Gartner estimates global IT debt stands at $500 billion in 2010, potentially doubling to $1 trillion in five years. What does this mean for your business? How can IT decision makers use open source software to help address this IT debt?
What is IT debt?
Hardly a week has gone by in the past three years where debt -- too much of it or the risk associated with it -- hasn't played a prominent role in mainstream news headlines. Earlier this week Gartner added to these headlines, but with a twist, highlighting IT debt.
Andy Kyte, vice president and Gartner fellow, has written a fascinating research report about global IT debt. Gartner defines IT debt as "the cost of clearing the backlog of maintenance that would be required to bring the corporate applications portfolio to a fully supported current release state."
IT debt hobbles business agility
Companies should be concerned about IT debt because it hinders IT's ability to meet line-of-business requirements at the rate and pace required by the market. Findings from IBM's CEO Study, based on more than 1,500 face-to-face interviews with CEOs of companies of all sizes across 60 countries and 33 industries, continue to highlight the importance of responding to market opportunities and growing complexity faster. But when underlying IT systems are in disrepair, companies will find it difficult to execute such shifts.
Kyte explains how IT debt has built up over time:
Over the last decade, CIOs have frequently seen IT budgets held tight or even reduced. The reaction has been to still deliver quality of service for operational services and to use any potential project spend to deliver new functionality to the rest of the business. The bulk of the budget cut has fallen disproportionately on maintenance activities -- the upgrades that keep the application portfolio up-to-date and fully supported. There is little problem if this is done in one year, or even in two years, but year after year of deferred maintenance means that the application portfolio risks getting dangerously out of date.
Why do CEOs seeking business agility accept IT debt?
Israel Gat, senior consultant with Cutter Consortium and CEO at the Agile Executive, attempts to uncover why CEOs have been willing to accept alarmingly high levels of IT debt. Drawing from "The Big Shift: The Mutual Decoupling of Two Sets of Disruptions -- One in Business and One in IT" [PDF] by John Seely Brown, Gat summarizes its five key findings:
- The return on assets (ROA) for U.S. firms has steadily fallen to almost one-quarter of 1965 levels.
- Similarly, the ROA performance gap between corporate winners and losers has increased over time, with the "winners" barely maintaining previous performance levels while the losers experience rapid performance deterioration.
- U.S. competitive intensity has more than doubled during that same time -- i.e., the United States has become twice as competitive.
- Average Lifetime of S&P 500 companies has declined steadily over this period.
- However, in those same 40 years, labor productivity has doubled -- largely due to advances in technology and business innovation.