Deliver Real Economic Value By Reducing IT Failures
Information Technology (IT) is tightly integrated with the business; it has transformed the way we do business. Nicholas G. Carr points out his seminal Harvard Business Review article IT Doesn’t Matter that the capital investment in IT is significant; “nearly 50% of capital expenditures by American companies and more than $2 trillion a year globally are spent on IT. …no one would dispute that information technology has become the backbone of commerce. It underpins the operations of individual companies, ties together far-flung supply chains, and, increasingly, links businesses to the customers they serve. Hardly a dollar or euro changes hands anymore without the aid of computer systems”. Technology is the fundamental infrastructure for the modern business.
Carr continues with; “Today, an IT disruption can paralyze a company’s ability to make products, deliver its services, and connect with its customers, not to mention foul its reputation. …even a brief disruption in availability of technology can be devastating.”
Roger Sessions also attempts to quantify the problem in ‘The IT Complexity Crisis: Danger and Opportunity’ in which he calculates that “IT failures are costing businesses $6.18 trillion per year worldwide. …The cost of IT failure is paid year after year, with no end in sight. … If this trend continues, within another five years or so a total IT meltdown may be unavoidable”.
To substantiate Roger Sessions’ calculation, Gene Kim (the founder and former CTO of Tripwire, Inc.) and his colleague, Mike Orzen (“Lean IT”) reexamined Session’s numbers and they calculated that “the global impact of IT failure as being $3 trillion annually”. Relative to the IT-infrastructure alone, a 2010 study by the Ponemon Institute estimates a whopping 2.84 million hours of annual data center downtime worldwide; with an estimated average of $300k per hour of outage that would translate into a total loss of $426 billion a year.
So $6 trillion, $3 trillion or even a mere $426 billion annually, the losses due to IT-failure are huge, they are real and we don’t have to wait for a pandemic, catastrophe or “Black Swan’ event to strike. While the numbers are based on a large number of calculations and extrapolations, the crucial point is that these losses demonstrate the staggering impact IT-failures have on business. It is also important to note that these losses do not represent “potential for loss” or even the “expected loss”; these actual realized losses from IT-failures and they are happening now.\
The sheer size of the losses from IT-failures should serve as a wake-up for anyone that either our target or our aim is considerably off. We absolutely must start thinking differently, not only about where we are devoting our efforts but also about where we place our emphasis. In these difficult economic times, a lot of economic goodness can come from addressing the real and serious risks related to information technology. Understanding how to prevent the continuing spiral of IT-failures will have substantial benefits for our companies.
Clearly, IT is ‘too big to fail’ but it appears that to date most organizations have been merely guessing at the solutions. We need to change our thinking to avoid the value-traps that bias our judgment on how to invest wisely in IT. In the words of Nicholas G. Carr’s New Rules for IT Management; we need to avoid the real risks and prepare our organizations for “technical glitches, outages, and security breaches, shifting attention from opportunities to vulnerabilities”.