CIO Leadership, IT Infrastructure

ROI gets a third definition - Return on Infrastructure

Maximizing the Return on your Infrastructure

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ROI gets a third definition – Return on Infrastructure

I had recently discussed ROI taking on a new definition — Return on Information — making the point that enterprises need to take action on Big Data in order to realize the business value of their most valuable asset. But there is another dimension to gaining value from data, especially when it comes to hosting brontobytes of data in a scalable infrastructure. In order for enterprises to act quickly, data needs to be available in an easily accessible, compact infrastructure; an environment where structured and unstructured data can be informationalized at a reduced cost. In other words, enterprises must realize their Return on Infrastructure — the third dimension of ROI.

Gone are the days of pizza-box sized servers which have now been transformed into the size of a hardcover book packed with processing power, storage and networking connections. Game-changing technologies are in effect today that realize servers that consume up to 89 percent less energy, 94 percent less space and costs 63 percent less than a traditional server.  Or, as I would characterize it, servers that deliver a significant Return on Infrastructure investment, giving ROI a third definition!

Here is a simple equation to compute the return on the infrastructure that hosts the applications running on them:

  • Return on Infrastructure = Applications Business ValueInfrastructure Cost

But what can enterprises do to continuously increase the Applications Business Value while reducing Infrastructure Cost?

Increasing Applications Business Value. There are multiple strategic measures enterprises can take to realize the business value from applications, here are a few:

  1. Enabling business functions that matter with the right applications – checkout my discussion on the interview of Forrester Analyst, Phil Murphy.
  2. Modernize the right applications the right way
  3. Transform the right way to the cloud
  4. Informationalize data while combating security

Reducing Infrastructure Cost. There are multiple factors that contribute to the cost of infrastructure including the bare metal hardware, the power consumed, and the space consumed within the data center facility. There have been point solutions over the years that address each one of these factors. This innovative new generation of servers addresses all three aspects at once; positioning enterprises to realize exponential synergies in the context of their environment. Hundreds of entire computer servers about the size of an envelope are packed together into a single system that basically functions as an ultra-compact supercomputer.

So, there you have it — the third definition for one of the most commonly used clichés in the industry — ROI. Taking action today on Big Data will position enterprises to be more competitive and realize their Return on Information, provided they have a cost-effective mechanism to realize the returns on the enabling infrastructure.

What measures are you taking to address the cost of infrastructure? Are there other factors that contribute to realizing the Return on Infrastructure? I would be interested to know.

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Doug Goddard 123 Points | Mon, 04/15/2013 - 19:42

"Return on Infrastructure = Applications Business Value – Infrastructure Cost"

Let's say I decide the value of all my business applications is 10 million dollars and I spent 2 million on infrastructure. Does that mean the retiurn on infrastructure is worth 8 million dollars?

E.G. Nadhan 271 Points | Mon, 04/15/2013 - 20:37

Thanks for posing this excellent question which prompted me to apply this conceptual statement to a real-life scenario and I would come back and say that the answer is yes even though I am always open to adjustments as needed.  My response and assertion is based upon the following premise:

  • If enterprises don't use the infrastructure in place, there is no return on it -- it  is basically sunk investment
  • The only purpose of infrastructure is to directly or indirectly enable the applications running on them
  • Enterprises must realize business value from their applications -- if they are not realizing business benefits, the infrastructure (and the applications) are not serving a useful purpose

Like all other returns, I would add a time component to this -- possibly splitting it as fixed and variable components.  So, the Applications Business Value and the Infrastructure Cost are likely to change over time and therefore impact the Return on Infrastructure on a constant basis.

Like I said in my response to Pearl's comment below, let the discussions begin!

Connect with Nadhan on: Twitter, Facebook, Linkedin and Journey Blog.


Doug Goddard 123 Points | Mon, 04/15/2013 - 20:46

Thanks for the quick reply.

I think one would want to give some credit to the software effort that created the business application, rather than handing it all to infrastructure. 

There is also the question of how one arrives at a value for the business applications.

E.G. Nadhan 271 Points | Tue, 04/16/2013 - 04:54

Good point, Doug.

I do agree that enterprises need to have the measurable metrics defined and monitored to track the business benefits.  These could be increase in revenue, ability to meet service levels for customers etc.  The business value for applications would be  --  Business Benefit minus Software effort.  Thus, the formula could be refined to:

Return on Infrastructure = Business Benefit from Applications - Software effort - Infrastructure Cost.

Connect with Nadhan on: Twitter, Facebook, Linkedin and Journey Blog.

Pearl Zhu 90 Points | Mon, 04/15/2013 - 16:37

Interesting, actually it's a fundamental dimension to peek through ROI via Return on Infrastructure, these days, IT infrasture is critical but less unique, it's critical because it's business's competitive necessarity, as the blog well put, it directly impact business bottom line and top line, for application life cycle management; while at Cloud era, it's piece of utility organizations intend to reduce its cost as possible via leveraging IAAS cloud service; thus, Return on Infrastructure is worth digging through and analyze deeper. 


E.G. Nadhan 271 Points | Mon, 04/15/2013 - 20:26

Thanks for the insightful observations, Pearl.  The simplistic formula that I have proposed is just a thought starter to get the discussions going on appreciating the value-add of the infrastructure where innovative alternatives are available today.  Certianly merits deeper analysis.  Let the discussions begin!

Connect with Nadhan on: Twitter, Facebook, Linkedin and Journey Blog.

John Dodge 1528 Points | Mon, 04/15/2013 - 22:00

Can ROC (return on cloud) be far behind?

E.G. Nadhan 271 Points | Tue, 04/16/2013 - 05:05

Not too far, John.  You are giving me ideas!

I see that as a breakdown of Return on Infrastructure - some portions of this return addressed by ROC and the other addressed by the non-cloud environments.  It depends on the infrastructure deployed.  Wondering if the ROC can be detailed by private and public clouds etc. 

Connect with Nadhan on: Twitter, Facebook, Linkedin and Journey Blog.