Nutanix: Economists must be at the centre of major change

With Nutanix’s Steen Dalgas, we explore how cloud economists can help CIOs guide organisations through a total change in operating model & accountability

LSE, the London School of Economics, is just over a mile, or 26 minutes brisk walking from the Houses of Parliament. This proximity is important because it demonstrates the importance of economics and its closeness to high-level decision-making. Economists have and continue to make the short walk to share their insights. 

The role of an economist is to help leaders make the best and most informed decisions possible. Tasked with running a country, it is perhaps not surprising that the centre for great economic thinking and learning would be close to the seat of power. 

Steen Dalgas, Senior Cloud Economist at Nutanix explains: “As businesses digitally transform using enterprise cloud computing, the impact is felt right across the organisation and will change decision-making at all levels. Therefore the economics of the cloud and cloud business operating models need to become central to business technology decision-making. 

“Technology has, of course, matured from a cost centre to the core operating model of the business, and therefore the economics of technology and the business have to change. If organisations are to be cloud-first, then their economics also need to be cloud-first.” 

He continues to explain that, over the years, economists have been central to important decision-making. Nine of the Bank of England Monetary Policy Committee – those that set the interest rates – are former students of the LSE, and within government, economists advise the UK Airports Commission, Independent Police Commission, Migration Advisory Committee; the UN Advisory Board on Water and Sanitation, London Finance Commission, HS2 and the UK government's Infrastructure Commission.

“Why are economists sat in these organisations?,” Dalgas asks. “It is the ability of economists to see values that are often overlooked and to understand the human impact of decisions. Cloud computing and digital transformation will increase some business values, but if implemented poorly can also decrease key business values. In addition, as we live through a period of unprecedented skills shortages, the human impact of cloud-enabled transformation is of vital economic importance.”

Dalgas continues to state the importance of digital transformation, cloud economists and economic horizon. 

How can an economist's perspective enhance the value of enterprise cloud computing?"

Digital transformation, using enterprise cloud computing, is a complete change in business operations and customer interaction. Technology underpins the entire business. If customers expect to trade and interact digitally, then digital channels are central to business health.

Digital business processes can only optimise the organisation if they are cost-effective and simplify the delivery of business outcomes. As a result, uptime and technology resilience have an economic value and need to be understood by everyone in the business. 

For many, this will mean adopting new metrics for measuring the impact of technology resilience. A recent engagement with a healthcare provider revealed a £12 million cost to downtime when the full economic impact was assessed. 

Not only did the organisation suffer a major technology outage, but in response, they switched to manual, paper-based methods, which increased overtime spending. Once the systems were recovered, it was clear that the technology estate was not fit for purpose, and a modernisation programme had to be instigated. 

An economic analysis revealed that the organisation suffered six downtime incidents a year of up to five hours. Following the modernisation, at worst, they suffered one outage per year of no more than two hours. The savings of such a decrease in technical problems quickly mount. 

Dealing with disruptions is not the only reason for using an economist's outlook. Application developers have become the lifeblood of the organisation as they create and deploy the services that differentiate the organisation from its rivals. As high-value and highly sought-after resources, business technology leaders need application developers to be self-sufficient and highly productive. By taking an economist's view of the role technology plays in an organisation, we have been able to demonstrate that enterprise cloud computing investments led to a productivity improvement equal to an extra three application developers. 

Why do we need cloud economists now?

The shift to the cloud and digital transformation is the second industrial revolution to impact enterprise computing. The first was the advent and adoption of enterprise resource planning (ERP) applications. ERP was largely seen as a technology project, with IT departments deploying ERP in a fashion that led to the impression that technology-led change is done to business lines, not with business lines. As a result, many ERP implementations failed to deliver economic value to the organisation. In my own career, I witnessed one ERP implementation burn through £4 million, deliver no meaningful change to the business and be scrapped. 

If the mistakes of the recent past are to be avoided, organisations need to take a cloud economist view of technology and the entire business. The cloud provides organisations with a wealth of opportunity, but only if deployed as a modernisation of people, processes and technology across the business. There are business and technology leaders who believe that moving to the public cloud will deliver savings to their organisations due to the size of the hyper-scale cloud providers. But, it cannot be taken for granted that the hyper scalers will pass savings on to their customers - they often don't. 

Because the digital pioneers that have shaped the first part of this century have used the cloud to great effect, many business and technology leaders have used emotion to guide their own adoption of the cloud. Like ERP before it, this has the potential to create another wave of large-scale technology adoptions that don't deliver economic value. Boards have been convinced that they must move to the cloud in order to demonstrate to shareholders that they are a forward-looking business. 

How can cloud economics drive environmental sustainability and ESG commitments?

Cloud economics not only helps organisations extract the best from their technology investments and change programmes but also navigates the near future. 

Customers and investors are increasing their demands on businesses to meet environmental, social and governance (ESG) commitments and to reduce the impact of the business on the planet. Technology will be key to reducing CO2 emissions. 

Again, this will require a transformation of the operating model right across the organisation. If cloud computing is to deliver on its promise, and if organisations are to become environmentally sustainable, then an economist's view will provide insight into better decision-making. 

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