Organizations today are confronted with ever-changing realities that continuously impact revenue and growth. New customer and stakeholder preferences, acquiring and losing key customer accounts and contracts, mergers and acquisitions, market disruption, and macroeconomic forces all can lead to rapid changes in organizational size and transaction volume. The many variables that cause business fluctuations often result in changing needs for technology — IT support, infrastructure, software, and related IT services.
The solution to maintaining appropriate levels of technology resources in cyclical and volatile business conditions is to design elasticity into your IT environment.
What is elasticity?
Elasticity in your IT environment means decreasing the ratio of fixed costs to variable costs and configuring variable costs to better react to changes in IT requirements. The more frequently variable costs can adjust to changes, the more elastic your environment becomes. For example, a software-as-a-service (SaaS) contract priced based on annual revenue could be negotiated to adjust each year, while infrastructure services could be negotiated to adjust to changes in requirements more frequently, such as every minute or hour.
The many variables that cause business fluctuations often result in changing needs for technology — IT support, infrastructure, software, and related IT services.
The benefits of an elastic IT environment are many, including maintaining right-sized IT resources at any given point in time. Elasticity decreases the amount of time required to build or scale solutions to accommodate change, enables more reliable budgeting and forecasting for IT spend, and minimizes the risks of disruption by unforeseen or rapid growth, among many others.
Increase infrastructure elasticity
IT staff often spend countless cycles trying to predict the required sizing of computing environments (server, storage, and backups), navigating capital expenditure approval and procurement processes, and eventually provisioning equipment. Vendor offerings such as infrastructure-as-a-service (IaaS), including cloud computing, cloud storage, or other services that are usage-based (commonly referred to as “metered") all help improve IT infrastructure elasticity. These service models treat IT as a utility with pricing based on metrics such as CPU time or gigabytes of storage.
The IaaS model allows businesses to pay on demand for hardware and system administration resources. Platform-as-a-service (PaaS) extends the IaaS model to the operating system, and SaaS further extends the model to business applications. These elastic models can ensure your business has the on-demand capacity that can scale rapidly based on changing needs.
Increase software elasticity
Software, such as enterprise resource planning (ERP) systems, can also be delivered and consumed as an elastic service, with the ability to scale up and down based on metrics such as the number of users, amount of data stored or, less commonly, customer revenue.
Generally, SaaS vendors bundle the application with hosting, updates, and maintenance also included as part of the service. Negotiate your SaaS contracts to increase elasticity — lower the duration of the initial commitment, for example, from three years to one year, or secure the ability to decrease the number of user subscriptions as needed. Pricing for future users should be negotiated at a discount so, in times of growth, you can add users economically. Ask for discounts to apply to modules and features that you may not need today, but that might be helpful to license in the future in the event the business grows and evolves. Such modules or features might include advanced warehouse capabilities, customer relationship management (CRM), or plant floor productivity tools.
Make IT support more elastic
Support needs, including helpdesk, database administration, or network monitoring services, also vary as business conditions change, such as when you add a large new customer account, for example. To best decide how to make your IT support resources more elastic, you'll need to define which IT competencies and skills add the most business value and then determine which of those support services and roles you want to keep in-house. Consider outsourcing the roles and services you expect may need to quickly ramp up or down.
Ask for discounts to apply to features that you may not need today but might be helpful to license in the future.
Increase IT support elasticity by structuring vendor service-level agreements with shorter contract terms, revisiting contracts on a regular basis, and negotiating tiered rates for support services — the more you require a service, say helpdesk support, the lower your per-unit (per-hour in this case) cost should be.
Periodically ask your IT manager or primary IT vendor these few, but critical, questions related to IT elasticity:
- What IT investments would we need to make if we doubled our order or shipment volume?
- What’s the utilization of our IT assets, and do we effectively measure ROI for our IT investments?
- What will our IT costs be if we double in size? Shrink by 25 percent?
- How would our IT environment be able to scale to support an acquisition?
- How are our vendor contracts structured to protect us if we suddenly require less or more service?
- What percentage of our IT expense is elastic and reactive to changes in requirements?
The answers can be insightful. Use them to spark ongoing conversations about how IT and business operations need to collaborate to stay synchronized to ensure your organization's changing IT needs are met as efficiently as possible.
In a business environment where change and volatility are inevitable, organizations must know how to right-size their technology. Business leaders who make IT investments should consider what-if scenarios — things like acquiring another company, losing a key customer, or a sudden downsizing of the workforce — on a regular basis. Improve your IT elasticity now, and use the strategies above to make smart hardware, software, and service procurement decisions going forward to position your organization for change.