High Performance IT Insights. Addressing Legacy Inflexibility: Focusing on Products and Business Needs to Drive IT Simplification

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1 High Performance IT Insights Addressing Inflexibility: Focusing on Products and Business Needs to Drive IT Simplification

2 Business requirements for agile, innovative IT are generating pressure for IT simplification. However, the most effective approach to simplifying IT is to start not with IT itself, but with business needs and product sets. Many organizations are faced with managing highly complex and inflexible legacy IT systems as a result of historical mergers and restructuring, tactical investment decisions, and changes in business priorities over time. This complexity has significant negative implications both for the cost of IT and for operational risk. Business requirements for agile, innovative IT are generating pressure for IT simplification and adoption of new technology solutions, like cloud and mobility, that act as catalysts for change. As a result, IT simplification is often a business priority for the CIO and the board. However, our view is that the most effective approach to simplifying IT is to start not with IT itself, but with business needs and product sets. Any program to renew the IT environment must take into account the business s evolving strategy or it will miss the opportunity to create systems able to support growth now and in the future. There is no one-size-fits-all approach to addressing legacy complexity and inflexibility. Only with a clear view of the business s requirements can the CIO make the right technology simplification choices. At root, these are business decisions that must be based on business rationale. 2 Addressing Inflexibility

3 inflexibility: A business challenge triggered by business issues Many, if not most, CIOs are looking to simplify their organizations IT architectures by moving to fewer, standardized components. This drive for simplification and standardization is leading to a strong focus on how IT services are structured within both the business and IT. On the supply side, the quest for simplicity is mirrored by the increasing maturity of standard solutions, both in licensed application software and increasingly via platform-as-a-service (PaaS) and software-as-a-service (SaaS) solutions. Additionally, approaches to custom development are characterized by increasing flexibility and lower cost. To capitalize on these developments, CIOs need a clear view of how these elements can be integrated into systems architecture and what changes they imply for the operating model. To approach these decisions from an IT perspective is to start at the wrong end. Simplification of technology requires a debate about simplifying the business. And while it can be difficult to create a standalone business case for simplification of either the business or IT in isolation, these two often distinct agendas are increasingly being combined on the corporate investment agenda. IT simplification is generally brought to the agenda by business triggers or pain-points. The most obvious are lack of IT flexibility and responsiveness often referred to as IT agility and the relentless pursuit of cost reduction. Other significant business considerations include: Pressure for IT to be an innovator: IT leaders are expected to do more than just keep costs down, the lights on and the systems up in the data center. Instead, IT is expected to be an active innovator with new technological solutions that can help increase revenues and drive growth. Advances in areas like cloud and mobility are providing CIOs with opportunities to answer this call. Competitive pressures: Organizations seeking to exploit new revenue opportunities may find that their competitors have IT systems that are more closely aligned with business strategies, creating advantage in the marketplace. Customer demand: Customers increasingly expect direct services through a wide array of channels, including mobile ones. In many cases, inflexible legacy architectures, applications and security are not equipped to meet these needs. Business partner requirements: Collaboration with complementary providers and sometimes even competitors is an increasingly important feature of the business landscape. systems may not be designed to support business partners shared access to applications. Scrutiny from the investment community: renewal tends to be regarded positively by shareholders and business analysts, and can help the business achieve a higher rating and market valuation. The business environment requires a transition from fixed to variable investment to support the expectations of the market. For example, analysts in sectors such as life sciences actively track and compare companies cost-to-serve down to the basis point level to inform their investment decisions. Legal and regulatory requirements: Many industries face a growing raft of regulations such as the US Health Insurance Portability and Accountability Act of 1996, Sarbanes-Oxley, Basel III and Solvency II that require enterprisewide functional changes. These projects are often hampered by inflexibility of legacy systems. M&A benefits realization: The inflexibility of legacy systems can hamper the realization of synergies from mergers and acquisitions. Inflexible legacy systems can hinder the integration of systems and introduction of standards across a merged entity, and the carve-out of business units and assets that are being sold. 3 Addressing Inflexibility

4 An approach to simplification: Start with products and services The first step is to examine the expected relevance and relative costs of the products and services in the business s portfolio of offerings (Figure 1, Step 1). Some products and services will be legacy : they are still purchased and used by some customers but are not actively marketed and are declining in importance to the future business strategy. In contrast, other products and services in the portfolio will be active : they are being aggressively promoted and used and are expected to remain an important source of revenues. In general, the legacy IT architecture was built to support the legacy products. It was updated and extended over time to add new capabilities, comply with emerging regulations, and support new products. These add-ons may include elements such as cloud computing, SaaS solutions, Web access, and new applications. Still, the large sunk investment in the core legacy architecture has discouraged many CIOs from contemplating full systems renewal. An understanding of the relative costs and future relevance of all products can support a strong business case for replatforming. This understanding enables the business to address obsolete products and paves the way for renewal of the IT and product architecture to support growth. Steps 2 through 5 in Figure 1 involve delivery of the architecture. Having identified the current profitable, active products and their IT requirements, the business can then create a platform to support them (step 2). Steps 3 through 5 involve transitioning the portfolio of active products to the new IT platform, eliminating unprofitable products, and transitioning the current platform(s) or remaining products and services to a replatformed operation to support the legacy requirements for as long as necessary. Focusing on architectures highlights opportunities in the cloud A priority throughout the legacy renewal and simplification process is a rigorous focus on architectures, on both the IT and business sides. Accenture High Performance IT Research 1 has found that the organizations that excel at agility generally maintain a strong focus on architecture and use this focus to inform investment decisions. To develop the necessary focus on architectures, organizations need to map changes in the business to those in IT. The business/it Figure 1: A business-grounded approach to IT simplification Step 2 Set Up New Platform Step 1 Product Cost Transparency Current Platform(s) Step 3 Transition Products to New Platforms New Platform New Step 4 Close Unprofitable Products X Re-platform for New New set of Products and Market Offerings Products that are and currently sold Products that are Closed and no longer sold but may have inflows Step 5 Transition Current Platform or Remaining Products 4 Addressing Inflexibility 1 Accenture High Performance IT Research, 2010,

5 engagement model must be updated to exploit a simpler, standardized set of components across both domains. To do so, organizations must perform a root-and-branch review of the products and services provided by the business, the value they generate, and the infrastructure that is used to deliver them. The review should reveal the organizations challenges and the best architectural models to address them. Businesses should also consider products and services provided by third-party organizations. Increasingly, this analysis points to the benefits of cloud-based offerings and components delivered as-aservice (XaaS). As cloud technology matures, it is bringing a new level of flexibility in matching infrastructure provisioning to business needs. But both legacy renewal and cloud are about far more than just infrastructure. A clear road map is needed to turn a complex, on-premise legacy architecture into a simplified, flexible architecture using both public and private cloud and the best available application solutions. In general, the migration to the new architecture offers four options for each component: 1. Partial termination: Eliminating application and infrastructure components that support discontinued products and services 2. Transition: Moving processing support from a legacy set of components to a strategic set 3. Migration or modernization: Upgrading the architecture with appropriate, new technology components 4. New platform: Creating a new architecture to support products Cloud technology is a potential solution in the last two options. Each option has specific components and additional opportunities (Table 1, page 6). 5 Addressing Inflexibility

6 Table 1: Alternative legacy renewal approaches Chosen renewal approach Key solution components Additional opportunities New Platform New Platform New Cloud technology Market-leading applications and services Purchase business processes, IT services or infrastructure from third-party organizations, based on risk appetite and in-house capability Implement revenue-generating technology changes such as mobility and IT consumerization Partial Termination X Cost savings from existing hardware and software vendors Architecture rationalization Negotiate terminations or lower prices for reduced volumes Transition Re-platform for Migration (Re-platform) Re-platform for Capacity-based performance output from existing hardware and software vendors Application modernization and optimization Architecture rationalization Cloud technology Market-leading applications and services Application modernization and optimization Rationalization and virtualization If the products and services are strategic: 1. Purchase business processes, IT services or infrastructure from third-party organizations based on risk appetite and in-house capability 2. Rationalize the architecture If the products and services are not strategic: 1. Minimize cost of providing operational service by rationalizing the architecture and discontinuing investment 2. Invest in IT services that improve automation and self-service and reduce costs of business processes Investigate opportunities to rationalize IT architectures and business processes Source common standard services from third parties Use innovative technologies 6 Addressing Inflexibility

7 Addressing legacy inflexibility: The art of the possible Inflexible legacy IT architectures constrain not just IT s ability to support the business, but also the business s potential to grow and compete. There is strong argument for renewal and simplification of IT architectures in many organizations. A renewal program must pursue simplification of both IT and the business in order to stimulate growth. Organizations should focus on how business and IT architectures can be simplified by moving to fewer, standardized components, thus renewing the entire organization s capacity for growth. 7 Addressing Inflexibility

8 About Accenture Accenture is a global management consulting, technology services and outsourcing company, with approximately 261,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$27.9 billion for the fiscal year ended Aug. 31, Its home page is Copyright 2013 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.