In-Depth

Waste Not, Want Not: Organizations Overspending on IT

Last year, IT organizations frittered away fully one-quarter of their budgets on "unnecessary" or "redundant" customizations.

• By Stephen Swoyer
• 04/15/2008

Don't be put off by the rising cost of gasoline, electricity, eggs, milk, and sugar; not all commodity prices are rising.

In fact, market watcher Gartner Inc. says, the cost of many IT-related commodities is falling.

There's value to be had in a number of IT investments, Gartner urges -- but many IT shops aren't yet hip to it.

That's a mistake, say Gartner analysts, who argue that the commoditization of IT is helping drive down the prices of common IT products and services.

Last year, IT organizations frittered away fully one-fourth of their budgets on what Gartner calls "unnecessary or redundant customization," so classified because technological advancement (or, more precisely, technological commoditization) is rendering traditional customization moot.

Nevertheless, IT waste -- what Gartner calls "IT overspending" -- is a trend that's expected to continue, albeit at a somewhat diminished pace, through 2010.

IT overspending doesn't have to be a problem. Consider integration, the inescapable bête noire of any upwardly mobile IT organization. Ten years ago, integration issues -- particularly with respect to ERP suites such as SAP, Baan, or even PeopleSoft -- nearly brought companies such as Owens Corning or AMP to their respective knees. These days, Gartner indicates, that trend has changed. Thanks to technologies such as Web services and service-enablement, integration just isn't (or shouldn't be) the problem it once was.

In fact, the market watcher says, a lot of IT products and services are becoming -- to varying degrees -- commoditized, albeit piecemeal at present, Gartner concedes.

"No IT product or service is fully commoditized today -- as there is still some cost to you in switching suppliers, but many are commoditizing and some are at a relatively advanced state such as desktop PCs," said Brian Gammage, vice president and Gartner Fellow, in a prepared statement. "As products and services do commoditize, prices should usually fall, but conversely, for most enterprises, one of the biggest impacts of commoditization is overspending."

Gartner likens the commoditization of IT (which it imposingly terms the "industrialization" of IT) to commoditizations past -- namely, those of "mechanization" and "electrification."

"There is no way to solve the cost of IT management by evolving costs downward," says Gammage. "Instead, organizations need to find new and different ways of being able to scale infrastructure without scaling labor costs if they are to take advantage of this metamorphosis of IT."

This begs a somewhat vexing question. After all, aren't most organizations already consuming commoditized IT products and services? Yes and no, according to Gartner, which concedes that organizations are transitioning away from building or buying IT products and services and moving toward what it calls a service access paradigm.

It's a trend that should accelerate in the coming months and years, the market watcher maintains, thanks largely to the emergence of "new, alternative delivery models" that alter -- and in some cases obviate -- the calculus of the build-versus-buy status quo.

Nor is this transition 'taking place in a vacuum. Large ISVs and hosting providers are hard at work building out the infrastructure to host and support these next-gen services. According to Gartner -- which seems quite taken with its "industrialization" metaphor -- ISVs are constructing next-gen platforms that enable the "mass production" of industrial IT.

"Already, more and more tools and applications, such as Office software, e-mail and CRM, are being served from such centers, and we can expect the range of applications and services available to grow," said David Mitchell Smith, vice president and Gartner Fellow, in a statement. "Why pay to build it and maintain it, if you can buy it in at a fraction of the price? Achieving the requisite cost advantages will take time and scale, but it will be feasible for many of the applications we use today."