Why Measuring Business IT Spend Will Become Increasingly Irrelevant

Yes, I know it sounds strange coming from someone who has been measuring business IT and telecommunication spend for decades. Let me explain. With good reason, both IT users and vendors follow business IT spend review and forecasts from the likes of Gartner, IDC and others. Users want to benchmark their own spend against their peers (making sure they don’t spend too much). Vendors want to plan the business (making sure they get enough of the pie).

Methodologies for measuring and forecasting IT spend vary, but most research firms combine user (CIO, IT Director, IT Manager) surveys with (quarterly) revenue tracking of IT vendors. The user surveys ensure that IT spend can be segmented by geography, size class, and vertical. The vendor revenue tracking provides frequent updates on product and market size, growth, and profitability. So far, so good.

However, IT spend user surveys that rely on CIO, IT Director or IT Manager (or even CFO) input are becoming less relevant. CIO control of business IT spend is waning. Why? Under the influence of cloud, business executives and employees buy IT resources with the same ease that Internet users now buy an airline ticket, check in online and reserve a seat without any help of the travel department. Some of these services are even available for free. For example, business usage of free Gmail or Dropbox services, to mention a few, is happening below the CIO radar. Also, employees (and elancers) increasingly bring their own devices (and apps) to access company IT resources in the office, on the road, and at home. Last but not least, IT spend is becoming invisible as business departments start buying business processing functions (rather than software, platform, or infrastructure) as a service (also known as BPaaS).

CIOs and CFOs need to make sure they have at least visibility of the above trends in their company. For one, because central procurement of IT resources will save money. But also, because it is the CIO’s job to make sure business units and employees use compatible and effective IT solutions.

Cloud Service Provider CAPEX

At the same time, there is a new category of IT providers emerging (the famed XaaS or cloud service providers) that have a significant IT infrastructure CAPEX (and OPEX) budget. Measuring XaaS provider revenue is important, but measuring XaaS IT-spend will become equally important. Like the telecommunications market (which has been traditionally split into Enterprise, Service Provider, and Consumer) measures service provider CAPEX, Cloud Service Provider CAPEX will become an important measure of the health of the IT industry as IT infrastructure companies will sell equipment and services to Cloud Service Providers who in turn sell infrastructure services to enterprises.

Direct and Indirect business IT spend

So there it is. Unless measuring methods adjust for the above trends, they will not give us the complete business IT spend (and usage) picture. IT benchmarks will become less useful to users. IT forecasts will not show the complete growth opportunity for vendors.

At METISfiles we are starting to use the terms direct and indirect IT spend to label this phenomenon. Direct IT spend (which in turn can be segmented into internal – IT staff salaries – and external spend) is spend that can be measured the traditional way. Indirect IT spend is spend that is above or below the CIO radar. Not surprisingly, our assumption is that indirect IT spend is growing. In order to track indirect business IT spend, we believe that business executives and employees need to get a better representation within user surveys and IT research in general. Our three interconnected research themes reflect this ambition. We also believe we need to start measuring cloud service provider CAPEX, not just XaaS revenues. Last but not least, the ultimate measure on IT business value is ofcourse return on investment (ROI). But if we fail to measure all the investments, ROI data will become less useful. Stay tuned for more on this subject!

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About Pim Bilderbeek

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  1. […] the nature trail that is being flattened spontaneously without central guidance. Business units now buy IT resources with the same ease that Internet users are now buying an airline ticket, check in online and reserve a seat without […]