In this whitepaper, we address how ongoing changes in the environment continuously affect future information technology risk. Our goal is to provide the reader with a better understanding of exposure and the corresponding risk, by establishing a framework for greater accuracy.

Introduction

The information technology landscape has changed significantly over the previous two decades, as we are entering the third of this millennium. Choice, and hence Uncertainty, is both abundant and all around us. Costs of non-human input factors have been deflationary for over a decade, with no likely change in sight going forward. Still, investment activities within information technology are underperforming at an alarming rate. Why is this the case when we are faced with such opportunities?

The two most likely factors are the increasing rate of change in the Environment and our inability to absorb the future optionality given by the abundance of choice available. The first is due to economies of scale built up over decades within the biggest global vendors and is here to stay whether we like it or not. However, with the help of time, we can address the second and optimize our understanding of the inherent Risk found within both of these factors. To do so, we first need to look at a few of the underlying trends that have greatly influenced the Environment since the turn of the century.

The biggest effect has perhaps come from virtualisation, which has caused a shift from a hardware driven to a Software based information technology economy. As Marc Andreessen pointed out in his 2011 seminal article Why Software Is Eating The World in the Wall Street Journal: “More and more major businesses and industries are being run on Software and delivered as online services.”

This has become particularly evident over the last five years where vendors like Amazon Web Services (AWS) not only deliver traditional infrastructure as online services, but also aggregate services such as industrial IoT, 5G connectivity, satellite base stations and quantum computing all accessible through Software development kits. In fact, as the result of virtualization providing the fundamental building block of the public cloud, virtually everything, from a consumer perspective, can now be consumed as an online service. Software is everywhere.

From an economical perspective, this has fundamentally changed the business model, removed barriers to entry and laid the foundation for a new paradigm based on Flexibility. Creating a new world order where the ability to respond to change is the ultimate Capability needed to provide sustainable growth. In his 2007 article Design Stamina Hypothesis 2 Martin Fowler argued for the inherent value of good design as the increased ability to add cumulative Functionality over time. This still holds true for each individual piece of Software. However, given that Software now permeates everything, he gave us a near perfect definition of Flexibility going forward.

Fowler beautifully hypothesized that paying an upfront Premium on good design would yield positive future optionality in the form of increased ability to add cumulative functionality at an increasingly faster rate. This effectively implies that sustainable growth can be achieved in the future given that we invest in Flexibility today, with the optimal investment strategy eventually leading to Competitive Advantage. Consequently, he also stated that not investing in design would implicitly yield the corresponding negative effect through decreased ability to do the same. At the same time proposing that the implication of no design would yield persistent inertia in the form of Technical Debt over time. With the worst case scenario resulting in Catastrophic Failure due to the inability to maintain Software and/or Information in Production. Hence, Fowler, inadvertently or not, defined a basis for managing future information technology Risk by giving us a workable definition of Flexibility identifying both the implicit and the transactional nature of exposure to Uncertainty over time.

When transitioning consumption from hardware purchases to online services, as Andreessen postulated, we also implicitly get exposed to the benefits of automation. When Software is consumed as an online service, it can be automatically updated behind the scene provided that the interface remains the same. AWS has famously kept its original interface to their first cloud offering, S3, functioning since its release in 2006. In fact, it is the company’s policy to do so with every service offering allowing for automation to benefit both new and existing customers. Consider that against the previous paradigm, which often required the purchase of new hardware in order to run the next version of Software. The effect on our understanding of time is profound. Software delivered as an online service is never finished, effectively meaning it should no longer have a predetermined shelf life as in the previous paradigm. This should inspire us to change our tactics significantly allowing us to increase Flexibility over time.

Perhaps no one has outlined the consequences of this more eloquently than Simon Sinek in his book The Infinite Game: How Great Businesses Achieve Long-Lasting Success 3 published in 2019. Where he argues that we increasingly find ourselves in infinite games as opposed to finite ones. Games where there are both known and unknown players, rules are changeable and our sole objective is to perpetuate the game. In other words, to keep playing indefinitely. For companies that have transitioned to delivering and/or consuming Software through online services, this should sound eerily familiar. Sinek advocates for the benefits of existential Flexibility as one of his key factors for success in this paradigm. If we take into account Fowler’s definition of Flexibility and apply it not just to Software or even information technology as a business area, but to the firm as a whole, we start to understand the true value of this Capability.

But first, let us examine the effect Uncertainty has on how we perceive Risk.

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