The Fourth Industrial Revolution is developing at such a rapid pace that it is unprecedented. Even in the field of economics, we are experiencing a new type of economy: the techno-economy. In this evolving environment, businesses that understand the principles of technoeconomics and use them to guide decision-making are among the top performers in their industry.
So what does this mean for evaluating the cost and effectiveness of your technology stack and planned IT investments? Glad you asked. This is the framework for managing your techno-economics.
A new asset class is born
A large part of any economy is assessing risk and identifying value. When calculating the value of technology, it is necessary to consider how it affects your operating costs, efficiency, customer satisfaction, and ability to bring your product to market. In the tech economy, as in the traditional economy, each investment in a particular technology presents a relative level of value and risk. However, value and risk in the technological environment are not measured on the scales of profit, loss and volatility, but are related to attributes such as economics, scalability, software functionality, information security, reliability, availability and sustainability impacts. correspond.
Infrastructure, applications, networking technologies, and other components, besides building and maintaining systems, add up to one thing: lots of options. But what if you change your mind? What if assessing risk is not a technical issue but a financial investment choice?
Shifting your mindset allows you to adopt a techno-economic framework—in which IT investment decisions focus on balancing risk to achieve a stable set of assets. For example, you can make a financial decision to invest in stocks, bonds, cryptocurrencies, or Bitcoin—all choices based on a balance of relative risks. The point is to have a portfolio that tries to match the sure with the dangerous.
In the tech economy, new asset classes are born: mainframe, distributed and cloud. Like traditional asset classes, each asset class in the tech economy has a specific value and value proposition. They share the same characteristics as traditional economics: scalability, risk profile and business impact. In this case, the goal is to achieve the right balance of assets by maintaining the most cost-effective assets.
For example, individuals rarely dump all their stocks and bonds and jump straight into cryptocurrencies or NFTs, so why would they buy tech assets? However, those who fail to consider their technology assets from a techno-economic perspective tend to go all-in on public cloud or other currently compelling technologies without examining the balance of assets or their direct relationship to business performance.
The Importance of a Technology Portfolio
Managing the tech economy of a company involves evaluating the technology asset class over time. Making these choices means mixing technology investments wisely to achieve key business goals.
It seems like everyone is turning everything loud these days, as opposed to mixing. However, when you compare the public cloud revenue of Amazon Web Services, Microsoft, Google Cloud and IBM to the $8 trillion in global IT spending, it’s not even 10%. These numbers show that not everyone is in the cloud. In effect, organizations rely on a combination of asset classes and make choices based on scalability, risk, and business impact to create a balance. The latest thinking is no longer “cloud first,” but “cloud right.” It’s more important to make the right technology investments in the right platform (including but not limited to the cloud) at the right time to achieve the greatest total value.
Evaluating the right technology portfolio is about understanding business value. Across 20 different industries, top-tier companies have 15% more mainframe computing power, 14% less distributed computing power, and 80% more public cloud computing power. The data also shows that cloud usage is well below the mainframes of the average and top-performing organizations. Despite all the focus on the cloud, 85% of the world’s computing is still on-premises. Conclusions are inevitable. Top enterprise performers aren’t just migrating more to the cloud — they’re using more mainframes in hybrid cloud environments. These numbers clearly show that top-performing companies are making decisions for their technology portfolios based on customer needs and business performance.
Take a closer look at how you pay for your assets
Another part of thinking about the economics of IT is how you access and pay for assets today. Take the cloud as an example. Beyond its benefits and features, there’s more to consider. From an economics standpoint, contractual arrangements obscure the true economics of public cloud.
Think of the payment structure of most cloud provider contracts as a buffet. $19.95, but only if you can finish everything on the plate. If you can’t eat everything on your plate, the price goes up to $209.95. This scenario illustrates the economics of the cloud. There’s a threshold, and if you don’t meet it, you’re going to pay a price. Literally. This runs counter to the cloud’s promise of resilience.
How you pay for your assets is part of evaluating how to better understand your investments and how to achieve a better balance between them. Achieving balance is also known as technical asset class optimization (TACO). We now have data and models that enable IT leaders to evaluate and plan technology investments with the same rigor and language as financial investments, while considering the desired risk profile and return on investment.
Ultimately, technology costs translate into business outcomes. Tracking your IT spending against business profitability is a key metric for running an organization in today’s technology economy.
Applied Economic Perspectives
Although the tech economy is relatively new, business technology is mature enough to be considered an investment and managed like any of your other investments. Here are some key things to remember:
- Adopt a techno-economic mindset and evaluate your tech stack as a portfolio.
- Evaluate your asset class in terms of performance and impact on business outcomes.
- Take a closer look at what and how you pay for your assets.
The benefits of applying an economic framework to your technology investments include improved risk management, maximizing returns, and deciphering value. The result is a balance of assets and a better understanding of where and how you should invest in IT in the future.
Tech stacks reflect choices, but they shouldn’t be viewed as fashion statements. There’s no need to be preoccupied with the latest trends. However, asset classes need to be selected and techno-economics run based on your organization’s specific performance needs and desired outcomes. Achieving this goal prepares your technology for the future, supports the business, and gives your organization a key competitive advantage.
We have a few ideas when it comes to shifting your mindset. Learn more here.
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