CXO

K-cup coffee and a lesson for IT

The IT organization that can rapidly integrate IT services with existing environments and connect diverse components to create new offerings will rule the day.

Several weeks ago, my wife sent me an article about the wildly successful K-cup single-serve coffee format. For the uninitiated, rather than a traditional coffee maker that requires measuring, filters, and a carafe, the K-cup machines have a slot for a small plastic cup. The user puts his or her favorite mug under the spout, drops in a plastic K-cup, hits a button, and in a minute or so has a single cup of joe.

There are obvious benefits to this type of machine. You're never left with a half-empty pot of stale coffee, and everyone can get his or her favorite flavor or caffeinated versus decaffeinated coffee, since coffee is made one cup at a time. Drinks are generally consistent, and a wide variety of different flavors and styles of coffee are available. What was interesting about the article was that K-cups are astronomically expensive when considered in the context of coffee purchased by weight. A bag of ground coffee might be $3-$5, while a K-cup works out to around a buck a glass. These prices are shocking to a generation used to buying one pound or one kilo bags of coffee at the grocery store; however, the current crop of consumers has been "reeducated" to consider coffee pricing in terms of cups due to mass-market coffee chains. In the context of the average coffee chain, a $1 cup of coffee looks surprisingly reasonable compared to the usual $4 chain offering, not to mention the convenience of a cup at home or work, without travelling to the nearest chain outlet.

Clouds and per-cup pricing

We're undergoing a similar conceptual shift in IT. Where IT service delivery used to be a project- and infrastructure-focused activity, you can now purchase IT services by single servings, with most cloud providers pricing by user, time period, or on a transactional basis. Just as today's coffee consumer is thoroughly confused by grandma's calculations of coffee prices in kilos of beans, IT consumers are finding fixed implementation and infrastructure costs increasingly complex in a growing era of "single serving" pricing.

Many IT organizations have tried to adopt some semblance of this pricing model, combined with chargebacks to pay for the service, diligently tallying up infrastructure, implementation, support, and staff costs, and dividing by the number of users served. In most cases, the math never adds up, since cloud providers can readily undercut internal providers through sheer economies of scale. What's generally missing is a focus on key business problems rather than fighting the loss of core, commodity infrastructure.

Solving the business problem

As K-cups have demonstrated, people are willing to pay handsomely for convenience and control over their coffee experience. Coffee manufacturers that have licensed the K-cup technology are laughing their way to the bank, even while purchasing traditional beans or pre-ground has obviously superior economics. For IT leaders, clinging desperately to internal infrastructure and fighting new service delivery models based on economic arguments is often a losing battle.

However, if you can offer superior convenience, or focus on solving higher-end business problems, then there is a way for internal IT to stay relevant and even increase its organizational influence. As "single serving" IT services become increasingly available, the IT organization that can rapidly integrate them with existing environments and connect diverse components to create new offerings will rule the day. Rather than complex chargeback schemes that generate laughably inflated per-user costs, you can essentially provide high-value integration services and leave the hassles of core enterprise functions to someone else.

Like the K-cup, most organizations have evolved to where cost is not the primary concern when considering technology, although it can be used as a red herring to guide an outcome. Superior value and integration, rather than baseline infrastructure, will move IT forward in the era of "single serving" pricing.

About

Patrick Gray works for a global Fortune 500 consulting and IT services company and is the author of Breakthrough IT: Supercharging Organizational Value through Technology as well as the companion e-book The Breakthrough CIO's Companion. He has spent ...

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