Enterprises that lack access to the requisite specialized skills or have limited experience with agile/DevOps principles of application development should avoid large-scale cloud native initiatives; they will be best served by running pilots for select, low-risk greenfield applications to learn and scale the practice
With enterprise cloud becoming mainstream, the business case and drivers for adoption have also evolved. The initial phase of adoption focused on operational cost reduction and simplicity – what we call the “Cloud for Efficiency” paradigm. We have now entered Wave 2 of enterprise cloud adoption, where the cloud’s potential to play a critical role in influencing and driving business outcomes is being realized. We call this the “Cloud for Digital” paradigm. Indeed, cloud is now truly the bedrock for digital businesses, as we wrote about earlier.
This is good and powerful news for enterprises. However, to successfully leverage cloud as a business value enabler, the services stack needs to be designed to take advantage of all the inherent benefits “native” to the cloud model – scalability, agility, resilience, and extendibility.
Cloud Native – What Does it Mean Anyway?
Cloud native is not just selective use of cloud infrastructure and platform-based models to reduce costs. Neither is it just about building and deploying applications at pace. And it is definitely not just about adopting new age themes such as PaaS or microservices or serverless. Cloud native includes all of these, and more.
We see cloud native as a philosophy to establish a tightly integrated, scalable, agile, and resilient IT services stack that can:
Enable rapid build, iteration, and delivery of, or access to, service features/functionalities based on business dynamics
Autonomously and seamlessly adapt to any or all changes in business operation volumes
Offer a superior and consistent service experience, irrespective of the point, mode, or scale of services consumption.
Achieving a true cloud native design requires the underlying philosophy to be embedded within the design of both the application and infrastructure stacks. This is key for business value creation, as lack of autonomy and agility within either layer hinders the necessary straight-through processing across the integrated stack.
In this regard, there are salient features that define an ideal cloud native IT stack:
Cloud native applications – key tenets
Extendable architecture: Applications should be designed for minimal complexity around adding/modifying features, through build or API connections. While microservices inherently enable this, not all monolithic applications need to be ruled out from becoming components of a cloud native environment
Operational awareness and resilience: The application should be designed to track its own health and operational performance, rather than shifting the entire onus on to the infrastructure teams. Fail-safe measures should be built in the applications to maximize service continuity
Declarative by design: Applications should be built to trust the resilience of underlying communications and operations, based on declarative programming. This can help simplify applications by leveraging functionalities across different contexts and driving interoperability among applications.
Cloud native infrastructure – key tenets
Services abstraction: Infrastructure services should be delivered via a unified platform that seamlessly pools discrete cloud resources and makes them available through APIs (enabling the same programs to be used in different contexts, and applications to easily consume infrastructure services)
Infrastructure as software: IT infrastructure resources should be built, provisioned/deprovisioned, managed, and pooled/scaled based on individual application requirements. This should be completely executed using software with minimal/no human intervention
Embedded security as code: Security for infrastructure should be codified to enable autonomous enforcement of policies across individual deploy and run scenarios. Policy changes should be tracked and managed based on version control principles as leveraged in “Infrastructure as Code” designs.
Exponential Value Comes with Increased Complexity
While cloud native has, understandably, garnered significant enterprise interest, the transition to a cloud native model is far from simple. It requires designing and managing complex architectures, and making meaningful upfront investments in people, processes, and technologies/service delivery themes.
Everest Group’s SMART enterprise framework encapsulates the comprehensive and complex set of requirements to enable a cloud native environment in its true sense.
Adopting Cloud Native? Think before You Leap
Cloud native environments are inherently complex to design and take time to scale. Consequently, the concept is not (currently) meant for all organizations, functions, or applications. Enterprises need to carefully gauge their readiness through a thorough examination of multiple organizational and technical considerations.
IBM’s $34 billion cash acquisition of Red Hat announced early this week has far-reaching implications for the IT services world. IT is modernizing, moving from a legacy world with data centers, proprietary operating systems and proprietary technologies to a digital environment with cloud, open-source software, a high degree of automation, DevOps and integration among these components. IBM’s legacy assets and capabilities are formidable, but the firm was not well positioned for IT modernization and struggled with digital operating models. The Red Hat acquisition is significant as it repositions IBM as a vital, must-have partner for enterprise customers in IT modernization and evolving digital operating models. This is a very intriguing acquisition for IBM. Let’s look at the implications for IBM and enterprise customers.
Cloud, automation and analytics lead in digital-focused outsourcing deals, which dominate outsourcing activity with a 65 percent share.
North America witnessed a significant increase in outsourcing transaction activity in Q1 2018 as compared to 4Q 2017, with 115 deals recorded as compared to 103, respectively, according to Everest Group. This increase can be attributed to an improved business sentiment in the U.S. as well as an increase in outsourcing demand across healthcare and manufacturing verticals.
For the first time, the number of new centers supporting digital skills surpassed new centers supporting only traditional services. Among global services transactions overall, digital services continued to dominate the outsourcing activity in Q1, similar to the previous quarter. The share of digital-focused transactions increased from 61 percent in Q4 2017 to 65 percent in Q1 2018 vis-à-vis the pure traditional services, which showed a decline in adoption over the past quarter.
Among all outsourcing transactions, 50 percent included cloud, 21 percent included automation, 14 percent included analytics, 13 percent included mobility, 7 percent included cyber-security and 30 percent included some other form of digital service, such as social media, Internet of Things (IoT) or blockchain.
Other key global services market trends noted for the quarter include the following:
Global in-house center (GIC) expansions are at a seven-year high, as mature GICs added next-generation technologies (especially big data analytics, cloud and IoT capabilities) in their service delivery.
The industry saw a secular increase in the number of new centers supporting R&D/engineering services, driven by the need for innovation and customer-centricity.
Service providers are actively looking for partnerships with startups (as opposed to acquisitions) to leverage them for niche capabilities.
These findings and more are discussed in Everest Group’s recently released report, released Market Vista™: Q2 2018. The report discusses outsourcing transaction trends, GIC-related developments, global offshoring dynamics, location risks and opportunities, and key service provider developments.
“Outsourcing activity remained steady in Q1 as compared to the previous quarter, with a growth in information technology outsourcing as well as increases in several verticals, including retail and consumer product goods, technology and communication, and healthcare,” said H. Karthik, partner at Everest Group. “New GIC setups, which reached an all-time high in Q4 2017, declined slightly, but GIC expansions are at a seven-year high. All-in-all, Q1 was a good quarter for service providers—both global as well as offshore-heritage service providers—with most reporting sequential growth in revenue and an increase in operating margins.”
Complimentary Webinar Offers Q1 Review Plus Bonus Topic—“War for Talent: Impact on Talent Acquisition Strategies”
The webinar also addressed talent acquisition strategies, including the factors impacting talent models and the resulting implications and imperatives for employers. The impact of automation on transactional jobs and the redesign of the employee value proposition to reach a predominantly millennial workforce are two of the key topics covered in the discussion.
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I attended the Amazon Web Services (AWS) Summit in Mumbai earlier this month, and two things about the event itself really stood out. First, regardless of the fact that the Summit was held in India, it was organized on a global scale with global flavor, which ensured that attendees heard about AWS’ global aspirations and strategy. Second, although the company’s leadership rightly spoke about their great services portfolio and how and why it is the best, they never ridiculed or demeaned any competitor. This is a mark of a great company that’s in it for the very long haul.
Not surprisingly, the key message I could sense was that enterprises should not own their infrastructure, but instead leave it to cloud vendors – read, AWS – that will make sure it runs smoothly without the need for any second thoughts. In short, make infrastructure irrelevant.
Here are my three key take-aways from the content at the Summit.
I Learned: Partners Used to Sort of Matter…Now, They Really Matter
AWS has always positioned itself as a partner-friendly cloud vendor. At the Summit, its focus on succeeding with partners was very evident through the services it demonstrated and the messages it delivered. However, AWS’ current mindset is about building great services that enterprises would want to consume through pull demand, rather than through extensive leverage of channel partners. Thus, while partners today may not be as important as AWS may want them to think, they will be increasingly vital as AWS further expands to enterprise-class customers. This means it will be in AWS’ best interest to nurture its relationships with its partners.
I Re-learned: On-premise is Here to Stay…Cloud or No Cloud
AWS is a smart company that realizes there will always be a case for certain enterprise workloads to remain on-premise. The Summit sponsor was VMware, the king of on-premise. With its “VMware on AWS” offering becoming available globally, VMWare and AWS need each other. Though AWS largely stayed away from embracing “hybrid is the model of future,” it did reluctantly admit that all enterprise data centers aren’t going anywhere. However, AWS plans to make enterprises’ journey to the cloud simple and seamless. Its strong partnership with VMware is a testimony to that.
I Un-learned: New Services Have Miles to Go…Which They Will
From DynamoDB to serverless to AI/ML services, AWS shined a spotlight on everything new. While most of its new services are witnessing massive double – even up to 5X – growth, they aren’t yet meaningfully contributing to AWS’ US$18 billion top line. Most of its business continues to be the traditional EC2, S3, and similar services. Talking to AWS clients and partners made me believe that most of them have grand plans for adopting these new services. And almost all of them appreciate the hand holding AWS has provided to make their journey less painful.
Though AWS never admitted it, it was apparent that it realizes the vast potential in this market. Out of its 125+ services, very few are consumed at a massive scale. This implies there is a lot of headroom for AWS, despite that it’s already clocking a run rate of US$20 billion. This is very similar to its online business which, despite its size, is only ~4 percent of U.S. retail. Given such potential, it is no surprise that Amazon is investing heavily in AWS. Indeed, most of Amazon’s operating profits in recent quarters have been from AWS.
The cloud market is in flux, and with the first and second generations of DR/back/email migrations now over, the next battlefield is the business process and AI/ML workloads. AWS has strong plans to lead this market as well. It will be interesting to observe how it shapes the cloud world. Can it influence it the way it did online retail? AWS certainly has the vision, capability, and aspirations. Only time will tell.
Cloud, blockchain, AI, automation among technologies driving digital disruption of capital markets buy-side, sell-side and intermediaries.
Global capital markets firms are facing unprecedented challenges that collectively are forcing a digital technology-driven reimagination of the capital markets industry, according to Everest Group.
Key trends in the capital markets industry include:
Evolving customer demands. Customers expect more transparency, ease of access to data and services, and better multi-channel experiences.
The rise of non-traditional competitors. Non-traditional players, such as financial technology (FinTech) firms, are targeting the profitable segments of the capital markets business.
Regulatory and security complexities. With end-to-end trading activities becoming digitized, cybersecurity is at the top of the agenda for capital markets firms to ensure data security and integrity.
Technology disruption. Disruption is especially being driven by the scalable and affordable “ABCDE” technologies: Artificial intelligence, Blockchain, Cloud, (Big) Data Analytics, and Ecosystem Partnerships.
According to Everest Group, these challenges have forced capital markets enterprises to revisit their business models, launch innovative products, invest in emerging technology, and redefine the way they interact with customers and other ecosystem players, including service providers.
“A common impetus for digital disruption across the capital markets value chain—impacting buy-side, sell-side and intermediaries alike—is the shift to a customer-centric focus,” said Ronak Doshi, practice director at Everest Group. “Digital technologies ranging from machine learning to blockchain and from cloud to deep learning are being used to deliver an enhanced customer experience. This can take the form of data-driven insights that enable personalized offerings, the provision of seamless services across channels, and even ‘humanizing’ the design process so that product and service offerings are more empathetic to the unique needs of individual customers.”
Everest Group has released a set of research reports which address the unique challenges, priorities and trends in the digital adoption journey of each segment of the capital markets industry—buy-side, sell-side and market intermediaries. Each report also details the implications these findings have for enterprise buyers and IT service providers.
Capital Markets IT Annual Report Part 1 – Platformification Wave Disrupting Buy-side focuses on buy-side firms such as private equity, hedge funds, and asset management firms. These firms are serving a new breed of investors who find digital services essential. Buy-side firms are being challenged in the marketplace by alternative lending and automated trading platforms and face increased reporting and market surveillance requirements due to regulations such as EU Benchmarks Regulation and Market Abuse Regulation.
As a result, buy-side firms are making digital technology investments to target customers, meet compliance standards, and generate patterns from historical data to optimize the system. Artificial intelligence (AI) and automation of core functions is a key focus of investment, as it will enable firms to free up resources to work on core business activities. Buy-side firms are also investing in digital technology to provide the seamless digital experience that their customers demand.
Partnerships within the ecosystem—with FinTechs, for example—are critical for the sell-side segment, because they are key to enabling new distribution channels, competitive product offerings and value-added non-traditional services.
Complexities in regulatory reporting are forcing sell-side firms to make digital investments in data management initiatives. Emerging technologies will require investments as well; these advancements are disrupting the sell-side of the value chain with new trading models, better cost structures and analytics-based advisory models, and keeping pace will be key to market survival.
Capital Markets IT Annual Report Part 3 – Building Digital Market Infrastructures focuses on market intermediaries such as stock exchanges, custodians and clearing houses. To address changing investment behaviors and the demand for data visualization and insights platforms, market intermediaries are adopting next-generation digital technologies to facilitate real-time systems that process a very high volume of data with minimal delay.
Intermediaries also are looking to leverage analytics and automation to reduce the costs of regulatory reporting. Blockchain and AI likely will play a role in changing the way intermediaries operate, which may prove essential as the proliferation of blockchain-based startups diminish the role of traditional intermediaries as a trusted party.
Enterprise digital initiatives transitioning from pilot to program: 57% of the enterprises’ demand is firmly around digital technologies in the next 12-18 months. Most enterprises now perceive digital to be indispensable for the firm’s long-term growth and are trying to position themselves as “digital-first” enterprises