yourself a question “what must we do to get the cloud to work?”

Some TCA and TCI cost categories inevitably overlap with TCO and each other.  Yet since TCB is a sum of TCO, TCI, and TCA, the exact assignment of ‘disputed’ costs doesn’t affect the final result. 

The size limitation of this blog prevent me from providing itemized description of TCO,TCI and TCA categories as well as viable recommendations of how to use this knowledge for product design, sales, services, support and delivery.

This will be the subject of my next blog.

In the meantime, marketing research on TCA and TCI (in addition to TCO) has been extensive. Many studies adequately showed that TCA or TCI each can be considerably larger than TCO; by one half to a complete order of magnitude.

TCI > TCA > (By a 1/2 to 1 Order of Magnitude than) TCO

Also, as a rule, TCI is frequently larger than TCA.  It is clear that the objectives of any cloud user as well as any cloud vendors (e.g., HPE), should be to reduce TCB...  

Let’s think about it together! 

Senior Manager, Cloud Online Marketing
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About the Author

Stephen_Spector

I manage the HPE Helion social media and website teams promoting the enterprise cloud solutions at HPE for hybrid, public, and private clouds. I was previously at Dell promoting their Cloud solutions and was the open source community manager for OpenStack and Xen.org at Rackspace and Citrix Systems. While at Citrix Systems, I founded the Citrix Developer Network, developed global alliance and licensing programs, and even once added audio to the DOS ICA client with assembler. Follow me at @SpectorID

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