Breaking the Paradox of Cost Savings vs. Competitive Innovation

Adjusting to the impact of COVID-19 caused many businesses to pause new initiatives. They switched to survival mode, curtailing their bold, daring and competitive projects. Staying alive meant cutting costs, which helped sustain products and services but relegated innovation efforts to the backburner. 

This Tech Innovator Insights video segment explores how companies balance the paradox of cost cutting and innovation during a crisis. Is it wise to keep funding innovation for future growth or preserve cash?

Monica Kumar, senior vice president of marketing & cloud go-to-market at Nutanix, talks with R “Ray” Wang, founder and CEO of Constellation Research, and Virginia Gambale, chair of the board at Nutanix and former Wall Street CIO. They discuss how business leaders are prioritizing spending during the pandemic. They share perspectives on the public cloud’s role in driving innovation and digital transformation during this time. Then they talk about capital expenses (CapEx) vs. operational expenses (OpEx) and how businesses are paying for IT needed to stay competitive as more businesses move to hybrid multicloud operations.

There are lots of documented business leadership lessons from the pandemic, but Wang said that the banking, financial services, technology companies and retailers proved that investing in modern IT helped them meet and beat challenges brought on by the pandemic.

“Higher education was not prepared for this crisis,” he said. “But those institutions that are making the infrastructure change are doing much better, preparing themselves for hybrid types of classroom situations.”

He sees more organizations shifting to hybrid cloud by optimizing their existing IT investments then reducing complexity wherever possible. They are relying more on automation to manage their computing resources.

The ability to take risks, lean forward, reallocate resources and stay connected with customers was critical during the pandemic, according to Gambale.

“This is the time where the playing field gets leveled,” she said. “This is the time for companies to distinguish themselves, leapfrog a competitor or emerge as a major competitor.”

Wang talked about enterprise acceleration. 

“The ability to keep up with customer requirements is not limited by technology anymore,” he said. “It is limited by your willpower, your budget, and how ambitious you want to be in the marketplace.”

Much of this enterprise acceleration is coming from a shift to cloud computing. Companies are now learning to balance their CapEx vs. OpEx spending and it’s a mind shift away from the old way of running a business.

“This is going to be dictated by your business requirements, not just the financial requirements,” he said.

Gambale said using software as a service or a subscription model is becoming the norm.

“There is a lot of discussion going on now, in terms of how do you align that as a cost within the business...and how is it going to be treated from a tax point of view?” she said.

Moving ahead, Wang said to keep an eye on the health of the business and employees.

“There’s a new type of empathy that people have, whether it is for their customers, or for their employees, or for just the ecosystem around them,” he said.

Gambale put it in a personal anecdote.

“For me, it is about learning how to live life to the fullest when constraints are still around us,” she said. “When I think about how I’d race from city to city, that next meeting, that next coffee, that next conversation or that next thing, that all seems kind of insane now.”

Transcript (unedited):

Monica Kumar: My name is Monica Kumar, you know, balancing this economic impact of COVID-19. And at the same time driving business transformation and innovation is a tough act for many businesses. And in some cases for entire industries, this is a do or die phase. You know, staying alive could mean not just cost-cutting, but reinvestment consolidation, automation, reallocation of resources, and on and on and on. And for some, this pandemic becomes a forcing function to consider pushing for the innovation, but at the same time, looking at regulations and compliance. So in today's episode of tech innovators, insights, I'm super excited to welcome my two esteemed colleagues who will help us navigate this paradox of innovation and cost. Ray Wang is the founder and CEO of constellation research, which is a leading technology research forum. He's the host of a very popular show called Disruptive TV. He's a best-selling author, a keynote speaker, a futurist, and a talk leader and a DJ. He's also a great friend. Welcome gray.

R “Ray” Wang: Hey, thanks a lot. Thanks for having me, Monica. So

Monica Kumar: Sure. I also have Virginia gumball here. Who's an industry thought leader, driving technology, innovation and digital transformation as a board director, as an advisor, as an investor, she's a former wall street CIO and is also on the board of Nutanix and JetBlue. I consider her as a mentor and a friend welcome Virginia lo Monica. So nice to see you, you know, I'm so excited. This is going to be a great discussion because this topic is so on top of mind for all business leaders and their leaders. So, Ray, I'm going to start with you first, you know, looking at the current economic condition, should business leaders fund innovation for growth or do they preserve cash? What's your point of view?

R “Ray” Wang: You know, it's a great question and there's a spectrum of approaches that are going on here. But the one unifying factor is really what is your pace for speed and enterprise acceleration? How fast you want to move. The organizations that are looking to invest in infrastructure are the ones that are planning for the future. Those who already have that infrastructure are now taking advantage of it. And I think you have to see where you are along the curve, especially in your industry. Some industries have done Ford investing better than others. We've seen that in banking, financial services, technology companies have done that. We've seen that in retailers, you can see the gap between digital retailers and those who did not go digital. And that's kind of changing the way they're looking at that investment and their investment mindset. We've seen this also in education, higher education is one that was not necessarily prepared for this.

But those that are actually making that infrastructure change are actually doing much better as they're being prepared for what happens with hybrid types of classroom situations. So I think it's really important to think about where you are in the industry and how fast want to move. But then when you are moving, we do see a couple of things happen. People are shifting to hybrid cloud at all levels. They're optimizing their existing investments. They're trying to reduce complexity wherever they can. And there's a good amount of automation that's going on as they're modernizing their infrastructure. These have been some of the things that we keep seeing consistently for those that actually are investing in that infrastructure.

Monica Kumar: Yeah, you don't, we've been hearing so much about digital transformation obviously for years, right? It was a buzzword and it was like a kitchen sink for lots of different types of initiatives. It has become very clear though, in the last year during the pandemic that organizations have accelerated the pace of digital transformation initiatives. And so we're doing, I'd love to get your perspective on, you know, how should companies balance this spending for innovation to drive this transformation again with the spin. So the innovation through digital transformation, but also the spend.

Virginia Gambale: Well, Monica, I think actually it's a perfect question following on the heels of what you asked Ray because, and Ray actually raised a couple of things. To me, there are two things that are very important here is the type of leader that you have and are they both thinkers? Are they forward-leaning? What is their risk appetite? The industry is critical obviously because on the consumer side we had very difficult issues, right? Companies were struggling with liquidity and trying to capture as much access to capital to hunker down through these days when no revenue was coming in on the flip side, financial services companies, depending upon which area you were in, I, if you're in capital markets and you're trading the volatility made for a very significant Q1 and Q2. And so the, the role of capital and revenue plays an important part of how we think about this, but I will also say that it is really the leadership of the company and how they begin to think about these various stages that we are managing through the COVID experience and how they want to seize the opportunity.

Because in the first phase, when we were hunkering down there was a desire to capture liquidity as much as possible. But those that were really wise and looking ahead were saying, this is an important time. This is a time when I could reallocate resources and that's not just dollars, but people it's a time when I can begin to stay connected with my customers through this pandemic and thread all the way through to what I believe the future will bring as a result of the events that have happened to us today and how they're shaping us, not only from infrastructure, but how we consume as well.

Monica Kumar: Yeah. I think you bring up some really good points here, Virginia, especially on the short term, the medium term and the long-term benefits. And I think, you know, there are obviously factors driving short-term adoption of technologies and innovations in some cases it's do or die. I mean, the companies would disappear if they didn't invest short term, what are their specific, you know, what's your view or re yours, even both of you feel free to chime in, in terms of short, medium and long-term benefits and considerations as organizations are thinking about digital transformation.

R “Ray” Wang: So, so what Virginia said, mates, what Virginia said makes a lot of sense. And what we're talking about is really looking at the world from a pre-pandemic and post-pandemic approach. And what that means is pre-pandemic. We were like, oh, life is good. Maybe we'll think about the digital transformation pandemic. We were like, we have to take care of agility. We have to make sure we've got all options covered. We've got to start investing in our infrastructure. If we don't have any digital capabilities, we've got to think about where we're going with the hybrid cloud. We've got to think about all these things that we haven't invested in. And then coming out of the pandemic, it's going to be different. It's really about refining your business models. It's really about improving your digital monetization capabilities. It's also about trying to invest for the future and get to a term that my colleague Holger Miller talks about a lot of time, which is enterprise acceleration.

Our ability to keep up with our requirements is not limited by technology anymore. It's really limited by your willpower, your budget, and really how ambitious you want to be in the marketplace. And so I think that's going to be important when you think about what your near-term goals are and how you invest in long-term goals with each project. So let's say you have a near-term goal of trying to get a product out much more quickly, let's say by one month. So we're going to improve product delivery by 30 days. There are certain things that you have to invest in to get there. And that short-term goal of trying to get to that product goal. It gives you the ability to start layering things like certain tools, certain types of infrastructure. So that by the time you stack up all the capabilities that you want to buy your last project, you've now put all the projects together in place. And that layering is very, very important to have, you know, your critical infrastructure with the short-term goal you have in mind, and then you can start adding capabilities and actually invest towards the future.

Monica Kumar: Yeah, I, I think those are like really fantastic points, both rate and Virginia I'm assuming that you would agree that that's how business leaders are prioritizing it spending right with what you just described the way, describe what the pre-pandemic span during the pandemic and post-pandemic with a view to building a company that ride that's really focused on engaging with customers, driving that experience, you know, driving new products to market

Virginia Gambale: Well, and I would say more than ever. This actually is if you can take the temperature down in the room around fear and anxiety and focus on this period of time, when I don't have people distracted with day-to-day operations, in some cases, this is a perfect time to retool my staff, to look at how do I drive the efficiencies. I may have to make this a minor investment I'm taking from this area and putting it into another area. But in order to capture, we have learned one thing in business, which I have seen. And I love it because even business leaders who were not considered agile or had great ability to pivot, are now learning that this is the new normal that we will have to be able to be more agile, agile, whether whatever particular event is going to come downstream. So in order to be able to create both the infrastructure, the method for conducting our business, and the ability to think forward, we are at an incredible point in time where we can actually begin to learn how to be agile and adopt and embrace what is really important at the moment.

And I, for me, I stepped back and I look at business leaders who used to feel well, I'm going to wait until someone else does that. Or I need to explore it first or test it out very thoroughly who were afraid to be in the dynamic market that so many successful companies are, which is I am here. I am in it today. I am pushing out to my customers. I am adjusting, I am pivoting. And I think it's an incredibly exciting time because when demand comes back, we are going to be much better prepared for it. If we have made the investments that we need to make in order to be positioned that way.

Monica Kumar: Yeah. And what about rationalization, you know, to all the points you made Virginia makes a lot of sense. I'm wondering if this is also the time where this is really time to focus, to rationalize the strategy, especially when it comes to products and services development with tighter budgets. You know, what's the role of less is more and focus here.

Virginia Gambale: I think it depends on the culture of the company going into this environment, right? And some companies were prolific, right? And we're constant and developing all kinds of innovations and thought and taking the time to sorta learn through trial and error. And in those cases, those companies do need to tighten down and focus and then be able to really, really drive forward. Others were, you know, not as prolific, and this is actually the time where the playing field gets leveled and their ability to distinguish themselves or leapfrog a competitor or emerge as a major competitor. This is the time to do it.

Monica Kumar: Yeah. I want to talk a little bit about now cloud, you know, obviously, through the last year, we've been hearing about public cloud playing a bigger role during the pandemic. So Ray, my question to you is, you know, what's your perspective on the role of public cloud in driving innovation and, and kind of playing this bigger role in digital transformation. If you may,

R “Ray” Wang: It's a great point, right? We've seen public cloud adoption increase. And one of the interesting things is the public cloud vendors have done a great job providing multiple options, right? If you want a specialized type of database, if you want a special type of workload, if you want a special type of tooling, it's all being provided and available now in the public cloud. So it's a question of really where you put your portfolio and how much have you moved to the public cloud, how much you retain on-premises. And in some cases, how much you keep your mainframe if you want to do that. And so we typically have a rule that says form follows function. You want to make sure that specialized workloads take different approaches as needed certain security requirements. Certain access requirements might dictate that you are on-premises or government and regulatory requirements.

And so we think it's important to do that. We know that the public cloud is still going to play a larger role. And of course, it's going to be more efficient in the longterm, especially when you think about pricing and the plasticity, but when you're doing a lot of work that has now data gravity, that requires data to be closer to, as you're doing operations, you'll take a different approach and might keep some of that in an on-premises environment. And this is why hybrid is so important going forward and how you balance your CapEx versus OPEX is going to be dictated by your business requirements, not just the financial requirements.

Monica Kumar: Yeah. In fact, I want to follow up with Virginia, you know, Virginia, you and I've talked about this so much is what's the role of a hybrid strategy where organizations have invested a lot of resources and money and skillset in building data centers. And of course, now, you know, with this whole notion of agility and being able to quickly on demand, be able to spin up resources, public cloud is a big role. What's your perspective, on the notion of hybrid cloud and the role it's gonna play in innovation. And at the same time, again, keeping an eye on cost optimization.

Virginia Gambale: Well, I am finally happy to say that three years later from one of my previous stocks, when we talked about hybrid cloud and hybrid clouds, you know, sort of a dream in the future that I love hearing clients. Now talk about the fact that, well, I'm going to, you know, sort of wrap my legacy systems here that I know I'm not going to invest in and I'm just going to keep running them and then on-prem, but I want all the benefits and efficiencies of cloud. So I'm going to do an on-prem cloud and then I need to, you know, test these new innovative products. So I'm going to spin them up in various public clouds. And I'm going to take advantage of these multi-cloud environments based on the qualities and the attributes of each cloud and what it provides and being able to create this portfolio now of hybrid cloud. And they're really thinking about and starting to move in this direction. And it's very exciting.

Monica Kumar: Yeah. I, I truly believe that hybrid cloud is really a way to navigate this paradox of cost and innovation, in my opinion, because now businesses and it teams have a way to figure out which like as reset, which workload to put, where it could be based on the needs of the business to move fast, innovate quickly gets kind of resources and costs, maybe a moot point, or they could be driven by, you know, cost and make sure that certain workloads and even compliance by the way, right. That certain workloads stay on-premises. So I think it's, it's, to me, it's a great technology that it can help customers kind of navigate this paradox. I do want to talk a little bit about compliance and regulations and either one of you jump in, what do we think is the impact of public cloud and compliance? I mean, how do you, how do businesses still stay compliant and adhere to regulations while navigating this hybrid cloud world?

Virginia Gambale: Well, it's interesting because for so long many companies who are feeling that being in the public cloud was a much higher cyber risk. And it's interesting because if you see any recent cyber attacks, poor more infrastructure-based software and it's residing on-prem, we're relying on each individual corporation to be able to eradicate the situation in their own environment. But on the flip side, if you were in public cloud, you could, the, you know, that that provider is going to instantaneously address the issue. And when they do, they address it for the many, not just for the one. So I, you know, I think there's going to be an ongoing, interesting debate now going forward about how much regulatory and compliance needs to be developed across both on-prem and in the public cloud. For sure.

R “Ray” Wang: Yeah. I'll jump in quickly on the security thing. Right? Think about it. Like corporations have like 10.2 FTEs focused on cyber security and the cloud vendors have like a thousand, that number alone should just scare the crap out of you. If you're thinking like, Hey, my security team is great. Yeah. Yeah, they are actually, but they can't handle the volume. That's about to happen. But on the regulatory side, I think what's interesting here is also the fact that the cloud vendors are going to be, oh, they're going to be dealing with so much regulation from the EU coming through. And of course, what's happening with some of these FTC anti-trust suits and what's going to happen over time is the cloud vendors. They build the regulation once and they deploy everywhere. Right? That's the massive scale. So the cloud vendors are going to more and more takeover. Some of those regulatory requirements on data, residency, privacy requirements, you know, is your data being fair, is your logo discriminating, right? So all those things are going to be handled probably at that level. And then the checks and balances are going to be there. So that goes back to the power of the cloud. We're going to have the scale of regulatory and compliance sitting there. So,

Monica Kumar: Great, great point. I want to talk about CFOs, particularly in Virginia. Again, this is a conversation going back a few months ago, and this whole notion of CapEx versus OPEX and what are the considerations organizations need to take into account. And do we think that, you know, the way organizations invest in CapEx versus OPEX for, from a technology perspective, is it going to change? Is it changing? Is it going to change after the pandemic? What's your view there?

Virginia Gambale: Interesting. So I love talking to the CFOs because they really need to start to embrace this difference. Now I've actually had some interesting meetings with the CEO and chairs of the large four large accountant global accounting firms. And when they have a group for directors, one of the things I raised to them all the time is, Hey guys, you know, you need to figure out how this kind of expense is going to be attributed to the business in a very different way from a tax treatment than it has in the past, because the advantages of cap-ex were there for the business. But now we all know that using software as a service or a subscription model is, is going to be the norm. So I, there is a lot of discussion going on now in terms of how do you align that as a cost within the business and how is it going to be treated from a tax point of view?

Monica Kumar: Awesome. I know we can continue. I know there's so much here to talk about and we can go on and on, but I think they're coming up to a time. So let me end with some rapid-fire questions to both of you and whoever wants to go first Eagle. So 20, 20, what's one word that would define 2020 for you?

R “Ray” Wang: Is it edited or censored? No, I'm just kidding.

Virginia Gambale: It's exhausting.

R “Ray” Wang: You know, I I'll add to exhausting game-changing it is the, the companies that come out post pandemic are going to be very, very different. Right. I'm thinking about adding yeah, I mean, there's a lot of conversations about what the post pandemic world looks like. And I think that's if, if anything, it's game changing the industries we thought that were going to be there. It's, rapid-fire sorry. It's industries that you thought were going to do. There'll be cost and value chains. I'll leave it at that. So, yeah.

Monica Kumar: Firing on all cylinders or both of you. Amazing. I think for me, it's resilience. I think you've proved it across humankind, all countries, businesses at every level, the resilience the world has shown in 2020. Next question. If you could travel back in time, when would that be true? Like what time is your favorite time ever? It could be personal. It could be anything. I know I would fire come on.

R “Ray” Wang: I traveled for it. No, actually for me actually, actually for me, it's, it's actually, I, I, I want to go back to when gene Roddenberry was writing the whole star Trek series, because almost everything we build in products today is, is built to the star Trek roadmap. And, and the question I really want to see is like, how do we went from a complete cash base, you know, monetary based society to a society built on ideas, right? And you pursue your ideas, which is the notion of the pursuit of happiness, the pursuit of ideas. How do they get from not having like from having tons of money to not having money or caring about money. And that, to me is a very interesting piece,

Virginia Gambale: But for me, I actually, I love reading about the 1920s and thirties, because it was the time where science and art were really breaking out. You know, you had Madame Curie and you had great, you know, Hemingway and great authors. And so it was kind of a Renaissance in a, in a way that was different than the original Renaissance period. But it was one that really, if you can imagine it, you can create it.

Monica Kumar: Awesome. I'm just looking to

R “Ray” Wang: Art.

Monica Kumar: Yep. Yeah. I was going to say, I'm just looking to, going back to the pre COVID days where I could hug people. That's what I'm taking today. And that could also be forward. Last question. What do you think are the top priorities for 2021? Maybe you can name 1, 2, 3, whatever the number is. Right.

R “Ray” Wang: I would say it's going to be health still plays a big role. I think the second piece is really about new types of business models and ventures. And I think there's a third piece that's going to emerge over time, which is really a new type of empathy that people have whether it's for their customers or for their employees or for just, just the ecosystem around them. So

Virginia Gambale: Yeah, for me, it's learning how to live life to the fullest when constraints are still around us and the things that we carry with us that we learned that were really important time with the family time to be in the moment. Those were things that I sort of carry forward with me. Because I, when I think now about how I would race from city to city or, you know, just to get to that next meeting or that next coffee, that next conversation that next, that next. And to me, it all seems kind of insane now.

Monica Kumar: Well, thank you both so much. I don't think I can add anything to what you said. Yes. All of those should be our priorities. I agree. Focusing on people and focusing on being in the moment really appreciate it. I'm so grateful for the time you spent with us and the insights. And I'm hoping our listeners will find it valuable. And thank you again both for your time and nice meeting you. Thank you. Bye everyone.

Ken Kaplan is Editor in Chief for The Forecast by Nutanix. Find him on Twitter @kenekaplan.

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