Most companies, including DAX ones, do not have a modern, open-interface, scalable IT landscape. What they do have is a combination of numerous ERP systems and isolated legacy applications which were individually designed for specific processes. Such structures make data exchange between systems impossible or at least very difficult. Customer experience suffers, and many new business models of traditional companies never obtain the acceptance of customers – or employees.
Therefore, it is crucial to create the necessary technological conditions before implementing a digital business model or selling an additional digital service.
IT connectivity is a must
Especially challenging for CIOs: due to digitalization and numerous new digital solutions (IoT, mobile commerce, digital marketing, etc.), IT landscapes are becoming even more heterogenous. Previous consolidation efforts are often rendered useless. Consequently, a (sometimes planned and controlled) shadow IT is created which has to be connected to backend IT via APIs.
IT departments also struggle with the development of new digital business models based on cloud platforms (AWS, Salesforce, Azure, etc.). This creates even more software applications that have to be connected with existing IT systems. This connection to backend processes (ERP, CRM, etc.) is prerequisite for data exchange between the systems and to make all relevant information available to the users of a service (e.g. a website).
Companies invest in cloud migration
The most frequently stated reason for cloud migration is a flexible and scalable operation of applications. In the course of the most recent Luenendonk study “IT strategies and cloud sourcing in the digital age”, 72 percent of respondents stated the aforementioned reason for their migration to the cloud.
Many legacy systems often do not have the necessary interfaces to connect IoT applications or digital marketing solutions to their systems. A better integration of new applications in backend IT is the second most frequently stated reason for cloud sourcing. Here, APIs are the focus to connect new digital solutions quickly and seamlessly to core processes. Consequently, the necessary data exchange between systems becomes possible.
Another important reason for cloud migration is the development of new digital business models and digital services (chatbots, apps, etc.). Agile methods are often used for development and deployment. DevOps is the preferred method, and the platforms of leading cloud providers (AWS, Google, IBM, Microsoft Azure) even offer it to their customers through APIs, along with numerous other modern technologies (AI, security, analytics, etc.). For customers, IaaS offers are therefore a cost-efficient way to use new technologies.
Interestingly, every second respondent stated that cloud providers have higher IT security standards and offer better protection against external attacks than traditional server hosting. Legacy IT systems are often not equipped to deal with hacking or industry espionage.
Current and future sourcing strategies
The most recent Luenendonk study “IT strategies and cloud sourcing in the digital age” – in cooperation with IT service provider Datagroup and IT sourcing consultants microfin and Sepicon – shows that the traditional sourcing model (no cloud) still dominates in software companies, but also presents strong evidence that the cloud will prevail.
The currently rather small percentage of the cloud in businesses can be explained easily. On the one hand, each and every business department has to be involved in cloud migrations, making them highly complex projects. They can last months, even years. On the other hand, there is still no common definition for cloud deployments. For example, the Azure stack of Microsoft which emulates a cloud environment in on-premise operations is a gray area – some think it’s a cloud deployment, others don’t.
People are more and more drawn to cloud sourcing. Only 19 percent of respondents said that they wanted to leave their applications in their own databases and use no cloud components. In the long-term, this number is even smaller: only 8 percent said that they would not use any cloud components in the future.
The respondent’s answers show that migrating some parts of application landscapes to the private cloud will be the preferred sourcing strategy. Hybrid approaches will therefore become more and more important to connect on-premise systems with the cloud and numerous cloud deployments.
29 percent of interviewed companies said that they currently have comprehensive strategies to migrate parts of their application landscapes to the private cloud. 23 percent have already implemented this sourcing strategy. Some companies even want to migrate their entire application landscapes to the private cloud. Reasons for this decision include the better overall connection of systems (ERP, CRM, PLM) with new digital solutions as well as the seamless data exchange between them.
Cloud first strategy for new applications
In 20 percent of interviewed companies, new applications are directly deployed in the private cloud, and 18 percent want to deploy new software exclusively in the private cloud in the future. Interestingly, 18 percent deploy their software applications entirely in the public cloud. However, only 11 percent can imagine the public cloud as their future business model.
These results show that major companies and organizations have made a lot of progress over the past few years, as they have either built up their own clouds or paved the way for migrating part of their software applications to the cloud.
Public cloud gains acceptance
Even though the private cloud most likely will be the dominant cloud model in the future, the responses of interviewed CIOs and IT managers also show that the benefits of the public cloud greatly outweigh the security risks.
At least for specific, not mission-critical applications, 20 percent of respondents can imagine themselves using a public cloud model. Currently, every 10th company deploys the public cloud. In the future, 12 percent even want to host their entire application landscape in the public cloud.
There is no alternative to migrating to the cloud. If digital business models are supposed to be successful on the market, data between internal systems has to flow unrestrictedly. The same thing is true for all participants in a platform ecosystem.
Monolithic IT structures make for nice frontends, but agile and scalable IT platforms are the future. Online organizations and startups have already paved the way with a greenfield approach – and it shows: they are the winners of the digital age.