Three Predictions for 2025 You Can Take to the Bank

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  • Innovation-starved companies stuck in today’s slow-growth economic environment can look forward to better days ahead, because tech spending is going to pivot quickly to unleash their full potential in ways that many executives don’t yet realize.

    Before I get to how things will change, however, let me describe the current environment. Globally, economic growth is mediocre – at best. Strip out China and a few other countries and growth is actually negative. Yes, 2015 corporate earnings grew by 5% for the average Fortune 500 company, but revenues grew a skimpy 1%. That means earnings have come mainly through spending cuts and belt tightening – not new business opportunities and innovation.

    In cases where IT budgets were protected, they have remained flat. In today’s global environment, where social, mobile customers switch loyalties faster than the time it takes to change a profile picture, under spending on IT-driven innovation is not the path to success, yet that’s where many companies now find themselves.

    Today’s CEOs have to navigate the treacherous straits between constrained budgets on the one side, and on the other, the challenge of finding new ways of identifying and delighting new customers, all while transforming their organizations into the digital powerhouses they need to become in this digitally intensive age.

    But the near-term future can be much better because of some massive changes that cloud computing is triggering in the global economy, and I’d like to share my views on some of those megatrends and what they mean for business. That’s why these three predictions are so important, and why they should bring smiles to the faces of CEOs.

    Prediction #1: By 2025, 80% of IT spending will be in the cloud, not on traditional IT.

    The implications of this are enormous, and easy to overlook. Today, 80% of IT spending goes to traditional IT activities -- stuff like upgrading applications, integrating mismatched components that were never designed to work together into Rube Goldberg contraptions – and tuning, testing, monitoring, patching, and other maintenance. Let’s say another 5% is spent on cybersecurity applications and adapting to new compliance requirements. This leaves just 15% for innovation – for the latest technologies that can actually help your top line grow by delighting customers with new products and services way beyond what you could deliver in the past.

    Here’s a way to flip that ratio in your company’s favor. Generally speaking, companies can reduce costs 30% by simply moving to the cloud – reason enough for most companies to make the move (and many are). Think of that: You can strip out 30% of your IT costs without any reduction in performance and reliability.

    But there’s more to it than that; in a cloud environment, your vendor is responsible for security – and is better at it. Your cloud vendor has more redundancy and reliability built into their network than corporate networks can afford. And your cloud vendor is constantly innovating and improving the quality of your applications, because otherwise you’ll switch to another cloud provider.

    What’s more, there’s no reason for companies to manage servers that are used for developing and testing new applications. That’s why I already predicted a year ago that, by 2025, 100% of dev/test, as it is known, will take place in the cloud.

    All of that is already starting to happen.

    Prediction #2: The number of corporate-owned data centers will drop by 80%.

    The need for corporate-owned data centers will decline as workloads increasingly shift to the cloud. The only reason companies will hold onto those data centers will be for legacy applications that are no longer supported by their vendors, or that for some other reason cannot be shifted to the cloud. This is a huge step for many companies, with implications far beyond cost-cutting because it dramatically exemplifies a decisive redirection away from big, complex, and costly physical assets in our increasingly digital world.

    Everything else, even applications that are developed in-house, will be developed and run on platforms and infrastructure that sit in the cloud. Not only will companies save on software and hardware costs, but on the electricity to power and cool systems and facilities, and on hands-on administration.

    Prediction #3: 80% of IT spending will be on innovation.

    My preceding predictions will lead to this: as big and disruptive a change in business models as we’ve seen in our lifetimes. When companies can spend 80% of what they spend on routine maintenance on innovation instead, it will unleash a new wave of customer-facing applications, better tools for internal collaboration, and other innovations that customers and employees alike want, need, and demand.

    The underlying economics of cloud are well understood by most IT folks by now. And when CEOs, CFOs, and boards of directors begin to understand this as a way of changing business models -- not just IT models! -- you will see applications and infrastructure shift to the cloud at a breakneck pace. The progression will be geometric, not linear.

    That’s why I’m so confident in these predictions -- and the possibilities for business transformation that they represent.

    Look, this isn’t some abstract exercise, or philosophical debate about the number of angels on the head of a pin. CEOs are under tremendous pressure to deliver strong earnings growth in an environment that just isn’t propitious for that. CIOs, in turn, face unyielding pressure from their bosses to deliver innovation that brings in new revenue.

    By turning their companies away from a legacy technology environment that’s incapable of producing needed innovation and toward a world where cloud vendors bear the costs and responsibility for maintaining IT, CEOs and CIOs can form a powerful tandem leading to sustainable relationships with customers, while moving the needle on market share and the business benefits that come with that.

    Originally published on Linkedin Pulse

  • Mark Hurd

    About Mark Hurd

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