Over the years, enterprise Information Technologies (IT) groups have gained proficiency in many domains such as project management, risk management, procurement and budget, security, business analysis, architecture, solution development, and running technical platforms (servers, routers, switches, storage, databases, etc.). All of this knowledge is required to run a business in today’s world, and any IT organization has the capability of providing these services. If this is the case, why can’t IT groups be run and managed as independent profit centers, providing services to internal and external customers?
Enterprise IT groups can compete and win as IT providers against third parties pretty easily. Knowing all enterprise business processes already gives enterprise IT a huge advantage over third parties. To win the competition, all IT needs to do is to provide, in addition to business knowledge, IT services with competitive costs based on usage, in a transparent way.
It is easy to provide development or consultancy services (project management, risk management, security, architecture, etc.) to customers. Charging for these services is also simple and easy to explain to the client. Compared to any third party, enterprise IT associates’ costs should be lower and the time needed to perform a given task should be shorter, based on the fact that IT associates are now involved in engagements calling for the business processes knowledge with which they are most familiar. For example, let’s take an average IT salary of $154,000 (including employer costs), reduce standard holidays, vacation, and sick time, and we will end up with a $75 per hour cost for an IT associate. I would be surprised if you could get the same cost from a third party. If we add $10 an hour to create net revenue that can be invested in software and equipment needed to perform the above services, we can have a potential net revenue of $220,000 for every ten associates. Obviously, even an hourly rate of $85 per hour for IT services is very competitive.
The more challenging services to provide and charge for are the platform services, mentioned above. Without the ability to provide, monitor, measure, and charge for platform elements, IT can’t provide competitive platform as a service. Luckily, today there are technologies available that enable us to build and run private, public, or hybrid clouds. Those cloud solutions enable provisioning, monitoring, and measuring, which make it possible for IT to bill customers by usage.
But, as always, technology is not the solution. To be able to create a self-sustained IT group, one needs to come up with a financial model that will be competitive and enable IT to run and maintain the platform. This financial model needs to take into account the number of people, licenses, vendor support, and warranties needed to support the platform. The model also needs to take into account that equipment and technology need to be replaced every 5-7 years, which ends up being very costly. For this reason, the financial model needs to provide enough yearly net revenue to both support the platform and allow for putting funds aside to cover these costs. The proposed financial model also needs to be competitive. If you can provide all the above, but your costs are more than your enterprise can pay elsewhere, you are probably out of business.
The proposed model charges internal and external customers based on one of the major public cloud providers (Amazon, for example). To be competitive, the proposed service cost includes platform services such as security, patching, backup & restore, DR/BCP, etc., or any services that the cloud platform doesn’t provide. This model provides the same costs to the customer regardless of whether the requested assets are running on a public or private cloud. If the request is for services that require at least 16 hours of availability, the service will run on a private cloud. Otherwise, it will utilize a public cloud.
Obviously, this model is restricted to a minimum and maximum number of needed IT resources, mainly servers. I believe that this model will work fine for an IT shop that is running 300-10,000 servers and 100-600 TB of data.
Let’s run some basic numbers as an example for providing private cloud as a service. This model can be simplified if you have the capability to provide the platform based on a public-cloud provider.
Amazon will charge $172,279 monthly for 500 large servers and 200 TB of storage (plus 10% snapshots).
If an IT department charges internal and external customers as Amazon charges for their usage, this department revenue, based on providing 500 servers and 200TB of data, will be $2.06 million per year. If we subtract from the revenue the cost for four IT associates to manage platform, licenses, and maintenance costs, we’ll end up with savings that will enable us to replace our platform every five years.
Again, the financial model can be simplified if you are able to run your platform on a public-cloud provider.
IT departments can operate as profit centers, selling associates’ expertise with very competitive rates and platform services. Selling platform services at market prices, while providing extra services not provided by the market, can increase your internal customers’ confidence in IT and also enable you to self-maintain the platform.
In conclusion, the services that you can provide and your financial savings can be increased if you choose to extend the same model to PaaS and SaaS, but that’s a topic for another post.