Rationalizing, Modernizing, and Transforming Enterprise Applications

The enterprise of the future will view application technology as an innovative differentiator for their business, IDC Program VP for Enterprise Applications and Digital Commerce Mickey North Rizza said, during her presentation on the rationalization, modernization, and transformation of enterprise applications at the IDC Directions conference in Boston last week. The future enterprise will value application technology differently than it does today, in part because the enterprise of the future will conduct its business digitally. As part of this transition, enterprises will need to go through a systematic process of evaluating their existing applications.

Rizza repeated IDC stats that say 46 percent of organizations worldwide are "digitally determined" now and 55 percent will be by 2020, "transforming markets and reimagining the future through new business models and digitally enabled products and services."

Within this, she said IDC predicts that by 2020, 30 percent of Global 2000 companies will have allocated capital budget equal to at least 10 percent of revenue to fuel their digital strategies, saying this is an investment for the future, which will have a five- to ten-year runway.

One thing I thought was particularly interesting was how the "digitally determined" companies did better on some metrics of performance, but that the "digitally distressed" ones actually did better on others. She noted that "digitally determined" companies did far better on key performance indicators (KPIs) in customer advocacy, data capitalization, and digital operations. This group of companies did a little better when it came to product and service innovation.

However, "digitally distressed" companies actually did 12 percent better on "traditional metrics" such as orders, revenues, profit, and efficiency.

"Legacy applications have become technical debt," Rizza said, as they tend to have inconsistent information, don't interoperate well, and often have security vulnerabilities. She said organizations must go through the "four Rs" of rationalization to determine what to do with each of its older applications: retire, replace, rebuild, or retain. To do this, she said, organizations should look at things such as technological fit, functional and business value fit, business process coverage, and application maturity.

Rizza said a typical large organization has lots of line-of-business systems, but they don't integrate together in a consistent enterprise-wide technology architecture; she suggested this needs to change.

She noted that the vast majority of organizations use all three of today's common deployment methods—Software-as-a-Service (SaaS), Hosted, and On-Premises.

She talked about four different kinds of IT deployment models that organizations will choose from. Some will deny that they have a problem, and continue to run mainly existing processes, perhaps with a few "islands of innovation," usually run on-premises or in a private cloud. Some will focus on outcomes, typically looking at "partner portfolios"—suites of applications from strategic vendors, often chosen by the line of business. She said the best of these offer SaaS and cloud-enabled solutions, and typically include current technology such as Social, Cloud, Big Data, and Mobile; and are often incorporating innovations.

A third group will build or integrate their own system, often using best-of-breed applications, tied together by middleware platforms, such as Mulesoft. Finally, some organizations will build their own digital transformation platform, often creating their own ecosystems.

Which one you pick is dependent on the kind of business and organization you have. Rizza noted that companies led by those 45 and older tend to stick to partner strategies; while those led by younger people tend to prefer building their own applications.

One prediction she made stood out: by 2023, 65 percent of global 2000 organizations will have refreshed their systems, led by ERP, through a process of rationalization, modernization, and transformation.

As part of this process, she said some markets will collapse, saying that for example, travel and expense management may start to come together with compliance and ERP systems.

The result of this process will be to take enterprise applications and completely modernize them. Enterprise applications software will get more of an end-to-end focus and will start to cross over into many line-of-business applications. Innovations such as AI, machine learning, and advanced analytics will make most applications digital, and they will become broader as well have more functionality, gradually becoming an application suite. The "white space" between workflows in these applications will gradually disappear. In some cases, enterprise applications will add more currency options, such as cryptocurrencies.

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Luke Williams on Disruption

The IDC Directions conference closed with a keynoted from Luke Williams, a professor at the NYU Stern School of Business and author of Disrupt: Think the Unthinkable to Spark Transformation in Your Business.

He said the pace of global change is accelerating in every industry, and we are the first or maybe the second generation that has ever had to change our ideas.

He talked about ideas as "recipes" that combine new and existing ingredients in new ways. He said businesses generally aren't open to new recipes because of complacency and arrogance, and this results in companies taking the path of incremental improvements. Then an outsider sees things from a completely new vantage point and disrupts the market.

"When you need an option to change, it is always too late," he said. In other words, the ideas you may need in the future may be inconsistent or in conflict with ideas you are using now.

As an alternative, he said you need to get in the position of "path dependence," incentivizing people to think both about incremental thinking or continuous idea flow; and about disruptive thinking or discontinuous idea flow. This is fundamentally about thinking about new recipes, he said.

This typically involves crafting a disruptive hypothesis, defining a disruptive market opportunity, and generating several disruptive ideas. These may not be appropriate when the ideas come up, but it's important to be looking at alternatives. He said it was important not to challenge the validity of the current model, but instead to challenge its uniqueness.

The most important thing, Williams said, is to have a dynamic capability, so you can move from high probability events (which lead to incremental innovation) to low probably ones (where you need a new business model). He concluded by saying we are in a unique moment in history, and exhorted the audience to "enjoy the possibilities."