The End of the Traditional IT Model: How smart mid-market organisations are moving to licence-free software and systems

Transcription

1 The End of the Traditional IT Model: How smart mid-market organisations are moving to licence-free software and systems A research report commissioned by Scale Computing

2 Executive Summary This survey of 200 UK organisations with between 200 and 1,000 employees indicates a re-alignment of their corporate IT away from the safe, steady state running of technology that is typically dominated by large vendors traditional licensing models, towards more flexible, licence-free software and systems. It s in the DNA of smaller firms in particular, to be cost-conscious: half (48 per cent) of the decision-makers surveyed felt their budget wasn t enough, while nearly two fifths (39 per cent) of the survey including 36 per cent of private company IT executives use more suppliers than they need to. As a result of this, 62 per cent of these respondents, including 68 per cent of those in the private sector benefit from this supplier competition and wring more value from their IT budget, achieving typical annual savings of 2 million by doing so. Asked what factors really do matter in an IT evaluation, heads of IT listed meeting current and future technical requirements, improved scalability, improved agility, flexible and licence-free contracts. The prolonged economic slowdown saw four-fifths (79 per cent) examine non-licence or open source IT options in the last 12 months but the UK recession was very far from being a tipping point in the move away from vendors traditional IT models: survey responses are showing a growing interest in software and systems without licensing agreements since the early 2000s. Interviewees estimate that in 2005 around 16 per cent of their applications were licence tax free, rising to 18 per cent in 2007, rising again to 21 per cent in 2009, then reaching 26 per cent by 2011 and hitting 31 per cent now. Respondents predict that 36 per cent of applications will be based on a non-licence-model by UK organisations: rising use of licence free applications 40% 35% 30% 25% 20% 15% 10% 5% 0% (projected) Large vendors capture of smaller firms technology estates manifests itself in different ways. While the majority of SMBs senior IT decision-makers believe that they choose IT solutions with their organisation s current and future business and technical requirements in mind, even more of them believe that their enterprise counterparts are guilty of buying 'big name IT brands presumably to boost their own personal industry profile. Moreover, smaller firms heads of IT are irked by the considerable range of supplier management tasks demanded of them in the world of the big IT system vendors. Over two-thirds (69 per cent) of the survey consider their skill set more about multi-vendor management than being an actual IT guy. Resentment simmers: most decision-makers (57 per cent) consider that their IT knowledge is perfectly adequate and that the real issue is the lack of departmental resources preventing them from pursuing software development or business innovations.

3 These trends paint a picture of smaller and mid-market organisations needs having been, to some extent, ignored by major vendors, who then shrunk their enterprise-level applications for smaller customers as market needs shifted to more flexible IT delivery options. Now that smaller organisations are far more numerous, and effectively driving a re-emerging UK economy, many 'big brand' vendors claim to be focused on smaller customers but their conversion has come rather late in the day. While over half (54 per cent) of the software and infrastructure sold to smaller customers is based on traditional licensing models, IT executives seem dissatisfied with their legacy technology systems, particularly as they re continually looking for ways to give their business systems much greater agility. The survey found that on average only 38 per cent of the corporate IT estate actually gives their organisation real competitive edge. But software and infrastructure that do not depend on old-style, restrictive licensing agreements are becoming synonymous with leaner, cheaper and more competitive IT operations. Remarkably, interviewees estimate that 31 per cent of the software and systems that give them real competitive advantage are now based on either non-licenced or open source models. And over half of all interviewees (52 per cent) reckon that over 25 per cent of the parts of their overall IT estate that gives them some form of edge in their market is now based on these non-traditional models. Heads of IT are clearly looking beyond the usual suspects big name vendors, to more tailored infrastructure and software options without tie-ins. When asked to envisage an ideal, single infrastructure type for all their systems, 70 per cent of the survey said either open source or a purpose-built, non-licence-based product. Only 31 per cent of interviewees say they would opt for traditional software and/or infrastructure model. The survey shows that heads of IT in smaller organisations need high quality IT that is flexible and scalable at a competitive price. It suggests strongly that interviewees are committed to being enablers of their organisation s responsiveness in today s virtualised and convergence economy; furthermore, they will do what it takes to manage out inflexible legacy systems and work with a new breed of IT suppliers and supply models that help their organisation avoid being dominated by software and infrastructure products governed by strict vendor rules and the complex software licences and royalty payments that go with them.

4 Foreword Small and medium sized businesses and smaller public and third sector bodies are the lifeblood of the UK economy but how is it that their needs have been ignored by global infrastructure and software suppliers using traditional licensing models and royalty payments for so long? As the Internet transformed business and government, and spawned millions of start-ups, mid-market businesses have prospered. But these customers have been consistently ignored by major infrastructure and software vendors. Now that mid-market firms are driving the economy, major IT vendors are belatedly focusing on them. We commissioned this study, conducted by market research specialist Vanson Bourne, to test our hypothesis and anecdotal evidence that many of the major IT vendors have made the mistaken assumption that small and medium firms lack sophisticated IT skills and resources and that customers would largely continue to work within vendors traditional licencing-based models that are often very expensive to maintain especially as businesses grow. We also wanted to test our view that smaller firms and public organisations have even greater potential as technology innovators. Given better understanding by flexible suppliers and partners, they could throw off even more of the shackles and help drag UK plc back towards prosperity. The survey shows clearly that IT heads are smart and agility-focused; they want high quality, scalable and flexible IT at a lower price. Moreover, they are looking for new types of IT supplier to help them innovate while avoiding the cost burdens of proprietary and complex software licence fees. Scale Computing thanks all interviewees for their help in opening up this crucial topic. It hopes that all readers, whether heads of IT, company colleagues, board members or software developers will find some exciting (and maybe alarming) talking points in this report. Yours sincerely Jeff Ready CEO Scale Computing Methodology This survey was conducted by technology market research specialist Vanson Bourne, which interviewed 200 IT decision-makers in organisations with between 200 and 1,000 employees during October Of these bodies, 165 were in the private sector with a further 35 from the government, healthcare and education sectors. Organisations interviewed reached across manufacturing (18 per cent), IT and technology (18 per cent) and retail, distribution & transport (14 per cent), financial services (11 per cent), business & professional services (10 per cent), education (10 per cent), local government (eight per cent), healthcare (seven per cent), other commercial sectors (three per cent) and other public sectors (three per cent).

5 Report Findings Snapshot: small organisations IT As small and mid-market organisations, in both private and public sectors, contribute to the UK s economic activity, this research shows a profound shift in senior IT executives attitudes to the way they use IT systems based on either traditional licence and royalty-funded models or open source technologies. It suggests that, as small firms and government services and operations become more autonomous, agile, licence-free and rapidly scalable up or down corporate IT will become a more diverse mix of proprietary licence-based software, open source or a blend of the two. Since by their nature, smaller organisations have fewer cost reduction options than enterprises, they are instead looking carefully under the bonnet. Their IT decision-makers priorities over the last year were headed by updating technology (64 per cent), incremental improvements (48 per cent), having to do more with less budget and maintaining data centre facilities (both 46 per cent) and ensuring system scalability at 36 per cent. In addition, when looking specifically at those with 500-1,000 employees, 70 per cent had updated their technology and 51 per cent had made infrastructure improvements in increments. On average, organisations with between 200 and 1,000 employees spend approximately 17 million on their IT annually, with the highest spenders not surprisingly found in healthcare ( 37 million), financial services ( 31 million) and local government ( 30 million). SMBs typically allocate about nine per cent of their annual revenue to IT against 11 per cent for the more heavily regulated public sector bodies. Cost-conscious IT buyers Smaller organisations are frugal by nature. Nearly half (48 per cent) of respondents say their annual budget is not enough. Most (57 per cent) of senior IT decision-makers in the UK s SMB sector feel that they choose IT solutions that best suit the current and future business and technical requirements. Smaller organisations IT executives are canny shoppers. Nearly two fifths (39 per cent) of the survey routinely use more suppliers than they need to, and competition between different suppliers results in 62 per cent of those taking this approach gaining more value from their IT budget this figure rises to 68 per cent among the private firms. Of the respondents using more suppliers than necessary, the average annual financial saving from doing so was about 2 million. IT decision-makers vision is similarly practical, meeting current and future technical requirements leads interviewees must-have IT evaluation factors while just over half (51 per cent) is looking for improved scalability and almost as many (49 per cent) want improved agility. In addition, four out of ten (39 per cent) are looking for flexible contracts while one quarter (25 per cent) considers that royalty-free contracts are an IT essential. IT solutions: decision-makers top 5 must have evaluation factors 60% 50% 40% 30% 20% 10% 0% Suit current & future technical needs Improved Scalability Improved agility Flexible contracts Migration & on-boarding Support

6 Snapshot: small organisations IT This hard-headed approach contrasts sharply with smaller organisation IT decision-makers assessment of their peers in larger organisations: 60 per cent of the survey think their enterprise counterparts will buy 'big name' IT brands with a possible view to future industry profile and career prospects. The prolonged slowdown has intensified heads of IT s interest in non-proprietary software with the vast majority 79 per cent having investigated open source and licence-free software within the last year. And this interest in alternatives to licenced models is overwhelming in the cash-strapped education (95 per cent) and local government markets (88 per cent) but almost as strong in the IT & technology sector (89 per cent) and the ever innovation-friendly financial services market (86 per cent). The march of open source Revealingly, enthusiasm for open source technologies was gaining momentum in the UK long before the economy went into recession. Survey interviewees estimate that in 2013, 31 per cent of their applications are based on non-licenced software models - up steadily from 26 per cent in 2011 and 18 per cent in And they reckon that as much as 16 per cent was non-licence-based as far back as The drive to businesses with a greater proportion of licence free IT is likely to continue: interviewees predict that the proportion of such software will rise to 36 per cent by Life with fewer vendors Evidence is mounting that smaller organisations IT teams are held back from development and system innovations by the time-consuming task of managing vendors and licence agreements. A clear majority (69 per cent) consider their overall skill set more that of multi-vendor management than an IT guy. More than half (57 per cent) say the lack of resources within the IT department means that the internal IT team cannot devote adequate time to software development or special projects. And intriguingly, responses suggest that SMBs could, in theory at least, start to cull many of their branded licence taxing software and infrastructure suppliers. While the survey found that smaller organisations have on average eight different software suppliers, 81 per cent of the survey said they could get by with fewer vendors and a mainly non-traditional licence-based system. Life without the big names When asked what they saw as their ideal, one technology future, over one third (34 per cent) favours a specially-built system without licence agreements while open source software is the most popular choice at 36 per cent. These findings help explain the increased use of non-licence model software and systems in recent years - as well as over nine out of ten (97 per cent) of the survey s belief that, to some extent, users don t get any competitive advantage from buying traditional, licence taxing software and systems. What is your ideal one IT system future? Specifically built non-licence-funded Open source 36 Proprietary system

7 If heads of IT are indeed tiring of big software providers regimes, what is the scope for non-traditional technology solutions to be used alongside these legacy investments? And how far could it increase these smaller organisations competitiveness? A costly legacy Most IT executives want to unleash their business potential but have clear frustrations with legacy IT estates and its inextricable linkage to major software providers and recurring licence fees that increase exponentially with additional users. Three quarters (76 per cent) say that a basic aim with most of their IT is to have a robust, scalable infrastructure that achieves competitive parity at minimum cost. A clear majority (64 per cent) goes further, saying that IT is an enabler of their business and the wider organisation shouldn t be held back by it. Despite two-thirds (69 per cent) of survey respondents 63 per cent in public sector interviewees, against 70 for private companies seeing real advantages from running open source solutions, proprietary solutions still predominates for now in IT purchasing. Respondents said solutions available were mainly traditional licence-based (54 per cent) or nonlicenced/open source (28 per cent) and evenly split (19 per cent). But certain UK market sectors are starting to widely adopt non-licenced products. On average, almost two thirds (64 per cent) of the healthcare category now has largely open source or non-licenced software while nearly as much (45 per cent) of business & professional services overall IT is mainly non-licence based. The most striking sector result was healthcare professionals use of non-traditional licence-based applications reported by sector (64 per cent) perhaps battling more than most with the need to innovate in the face of a rapidly-ageing population. And there remain glaring differences in different markets willingness or given widespread legacy IT systems, their ability to use non-licenced technology in their organisation. This study found traditional licenced software strongholds in education (75 per cent), retail, transport & distribution (67 per cent), and manufacturing (60 per cent) but in other survey responses, education interviewees notably showed very real enthusiasm for open source developments. Non-proprietary IT and innovation The research clearly shows that IT decision-makers in the UK s mid-market have cut costs and incrementally rebuilt their application stacks for the particular needs of the age of austerity. Moreover, they have reflected on both the existing cost of ownership and the additional commercial potential that they could deliver from different non-licenced software and systems models. Frustratingly for smaller organisations, most of their IT estate is still seen as a commodity that is seemingly geared for steady state running. On average, only 38 per cent of their IT estate delivers any competitive advantage for their organisation. This view was far more pronounced among private sector interviewees (40 per cent believing IT gave a competitive edge) than public sector ones (26 per cent). There was however, greater confidence in more flexible IT models business-driving potential elsewhere: financial services interviewees say 58 per cent of their IT estate is commercially advantageous for them while there were also above average results from the technology industry (46 per cent) and retail, transport & distribution sector (43 per cent). But there is clearly much less agile IT in education (36 per cent), local government (30 per cent), while manufacturing and healthcare are enjoying even lower proportions of added competitiveness from their technology infrastructures (26 and 23 per cent respectively). There is much work still to do. Open source and agility But open source and non-licence-driven IT models are undoubtedly becoming synonymous with leaner, cheaper and more competitive technology operations in today s flexible businesses or transformation-minded public service organisations. Nearly one third (31 per cent) say they now gain real competitive advantage through running such systems.

8 Type of corporate IT estate delivering competitive edge 31 Open Source 69 Licence-funded proprietary Over half (52 per cent) of the survey say that more than 25 per cent of their IT estate that delivers competitive edge is now non-licence based. Including one in five (19 per cent) that estimate that half or more of the commercially-advantageous part of their IT operation is based on licence tax free models. Heads of IT anticipate the end of the big software vendor world in favour of more tailored software and support models for SMBs. Many are already delivering on these models promise. Conclusion: Towards a non-proprietary licence free world This research found that UK heads of IT in small and mid-market firms and smaller public organisations are canny buyers of software and infrastructure, but many are still locked into working with big vendors systems based on traditional licencing models. While 62 per cent of IT executives using multiple suppliers to drive technology cost savings typically are making savings averaging 2 million per organisation, many are chafing as they see much of their team s time and resource spent managing big supplier agreements and maintaining IT estates, the main proportion of which still fails to deliver real competitive advantage for their organisation. IT decision-makers are successfully using and have done to some extent for many years alternatives to traditional licenced software models that are now helping boost their organisation s competitiveness and cutting IT costs. And they expect these trends to intensify. Corporate Headquarters West Coast Office 5225 Exploration Drive 2121 South El Camino Real Indianapolis, IN Suite 500 P San Mateo, CA SCALE-59 ( ) EMEA Office Aston Court Kings Mead Business Park Frederick Place High Wycombe HP11 1LA United Kingdom 2013 Scale Computing, All rights reserved. Any and all other trademarks used are owned by their respective owners.