Challenges to calculating the Total Cost of Ownership of IT in the ‘New Normal’

Anil Mudumbi
October 11, 2023
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TCO (Total Cost of Ownership) Analysis of IT systems require modelling together datasets from multiple layers of the organisation.

Total Cost of Ownership analysis was not an easy task pre-COVID with several advances in Technology and IT Operating Model contributing to these complications.

However, the COVID crises has further accentuated certain key industry shifts:

1. Challenges in the Revenue layer:

Increased focus on Product Profitability

Most enterprises generate revenues from several countries across multiple lines of business. However, the impact of the COVID crisis has been felt unevenly across geographies and even across sectors. This is resulted in increased focus on product profitability so companies can invest in the right areas. This increased focus requires additional levels of granularity, and thereby data, in understanding the consumption of shared, fungible costs such as IT, Shared Services, etc.

2. Challenges in the IT Service Portfolio layer:

Increased digitisation & Automation

According to Gartner’s research, most organisations have responded to the COVID crisis by expanding/using digital channels to reach customers, delivering new digital products/services as well as self-service use, revamping business operations to increase efficiency and supply chain resilience.

3. Challenges in the IT Operating Model layer:

The Open Talent economy

According to Deloitte’s research, while traditionally companies have focused on the talent and workforce within their organizations and on their balance sheets, increasingly companies are expanding their talent networks to include “partnership talent” (employees who are parts of joint ventures), “borrowed talent” (employees who are part of contractors or outsourcing relationships), “freelance talent” (independent, individual contractors), and “open source talent” (people who don’t work for you at all, but are part of your value chain and services). This trend will ultimately rewrite what the term “workforce” actually means. A number of companies such as Upwork, Toptal, PeoplePerHour, etc already provide the platforms needed to enable businesses to tap into such talent.

Further, according to Gartner’s research, most organisations have responded to the COVID crisis by increasing business processes in-house rather than a 3rd-party supplier and creating redundancy of critical suppliers.

4.  Challenges in the IT Architecture layer:

Acceleration of Hybrid Architectures

IT Architecture teams have had to introduce a plethora of changes within a very short period of time. The key changes have been included below.

  • Building resilience and security in infrastructures and end user computing
  • Introduction of more secure, efficient and quicker methods of authentication and for people working remotely
  • Adopting a cloud first approach with appropriate guardrails to build elasticity and agility in the architecture
  • Adopting virtual collaboration and knowledge sharing platforms
  • Promoting the use of the decoupled architectures such as micro services to provide flexibility required in the experience layer
  • Evaluating emerging technologies such as Machine Learning, Deep Learning, Big Data and IoT, among others, to deliver a better data and analytics platform that understands customer demand signals based on data rather than intuition
  • Identify emerging and innovative technologies such as Digital twins to improve services

5.  Challenges in the IT Cost Structure layer:

More complicated commercial models

In response to the severities of the pandemic, a number of suppliers have invoked various clauses in their contracts ranging from force majeure events to variation of terms. Procurement leaders within enterprises have had to pay attention to the medium-term security of the supply base, building resilience for the future and building additional penalty clauses to protect the interest of the organisation from future disruptions.

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