Enterprises’ Technology Investment Priorities | Market Insights™
February 14, 2017
Maps enterprises’ technology investment priorities along two axes: priority and impact timing
Maps enterprises’ technology investment priorities along two axes: priority and impact timing
The cloud experiment is over and the debate in enterprises about its benefits and risks is settled. We know it works, it’s more flexible and cheaper, and it makes it easier for IT to align with business needs. So should buyers put their applications into a cloud environment?
My advice: Don’t rearchitect your legacy applications that were designed and implemented in a legacy environment and port them over to the cloud. Organization of all sizes have been waiting for providers’ porting solutions. Unfortunately, that’s sort of like the Samuel Beckett tragicomedy play, “Waiting for Godot,” in which two characters wait days for Godot even though they don’t know where or when he might arrive. Buyers wait, thinking cloud porting solutions will arrive in the market, but it just doesn’t happen. That’s because porting is really expensive and really risky.
I’ve blogged in the past about CSS Corp Cloud Services and Redwood Software platforms for easily migrating legacy apps to the cloud. But as we get further into the cloud story, it looks like replatforming offerings will be far rarer than we anticipated. I’m not saying they won’t exist; I’m just saying they won’t be the dominant model.
As the smoke clears from cloud experimenting and pilots, the best-practice dominant model for moving into the cloud is shaping up as follows:
This strategy of adding virtualization and automation may get your legacy environment into a private cloud, but it doesn’t get you into the agile low-cost public cloud environment. However, it allows you to improve the efficiency and resiliency of the existing legacy environment without the huge cost and risk of rearchitecting.
The strategy also helps CIO organizations regain some of the influence and credibility they’ve lost with business units as they’ve addressed new functionalities enabling where the business is moving. It enables the organization to be more agile, better aligned and do so with lower cost, which significantly relieves the tension of having to get a huge amount of funding for a set of high-risk legacy projects.
The fact is for many legacy applications the best you can do is make incremental progress. You can move them out of dedicated hardware into virtualized hardware. And other than some potential cost savings, there is little to no business benefit from taking on the risk of reengineering them for a public infrastructure or shared environment.
We saw this same best-practice model happen with distributed computing; new applications went into distributed computing and eventually we reached a tipping point where we needed to move legacy apps. I anticipate the new functionalities, new work will similarly drive the shift from legacy to cloud.
Going forward until the tipping point occurs, put all your efforts into standing up your organization’s new environment to take full advantage of the business alignment, flexibility and cost that the cloud family offers and just make incremental changes to your legacy environment. If you wait for a huge re-platforming surge of cloud porting solutions, I believe you’ll be waiting for Godot.
As Indian service providers announce their results for the year, one can’t but be amazed by their spectacular growth. For fiscal 2011, TCS’s annual earnings grew by 29 percent year over year (YoY), and Wipro’s IT services revenue grew by 19 percent YoY. While North America and Western Europe have traditionally fueled growth for the Indian heritage service providers, the focus is increasingly turning to Asia to capitalize on the growing economic shift.
In this context, the next several years are set to be quite interesting for the Asian markets, as we estimate that more than 500 first generation ITO and BPO contracts, worth US$25-30 billion, are up for renewal in Asia (Middle East, India and South East Asia) through 2014.
As we ran an analysis of potential renewals through our deal databases, some interesting trends emerged:
What makes renewals unique in the Asian market?
First, over the last decade, Asia has undergone a much more rapid change in service provider capabilities than developed markets. Today, most global IT-BPO providers have sizeable Asian market practices, and have brought global offerings to service regional buyers; a decade ago, it was just a select few.
Second, buyer maturity in the region has increased significantly. Asian buyers today have had multiple deal experiences with providers, and consequently understand sourcing and governance in far greater depth than in the early 2000s. Today, transformational deals are not unheard of, and sophisticated service management frameworks are the norm, not the exception.
Third, consider changes in the global context that also affect the environment in Asia: the growing adoption of virtualization; the emergence of the Cloud; enterprise-scope BPO services; and consolidations in the provider landscape.
Together, all these factors make the case for a careful look at contractual parameters as end-of-engagement terms approach. Typical end-of-term alternatives include:
As Asian buyers consider these options, they need to carefully evaluate market capabilities (given significant market changes), and take a closer look at deal robustness to ensure that market best-in-class service management/contractual frameworks are incorporated. This implies that restructuring and recompeting are very real options in the Asian context.
Everest Group’s experience indicates that end-of-term evaluations take nearly six months in typical global deals. Given added complexities in regional deals, buyers would be wise to begin their evaluations up to a year in advance.
Historically, it is not uncommon to see buyers continue with their incumbent service providers. While some fail to leverage the market effectively, others get bogged down with challenges of repatriation or risks of changing service providers (such as business continuity risks, contractual lacunae for transition-out or incumbent provider hold-up). However, heightened competition, changing service provider landscape, newer delivery models (e.g., cloud) and increasing maturity in the Asian and Middle Eastern markets could well change this going forward.
We had the pleasure this week of participating in a CFO Forum hosted by TechAmerica, along with representatives from Microsoft, Softlayer and SOURCE, on the topic of “Navigating the Cloud.” The overall discussion focused on the benefits of the rapidly expanding universe of cloud services, along with key risk, compliance and security considerations for CFOs. During the panel discussion and audience Q&A, it became apparent that CFOs wear three different hats when thinking about the cloud:
CFO as Cloud User – like everyone else, CFOs are potential users of cloud services, primarily via ERP and F&A-related SaaS offerings. Discussion in this area focused on several topics:
CFO as Cloud Buyer – the second major relationship CFOs have with the cloud is as a buyer, given the ownership they have over corporate and IT budgeting processes and spend. Points mentioned during the Forum included:
CFO as Fiduciary – the panel also explored the impact of the cloud on CFOs fiduciary responsibilities for the organization.
Overall, it was a great discussion, with interesting questions and comments from a very engaged CFO audience.
Does the world really need another blog about the cloud?
Here at Everest Group we believe the answer is a resounding yes.
The “signal to noise” ratio around the cloud is reaching a fever pitch. In fact, the hype alone has driven most enterprises to dip their toe in the water with initial pilots and “experiments.” While moving dev / test environments to the cloud is a good thing, we believe most enterprises should be moving faster and smarter.
What’s missing in the current market conversation about the cloud?
Real, data-driven perspectives on the true ROI and business impact enterprises can expect to see, and in many cases are seeing from the cloud. In what scenarios do IAAS (Infrastructure-as-a-Service) or StaaS (Storage-as-a-Service) offerings make sense in a given enterprise, and from which vendor? Can IAAS and cloud services make sense today even if data center assets are fully depreciated? Can 90 percent of the economic benefits of the cloud be captured via private cloud and virtualization? Or is there more on the table to be gained? While opinions on these topics abound, fact-based analysis is hard to find. And we think the answers might surprise you.
Our goal with “Gaining Altitude in the Cloud” is to create a forum to help enterprise decision-makers, cloud service providers and technology infrastructure vendors better understand the underlying customer economics driving cloud adoption dynamics. Our blog will take a comprehensive view and look across enterprise-class cloud services and major vendors in the areas of:
We’ll be featuring best practices, case studies and insights and analysis on how cloud and other next generation IT technologies and services are driving fundamental changes in the economics of IT. By providing customer-centric, vendor-neutral analysis of cloud economics, we hope to inject a much better fact base into the market conversation.
We’re looking forward to the discussion – we hope you are as well!
©2024 Everest Global, Inc. Privacy Notice Terms of Use Do Not Sell My Information Research Participation Terms
"*" indicates required fields