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Finding the balance of power in technology real estate decisions is no easy task

Finding the balance of power in technology real estate decisions is no easy task

Who’s in the driving seat?

CS Technology (Australia) principal, Simon Wise.

CS Technology (Australia) principal, Simon Wise.

As business processes become automated, the business requires dependable IT while IT requires dependable real estate for secure power and cooling. Many multimillion dollar real estate transactions became obsolete within three years in Australia, Europe and North America due to a lack of understanding and foresight.

CIO budgets thawing after the GFC-induced freeze are met with a changing world. IT platforms have taken another evolutionary step while governments are mothballing legislation to guide their countries into a future carbon-constrained world economy. This coincidence of rapid technology architecture change and new environmental policy adds layers of complexity — making IT and real estate strategy alignment a slippery beast.

The CIO is charged, among other things, with bringing advancement or advantage through technology. Each year the IT capex dollar buys more than the last; so while spending may stay the same, IT consumption can increase. For most mid-size organisations, simply managing the volatile IT inventory is a now a significant challenge. ‘Commodity computing’ means new business functionality can be quickly implemented at lower cost. I have been witness to the indeterminate question, “How much IT will you have in five years time?” posed by real estate.

So, while the CIO is implementing more new business functionality year-on-year, the head of corporate real estate (CRE) is having to make 7-15 year investment decisions on how to support people and technology. The head of CRE also has to deal with environmental reporting and regulation, utility constraints, wider operating parameters, lease constraints and ever-increasing operating overheads; significantly, the IT he or she has to accommodate, rather than the people, brings these issues to the fore. For each square metre of real estate, the power and cooling demands can be 50 times greater than the equivalent people space.

Can IT and real estate ever coexist happily?

Our scenario is like Formula 1 racing; like the CIO, the engine designer brings competitive advantage through technology but each revision of the engine has downstream impact upon the chassis, gearbox, transmission, brakes et cetera. Meanwhile, the governing body, the Fédération Internationale de l’Automobile, is changing the rules for fuel mix and the amount of recyclable material used in the chassis and tyres. Like the head of CRE, the technical director is responsible for coordinating those technology enhancements into the car while accommodating the new rules. Non-conformance leads to fiscal penalties, failure to enhance means the team drops down the grid.

It is the team manager’s job in Formula 1 to supply the right brief to the engine designer and the technical director, balance the capital allocation and, importantly, to keep the sponsors on-side and the users — the drivers — happy.

In many ways this mirrors the role of the CFO in our world. The CFO’s evaluation of capital allocation and effort for IT and real estate projects now requires a much better understanding of the underlying co-dependencies and impact of expenditure in each area as well as the impact of impending legislation and changes in environmental policy.

What to do?

Increased complexity and integration means there is greater emphasis on the CFO to validate funding requests for IT and real estate projects. Given the complexity and effort required, however, it is likely to pose a considerable challenge as several objectives should be accomplished prior to funding approval:

  • Asset evaluation
  • Capacity planning and growth modelling
  • Geographic affinity
  • Market evaluation
  • Risk analysis
  • Build versus buy analysis
  • Budget planning

Real estate projects are capital intensive and expensive to misjudge. Rectifying mistakes is costly and a drain on internal resources.

Simon Wise is a principal with CS Technology (Australia). He has worked in Europe, Asia and Australia across a broad range of industries including banking, government and education on data centre and technology projects.

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Tags CIO roleData CentreCAPEXcorporate real estate

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