The End of Data Center Ownership?
Opinion piece published onto DCD’s website October 23, 2019 under the cloud category.
In a changing digital landscape, how can CIOs find greater value from the owned and managed data center assets through which they ensured years of secure day-to-day business operations?
This taxing question is shaping the thinking of many senior IT leaders.
Digital transformation is firmly on the board agenda, and changes in thinking about digital infrastructure ownership and operation are never far behind.
As questions about the value of data center assets and digital strategy are discussed at the highest levels, the closest C-level relationship for many CIOs is often that with the CFO. In a changing discussion on value, risk, and return, CIOs and CFOs are exploring new thinking in disposing of data center assets. The economics of the data center have shifted and this is challenging the CIO to think differently.
The answers lie in Data Center Economics Transformation.
For many enterprises, scarcity, criticality, and availability were once the key fundamental drivers that led teams to invest, build, own and operate data center infrastructure. The decision-making process was sound and the solutions provided were fit for purpose.
But the fundamentals are shifting, and so are attitudes to ownership.
Technology-driven disruption means we operate in a world where it is increasingly difficult to justify long term capital deployment at scale for data center infrastructure. This is pushing many businesses to explore selling off their physical assets.
‘Show me the money’ short-termism
In times of uncertainty, with decision-makers on the hunt for new value, CFOs are increasingly driving an agenda that says ‘sell these assets, get it off the books and bring me back the money.’
Today’s conversation, as often directed by the CEO to the IT director, is: ‘You’ve got all these assets, but people now go to cloud so why do we even own these data centers? Is there a market for them? Can we sell them?’ In this way, the pressure from the CFO transfers to the CIO.
Conversations might with: ‘We’d like to explore transferring our physical assets to a new owner and taking back what we need on a colo basis.’
Some CIOs may be seen as providing an opportunity to accelerate the migration of applications to the public cloud.
These are common considerations across most, if not all, sectors. But as digital disruption hits the business, some companies may be missing out on opportunities to positively reshape their data center strategy. By focusing on short term objectives, there is an opportunity cost risk of ignoring a strategy that provides the certainty of data center ownership with the capital efficiency and operational flexibility of cloud.
Time to bin some traditions
The question then becomes how should the industry respond? Does it stick to its traditional thinking in the financing and operation of data center physical infrastructure?
For those with existing data center assets, a traditional sale and leaseback approach focused on long-term contracts surrounding fixed assets may not always be the best solution for the enterprise, financially or technologically.
If the goal is to facilitate a long-term strategy that creates wealth for the enterprise, cuts costs of operations and future proofs the physical environment, then some traditions are no longer fit for purpose and should be binned.
The decisions made today by CIOs and CFOs around data center ownership and operational efficiency are long term. If the data center capital, property, management and services supply side is to properly serve the customer mistakes of the past should not be repeated.
In the age of digital transformation, the one-size-fits-all ownership era is ending. But achieving flexibility should not be at the cost of certainty. No-one wants to exchange a straitjacket for a ball and chain. By thinking holistically, CIOs and CFOs will find better approaches than traditional sale and leaseback. Many are already doing so.