The Advantages of Application Modification

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1 I D C T E C H N O L O G Y S P O T L I G H T Ap p l i c a t i o n M o d e r n i zation: Expand i ng B u s i n e s s C apabilities a nd R e d u c i n g T e c h C o m p l e x i t y March 2014 Adapted from Unlocking More Value from Cloud Services by Gard Little and Simon Ellis, IDC # Sponsored by Oracle Optimizing and Streamlining Existing Application Usage For most enterprises, application environments are a complex mixture of existing packaged applications, Web applications, custom applications, mobile applications, and SaaS applications. Effective management can require multiple resources, vendors, and significant budget. In managing and supporting complex application environments, IT organizations occasionally struggle to keep ongoing operational costs down, especially for their packaged applications. Complicating matters, packaged applications that are linked to core and critical business processes are often targets of business-user demands for increased functionality to better support and enable core business processes. Fulfilling those demands can complicate IT management's long-term application strategies. Common challenges IT organizations face include creating newer functionality on older application architectures and turning around application enhancements within business-demanded time frames. In such cases, remaining on older platforms can be a hindrance to streamlining IT management activities and enabling business flexibility and agility. As a result, organizations may turn to application modernization as a tactic to enable business flexibility as well as lessen the burdens of ongoing IT management. When facing the application modernization dilemma for packaged applications, organizations have multiple tactical choices. They can do one or more of the following: Consolidate application instances. This tends to be a strategy organizations use when they have disparate business units in different geographic locations that all use separate instances of a current application, yet are predominantly using similar functionality (i.e., multiple finance groups). Culling application instances can help organizations rein in disparate versions of the application and optimize application management on a common standard, but the downside is that specialized application functionality for a given location is sacrificed and could disrupt operational effectiveness for that unit. Develop new application code to extend the life and utility of the packaged application. This tends to be a strategy organizations use when an application continues to meet business needs, yet could be enhanced to drive greater business value. Adding increased functionality can stimulate greater user adoption without requiring an organization to go through an application replacement effort. IDC 1671

2 Retire the existing packaged application and migrate to a new application. This tends to be a strategy organizations use when a current application doesn't support user and business needs. A new application can stimulate user interest and create business value in terms of productivity gains, but deploying a new application requires the organization to devote set time, resources, and money to roll out and maintain the application. Rehost or replatform the packaged application to newer infrastructure. This tends to be a strategy organizations pursue when a newer, more modern application infrastructure can boost the effectiveness and value of the application as well as simplify infrastructure management. Examples include moving the application to an externally hosted environment, or private cloud, where the hosting provider offers updated hardware and networks that enable higher application performance and reliability or moving to a public cloud based environment where the hosting provider offers a virtualized, self-service infrastructure that enables scalability, automation, and predictive cash flows. Key benefits of a cloud strategy tend to be performance related, while primary risk considerations center on security and meeting service-level agreements. Convert and update existing code into new development languages. This tends to be a strategy organizations pursue when core application functionality meets business needs, but the IT organization sees greater value in moving to a new technical stack versus staying on the current technology. The benefits are primarily IT management driven since core functionality and front-end application functionality typically remain the same. The primary drawback is opportunity cost: Money invested into the application technical stack migration may generate a better return if purposed elsewhere. Restructure embedded application code to support a more modular, service-oriented architecture (SOA). This tends to be a strategy organizations pursue when they want to modularize application functionality and transfer that functionality to a Web service rather than embed functionality in the packaged application. Key benefits are serviceability and flexibility because any enhancements that are needed for the application are made within the Web service and not in the application, thereby reducing the impact on application upgrades. The primary risk, however, is the higher level of technical complexity involved with the modernization approach. In cases where user adoption of packaged applications may be low because the apps have antiquated user interfaces and nonintuitive end-user screens, organizations can target those applications as candidates for modernization. In such cases, organizations can modernize the packaged application front end by creating a Web interface that's accessible via a browser versus a traditional on-premise green screen. A Web interface not only opens up the accessibility of the application to users in remote locations but also can leverage more dynamic, user-centric Web technologies like Ajax and JavaScript to enhance application user experience. Through front-end modernization, organizations can leverage cloud computing concepts like reusable components and simplified, standardized functionality to the underlying packaged applications to create rich, intuitive user interfaces. The reusable components enable organizations to build a core end-user interface as a common standard and then scale and create multiple, tailored user interfaces based on roles and language requirements (i.e., English, German, or French) without having to manage multiple sets of custom component libraries and code. The result can be an application that better supports access to a variety of geographically dispersed resources, with IT being empowered to support the application centrally IDC

3 Reducing Technical Complexity Modernizing packaged applications, whether for front-end user interfaces, infrastructure, or back-end application functionality, can introduce technical challenges and heighten complexities for organizations. In the case of modernizing a user interface, adding new front-end Web technologies like Ajax and JavaScript can expand the complexity of an organization's technology portfolio and requires IT managers to have resources skilled in a wider array of technical programming languages. Given the need to manage a wider set of technologies and more diverse skill sets across resources, technical complexity can begin to complicate and undermine application modernization objectives. Similarly, creating custom back-end functionality for packaged applications might meet business needs in the short term, but it will likely complicate application upgrade path decisions in the future. As a result, organizations need to be conscious of the amount of application customization they do. This is especially important for packaged applications because upgrading packaged applications in the future could mean redoing customization efforts that were made for the initial application and can result in increased application management costs. To combat rising technical complexity, organizations need a combination of control procedures, governance, and standardization to ensure that application environments can continue to be managed easily and cost effectively through application modernization efforts. More specifically, organizations can do the following: Leverage core functionality of packaged applications. Modernization efforts can be made more complex and costly when packaged applications are highly customized to match very unique business processes. When extensive customizations are made to packaged applications, organizations can run into complications with upgrading applications and retrofitting those customizations when new versions of the applications are released. Rather than make deep customizations to their packaged applications to match highly unique business processes, organizations can instead leverage core application functionality and simplify their unique business processes through business process reengineering. Standardize code frameworks and development processes. Standardization of code frameworks and development processes aids with ensuring application consistency and ease of future serviceability. Through a standardized framework, IT organizations can structure code in a referenceable, modular fashion. While unstructured coding (i.e., hard coding) may enable developers freedom in how they develop as well as enable speed of delivery for initial development, lack of standardized code frameworks often has trade-offs of higher costs for servicing code in the future as well as increased technical complexity. As organizations consider application modernization, they need to consider not only their existing code investments but also their long-term application strategy across the entire application portfolio. As such, organizations need to think strategically about how their current application portfolio will support the business now as well as in the future, how the portfolio needs to evolve over time to enable business speed and agility, and, most importantly, how overall application portfolio operational costs can be minimized. As a result, IDC recommends that organizations: Review broader business objectives as part of the application modernization. The return on investment (ROI) of application modernization efforts certainly has an effect on IT operations moving forward, but perhaps more importantly, organizations need to understand how application modernization impacts business functions and how it enables larger business objectives like improving customer satisfaction, boosting sales, or increasing profits. Application value tends to center on productivity gains, so organizations need to link how application modernization contributes to productivity gains and in turn aids business functions (i.e., sales) with achieving corporate objectives (i.e., increasing revenue) IDC 3

4 Regularly assess the current state of the application portfolio. Application modernization isn't a "one and done" activity. Rather, it's an ongoing concern for continuous application portfolio management. Organizations need to continually assess how well their applications support business needs including conducting self-assessments on how well application management operational costs are held in check, how well applications support varying business needs, and how well applications support business resiliency. Like any asset, applications have a useful life, and organizations should continuously evaluate which assets they maintain and which assets they shed. The applications that draw the most resources and capital from organizations may be candidates to upgrade or even candidates to sunset. Evaluate the time value of application modernization. As part of ongoing application assessments, organizations need to understand the ongoing cash flows required to support their application modernization. Similar to determining the net present value of an asset, organizations should forecast ongoing application modernization efforts against applications in their portfolio and compare those values against alternative strategies. Organizations may find that the value of modernizing some applications may be an investment gain, while modernizing other applications may cost more than the applications are worth. Expanding Business Capabilities Funding the expansion of business capabilities via modernized solutions is often a challenge. However, the cost efficiencies associated with public and private cloud delivery models can help. Using a public cloud delivery model as part of an application modernization strategy has several compelling economic advantages, such as renting only what you need when you need it versus buying to accommodate peak capacity and incurring the associated costs of deploying and supporting the applications over time. For example, IDC analysis using its Cloud Decision Framework tool has shown that moving application development to the public cloud can result in a 73% cost savings compared with traditional approaches. Moreover, the economics of private or hybrid cloud services can be advantageous compared with owning/leasing and operating on-premise software or hardware. The same IDC analysis framework has shown that the migration to private cloud can reduce total cost of ownership (TCO) by 62%. These types of results can free up cash to fund further solution modernization efforts. For example, consider NASA's Jet Propulsion Laboratory (JPL). An IDC case study of JPL's use of cloud infrastructure services reported that one image processing task from the Cassini spacecraft had been running for 15 days on JPL's internal IT equipment and remained uncompleted. When the task was moved to an external provider's cloud computing environment, however, it was completed in less than 5 hours at a cost of $200. However, for organizations that want to unlock more value from solution modernization, the real opportunity and risk comes from using the solution modernization as a touchstone for proposed changes to business processes, models, strategies, or organizational structures. IDC believes the economic benefits of implementing modernized solutions, holding all other things constant, will begin to reach a point of diminishing returns unless business transformation becomes part of the equation. Because business transformations involve high risk/reward scenarios, many organizations are reluctant to pursue them, and those that do often require significant financial justifications. However, some business cases and ROI calculations related to solution modernization are problematic because they rest on a bed of assumptions, including the degree to which future costs and benefits, as well as potential risks, of business transformation are understood and included. Likewise, the impact of solution modernization on the quality of an organization's output (i.e., an organization's products or services), or the ability of an IT department to deliver services in support of an organization's overall mission, is hard to measure financially but is an important element of new IDC

5 business value. Crafted correctly, business cases and ROI calculations are tools to help justify large expenditures, but end-user organizations must make explicit their assumptions about the degree of business transformation to be involved (e.g., the degree of transformation, measured in time or dollars, that they are willing to accommodate) and the potential impacts on product or service quality. Tackling solution modernization in combination with business transformation involves a higher risk/reward scenario, and this is why so many end-user organizations seek outside help from service providers and industry experts. Considering the Oracle Solution Modernization Service The Oracle Solution Modernization Service, delivered by Oracle Consulting, is designed to maximize clients' ROI from Oracle applications and technologies. The service identifies business value by optimizing existing application usage, expanding business capabilities, and reducing technology complexity. With expertise that spans the entire Oracle product portfolio, Oracle Consulting helps organizations establish an actionable roadmap intended to create value for the entire organization. A team of Oracle Consulting experts collaborates with a client's business leaders and IT organization in a workshop-based engagement. This approach encourages active participation from all teams and is designed to break through traditional organizational traps and to gain buy-in to the roadmap results. The Oracle Solution Modernization Service includes the following: Business Objectives Understanding. To create a foundation for the roadmap, the Oracle Consulting team works to highlight areas of concerns within an organization's business strategy, objectives, and performance-improvement goals. Through interviews and executive sessions, this activity seeks to identify and gain alignment on a common set of business objectives for moving forward. Current State Analysis. This activity identifies the root cause barriers to achieving business objectives. Through a series of structured, process-focused workshops, Oracle Consulting assesses the current process, organization, and IT implementation of the client. The resulting "heat map" identifies the critical capabilities that must be transformed to achieve business objectives. Solution Scope and Charters. Oracle uses its enterprise reference architecture and process framework to translate the "heat map" capabilities to the target processes and applications necessary to enable business objectives. These workshops assess the fit of potential solutions and best practices with business need. Additionally, these workshops identify the key drivers of business benefit. Roadmap initiatives are identified and charters developed, including initiative objectives, scope, solution elements, and expected benefits. Prioritization and Value Analysis. Assessing the strategic alignment, potential cost, and benefits of initiatives provides the basis for prioritization. Oracle Consulting leverages advanced tools to establish the relative value of proceeding with initiatives. Roadmap Development. Developing an actionable roadmap requires an understanding of business and technology interdependencies, readiness, and risk. Oracle Consulting's experience with successful multiyear program execution provides the understanding necessary to establish a relevant, living, and actionable roadmap. Risk Considerations. Effectively adopting a roadmap requires an understanding and a strategy for managing the risks that are unique to an organization. Oracle Consulting helps clients identify those risks and provides proven strategies for recognizing and managing risks before they impact an organization's progress IDC 5

6 The Oracle Solution Modernization Service leverages the Consulting team's exclusive focus on Oracle technologies. The company has experts that other vendors use for leading practices in Oracle hardware and software implementations. Obviously, Oracle knows best how to optimize an investment in Oracle products and works to provide clients with tightly integrated, comprehensive, and well-executed services throughout their ownership experience. Oracle's hardware and software products are designed and tested as an integrated, end-to-end stack in order to provide users with a complete, comprehensive solution that offers optimum functionality, top performance, and reduced complexity. As a leading consulting organization, Oracle knows how to effectively make the entire Oracle stack work together, delivering leading value in the industry. Challenges From the service provider perspective: Make sure that any solution modernizations for a customer are linked to a business transformation or at least a business process that is owned and managed outside of the client's IT department. Even financially successful solution modernizations may hit a wall when they reach the business process level, and providers may miss out on further cash flows if they can't deliver on the crossorganizational or cross-functional business process transformation needs of a client. Don't be afraid to cannibalize existing customer cash flows with solution modernization because if you don't, someone else will propose it to your client first. This not only demonstrates that you have the client's best interests in mind but also puts you first in line to discuss with the client how it may reinvest the savings. From the end-user organization perspective: Make sure solution modernization initiatives are about more than reducing IT costs. So much of what IT has delivered over the past years has been about cost reduction and using IT to support the overall business, so it's easy to forget the value of IT as a strategic enabler that allows business to do something that was impossible, or cost prohibitive, before. This approach will help strengthen the linking of modernized solutions to overall business goals. Conclusion Application modernization is an excellent strategy to help expand business capabilities. Using the twin approaches of reducing the technical complexity of applications and optimizing or streamlining existing applications, IT organizations can modernize applications and be better positioned to help fund and support overall business capability expansions. IDC believes solution modernization will continue to grow in importance, and to the extent that Oracle Consulting can address the challenges described in this paper, the company has a significant opportunity for success. A B O U T T H I S P U B L I C A T I O N This publication was produced by IDC Custom Solutions. The opinion, analysis, and research results presented herein are drawn from more detailed research and analysis independently conducted and published by IDC, unless specific vendor sponsorship is noted. IDC Custom Solutions makes IDC content available in a wide range of formats for distribution by various companies. A license to distribute IDC content does not imply endorsement of or opinion about the licensee. C O P Y R I G H T A N D R E S T R I C T I O N S Any IDC information or reference to IDC that is to be used in advertising, press releases, or promotional materials requires prior written approval from IDC. For permission requests, contact the Custom Solutions information line at or gms@idc.com. Translation and/or localization of this document require an additional license from IDC. For more information on IDC, visit For more information on IDC Custom Solutions, visit Global Headquarters: 5 Speen Street Framingham, MA USA P F IDC