The New IT Infrastructure-Getting Off the Modification Merry-Go-Round

The Shift to a New IT Infrastructure Cloud computing offers flexible options to support long-term, less-restrictive growth www.mpi-group.net.com ©2014 The MPI Group. O ne of the harsh realities of today’s business environment is that technology innovation and consumer demands are evolving at a remarkable pace. Products and services that were popular yesterday are often obsolete today. For manufacturers, navigating this environment — and coping with a spate of industry and government requirements — is a challenging task that requires a radically different information technology (IT) infrastructure. An enterprise must support rapid innovation and agile processes, from the front office to the manufacturing line, and deep into the supply chain. These new IT systems must also deliver real-time results in scalable formats across an array of systems and devices. Daniel Benton, managing director of the IT Strategy Practice at Accenture, says, “Businesses face an incredibly volatile environment that requires a highly agile and flexible approach.” As a result, many organizations are turning to cloud computing to streamline and simplify IT while reducing overall costs. Clouds offer straightforward ways to introduce new applications, remap business processes, and transition from legacy systems to advanced IT infrastructures. According to a study conducted by consulting and cloud integration firm NSK Inc., 82 percent of firms reported saving money through the cloud, while 80 percent achieved business improvements within six months.1 But cloud success isn’t guaranteed. Leaders must approach the cloud transition with a clear strategy that redesigns processes and workflows, develops new skills, and updates security protocols. A Gartner brief, Cloud Computing Affects All Aspects of IT,2 brings the issue into sharp focus: “IT departments need to prepare for their new role as internal cloud services broker, and balance that with their delivery role for existing systems and for new digital services.” Many organizations are turning to cloud computing to streamline and simplify IT while reducing overall costs. The Shift to a New IT infrastructure / The MPI Group 1 1 Maria Santacaterina, “7 Statistics You Didn’t Know About Cloud Computing,” IT Consultant’s Insight on Business Technology, NSK Inc., Aug. 27, 2013. 2 David Mitchell Smith, Gregor Petri, Yefim V. Natis, Donna Scott, Michael Warrilow, Jay Heiser, Alexa Bona, Douglas Toombs, Morgan Yeates, Tiffani Bova, and Benoit J. Lheureux, Gartner Predicts 2014: Cloud Computing Affects All Aspects of IT, Gartner, Dec. 4, 2013. 2 The Shift to a New IT infrastructure / The MPI Group 3 United States Technology Buyer Forecast by Vertical: 2012 to 2017, International Data Corp., April 2014. Cloud computing introduces fundamental changes to business and manufacturing Cloud computing fundamentally changes the way companies drive their businesses. Organizations turn to clouds to address key challenges, including: • Keeping pace with technology and changing user demands: Only a few years ago, a typical IT system — often powered by a mainframe — provided core functionality for decades. Today, cloud computing is introducing faster pathways to business improvement. Instead of wholesale software changes appearing via major vendor releases every few years, smaller changes can now be implemented monthly or even weekly. • Developing a more flexible architecture: Many businesses find themselves constrained by legacy IT systems with inflexible frameworks. As Accenture’s Benton explains, “A lot of organizations continue to add additional hardware and software to an already complex and unwieldy IT infrastructure. Unless you begin to break up the legacy hairball, you can’t fully take advantage of the cloud and the level of business agility and flexibility required for today’s business environment.” He believes that organizations must move away from the conventional view that IT is only an enabler of business processes. Instead, executives should focus on using information technology to create greater value for customers — and the business itself. • Expanded IT functionality and control: Clouds give business leaders the opportunity to acquire IT resources without IT staff involvement. This introduces new organi- zational risks — security, compatibility — but offers significant benefits, too, in improved analytics, faster speed-to-market times, and enhanced visibility within the supply chain. An IDC report noted that business-funded technology now accounts for about 55 percent of total IT spending within the enterprise.3 • Optimizing cost and pricing models: Legacy systems often consume enormous IT resources — particularly as new systems require middleware and customized development. Cloud computing shifts costs from capital to operating expenses. Subscription-based services establish a predictable cost structure while providing flexibility for scaling services based on changing needs. Cloud services also allow smaller organizations to adopt IT systems that would otherwise be out of reach. The Shift to a New IT infrastructure / The MPI Group 3 Executives must understand the real opportunities and risks in transitioning from legacy systems to the cloud Many organizations pay an “opportunity cost” by overestimating the risk inherent in cloud computing. On the other hand, “An equal number of organizations are taking unrecognized and inappropriately high levels of risks by placing sensitive data in cloud services that are not designed for it.”4 In some cases, this includes rogue cloud applications and unauthorized personal apps on smartphones and tablets. As a result, many manufacturers straddle the legacy system vs. cloud computing chasm, facing obstacles that include: • Significant investments in legacy systems, and a corresponding perception that these systems lower total costs of ownership (TCO): Migrating from legacy systems to the cloud usually requires new procurement processes, usage policies, workflows, and security procedures. This can lead to an assumption — often incorrect — that legacy systems therefore remain more economical. This assumption overlooks the fact that legacy systems typically require constant modifications, which can lead to a true cost structure as much as 300 percent higher than a cloud environment. • Strong user ties to existing systems: Employees who use specific systems and software grow accustomed to familiar tools and often resist change. At the same time, individual departments frequently have only their own IT requirements in mind, and fail to see the benefits of a flexible, enterprise-wide IT infrastructure. • An IT department that doesn’t want to relinquish control: IT traditionally controls procurement and operation of new technologies. But in a cloud environment, business leaders can procure their own IT resources — often leading the IT department to resist change. • Fear that clouds elevate security risks: A common misconception is that legacy systems offer a more secure environment. In fact, cloud providers typically focus more heavily on security, and have resources to react quickly to vulnerabilities. Yet when executives do connect their legacy systems to the cloud, they give their organizations a chance to get off the IT upgrade-and-modification cycle. Within a more flexible environment, an enterprise can plan for the future — adding modules, applications, point solutions, and new technologies without undermining a rigid IT framework. Moreover, once a cloud foundation is in place, there’s no need to constantly modify source code or rewire systems. 4 David Mitchell Smith, Gregor Petri, Yefim V. Natis, Donna Scott, Michael Warrilow, Jay Heiser, Alexa Bona, Douglas Toombs, Morgan Yeates, Tiffani Bova, and Benoit J. Lheureux, Gartner Predicts 2014: Cloud Computing Affects All Aspects of IT, Gartner, Dec. 4, 2013. When executives do connect their legacy systems to the cloud, they give their organizations a chance to get off the IT upgrade- and-modification cycle. 4 The Shift to a New IT infrastructure / The MPI Group In the end, a cloud framework speeds an organization’s ability to conduct business — internally, with customers, with suppliers — in ways that serve the business, not the legacy technologies. The cloud can: • Improve responsiveness to business and market disruptions • Erase IT barriers related to mergers and acquisitions • Improve business continuity and disaster preparedness, and • Streamline the introduction of new business strategies and models. Build a bridge to a more cost-efficient and value-focused enterprise A strategic transition to the cloud requires an understanding of short-term costs — including the resources required to make a switch — along with a long-term perspective of ongoing IT costs. Yet costs and expenses represent less than half of the equation. More important is projected ROI —including gains in agility, flexibility, and adaptability. It’s vital, as well, to understand how cloud-based systems will improve workflows to reduce or eliminate inefficiencies. Executives should also consider how changes in IT will impact innovation and talent acquisition. A starting point for a cloud-migration strategy is to conduct a thorough audit of existing IT resources, including: • Understanding how legacy and cloud systems impact key factors: performance, usage patterns, IT administration, licensing, security, knowledge sharing, and training. • Identifying employees using existing systems and quantifying how a cloud-based solution will alter the cost-value equation. • Spotlighting potential work disruptions, required workflow changes, impacts to the usage of the legacy systems, and compatibility with customer- and supplier- facing systems. • Streamline the introduction of new business strategies and models. It’s also crucial to understand how people use existing software, and which features they prefer. Frequently, employees rely on only a small percentage of features to do their work. Organizations with legacy systems frequently pay for one-size-fits- all software packages, and then deploy middleware, APIs, and use other tools to manage modifications and connection points. While the need for modifications won’t disappear completely in a cloud environment, it frequently subsides. In fact, cloud applications can aid organizations in streamlining processes and workflows by introducing better functionality rather than just more functionality. It’s also crucial to understand how people use existing software, and which features they prefer. Frequently, employees rely on only a small percentage of features to do their work. The Shift to a New IT infrastructure / The MPI Group 5 The final step in the migration to the cloud is the actual process of implementing the change, including: • Establishing a business and IT plan — short-term, mid-term, and long-term goals, objectives, and steps • Developing a budget • Procuring funds • Deploying resources to manage the procurement and implementation process • Revising the plan as required • Making changes to roles and responsibilities within IT • Selecting appropriate cloud vendors • Negotiating agreements and SLAs • Moving forward with the next phase of enterprise computing and IT Savvy leaders focus on the cloud future Today’s global, digitized business environment requires manufacturers to perform better with fewer resources. Cloud computing is a critical tool in unlocking value, trimming costs, and ushering in new organizational efficiencies. By adopting the right mix of legacy and cloud services, and developing a plan for how to use IT resources over the short- and long-term, executives can achieve new competitive advantage — and profitability. About The MPI Group www.mpi-group.com The MPI Group serves leaders with research, advice, and performance-targeted solutions that provide a competitive advantage in today’s fierce marketplace. MPI combines the disciplines of research, strategic advice, knowledge development, and hands-on leadership to create a difference — in performance, in profits, and in the people who make them possible.