THE STATE OF IT TRANSFORMATION FOR RETAIL

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1 THE STATE OF IT TRANSFORMATION FOR RETAIL An Analysis by Dell EMC and VMware Dell EMC and VMware are helping IT groups at retail organizations transform to business-focused service providers. The State of IT Transformation for Retail is an analysis of customer data provided by retail organizations that have assessed their current state and identified their biggest gaps. This report identifies only a handful of key drivers that we believe will help propel IT transformation within the retail industry over the next few years. DELL EMC PERSPECTIVE

2 TABLE OF CONTENTS EXECUTIVE SUMMARY...3 INDUSTRY DRIVER 1: OPERATING MODEL AND SERVICES...4 The need for hybrid cloud and the IT skills to support it INDUSTRY DRIVER 2: INFRASTRUCTURE...5 A push towards software defined storage and hybrid cloud architecture INDUSTRY DRIVER 3: APPLICATIONS...6 Retailers need to focus on application modernization CONCLUSION...7 APPENDIX METHODOLOGY...8 2

3 Executive Summary Information Technology for the retail industry is constantly being redefined. The lines between the consumer and your IT department are practically non-existent as the demand for a better buyer-experience pushes retail companies to develop and implement new technology. In addition, internally, your business units and departments are looking for more consumer-like services from IT. To do this, IT groups needs to grow and offer IT-as-a-Service -- especially as older services are utilized less, and new services are deployed. IT professionals within the retail sector need to pivot quickly. Not only reacting to the changing market, but also being strategic and helping predict the consumers next move. In order to satisfy internal and external demand, protect consumer information, and eliminate waste and cost overages, IT professionals need to deliver reliable services while driving the IT transformation needed for greater flexibility, agility and scale. Have you ever wondered how your plans for transforming your IT organization stack up against those from your retail industry peers? It is a natural part of the planning process for IT professionals and business unit leaders to seek best practices from similar companies. Understanding the IT transformation process, Dell EMC and VMware have compiled information from retail companies to help provide a new view on where they are currently and, more importantly, where they want to be in the near future. The State of IT Transformation in the Retail Industry is a companion report of a larger analysis conducted by Dell EMC and VMware. Data was collected from a variety of companies, including global consumables and durable goods companies, that participated in an IT Transformation Workshop -- which is specifically designed to help companies assess the gaps in their IT transformation, benchmark their current state against their peers, gain consensus among executives on prioritizing their goals and determine the immediate next steps in achieving those goals. This report focuses only on the responses from the retail industry and provides key highlights and insights on trends that impact IT transformation for the retail industries. It will expand on the overall report by providing our view on 3 major drivers (applications, operating model, and infrastructure) for these organizations looking to achieve IT transformation. The entire State of IT Transformation report, along with additional industry companion reports, is available on the Dell EMC website. 1 Source: An analysis of clients by McKinsey and Dell EMC 3

4 Driver 1: Operating Model & Service Strategy Many retailers already leverage the public cloud. In fact, ninety-four percent of Line of Business decision makers in the retail space are using some form of public cloud service. Over the next few years, the retail industry will be at a tipping point where they will need to put more emphasis on hybrid cloud services. Forty-nine percent of the respondents from the retail industry reported that they had not evaluated their IT staff for the skills necessary to support cloud technology. In fact, none of the respondents indicated that new IT skills were being currently added to new hire requirements or training for existing staff. The retail industry ranks in line with the combined scores from all industries when it comes to how far along they are in moving workloads to a hybrid cloud environment. However, nearly all retail companies still do not have a clear hybrid cloud plan. Within the next two years, retailers will look to have not only established an enterprise hybrid cloud, but will be working to have all applications evaluated for placement. As hybrid clouds become more reliable (and the norm), retailers will continue to place more workloads there. Many retailers already leverage the public cloud. In fact, ninety-four percent of Line of Business decision makers in the retail space are using some form of public cloud service 1. However, despite the widespread adoption of public cloud, retailers still rely heavily on private clouds or legacy environments for mission critical applications, particularly those associated with payments, or client information. The paradox this creates is that while retailers are often on the front lines pushing for faster and more robust customer engagements, they often are far more conservative when it comes to other Tier 1 applications. The reason for the reluctance to move fully to the cloud is primarily security. In a separate study conducted in EMEA by Dell EMC, VMware, and VCE, retailers were asked to rank the risks related to public cloud; as a result, forty-seven percent listed security exploits, while forty-two percent listed customer data loss (multiple answers were accepted). However, as public-and-hybrid cloud becomes more secure and common, we expect to see the amount of applications transitioning to the cloud to grow. Self-Service Portals and Catalogs Another challenge for retailers centers on delivering IT services in a similar manner in which they deliver services to customers. In order to provide IT as a Service (ITaaS), retailers need the ability to provide and effectively manage user and customer requests through a service catalog and self-service portal. That being said, sixty percent of the retail respondents indicated that they have no self-service portal or service catalog in place. For those that have a service catalog, thirty-seven percent indicated that it is not fully developed and no portal is in place. 4

5 1 Cloud-Enabled Retailing: How Business Functions are Driving Public Cloud Adoption Across the Sector, 2015 study by Dell EMC, VMWare, and VCE Driver 2: Infrastructure Retailers ranked their infrastructure below average when compared to the combined average of all industries. When it came to questions regarding software defined storage and hybrid cloud architecture, it seems as though retailers have the infrastructure to compete today. However respondents recognized the need to transform these areas of their IT for tomorrow. Eighty-eight percent of respondents indicated that less than twenty percent of their network has been virtualized and therefore software defined. Software defined networking will help reduce the day-to-day operational tasks, and speed the delivery of services. Software Defined Storage 0-20% Storage Virtualized 20-40% Storage Virtualized 40-60% Storage Virtualized 60-80% Storage Virtualized % Storage Virtualized 9% 17% 9% 66% Current 11% 34% 23% 20% 11% Next 2 Years While on average the participants from the retail industry ranked their software defined storage infrastructure slightly above the average from the combined industries, the aspirational target score for retailers indicated that a significant amount of focus would be placed on the continued transformation of their storage infrastructure. While cost control is always a motivational driver, we see the move towards software defined as being more strategic and in line with the need to analyze more data, build better clouds, and deliver modern applications. Faced with a dizzying amount of competition, an aging infrastructure, and internal pressure to move faster, the retail industry will need to start upgrading their storage infrastructure. Modernizing legacy systems is the first step to achieving other strategic goals. New technologies cannot rest on the foundation of older infrastructure. Software Defined Networks and Software Defined Storage will be a focus for the retail industry in the next two years. Fifty-four percent of respondents expect to have at least sixty percent storage infrastructure software-defined by then. 5

6 Hybrid Cloud Architecture When it comes to having a well-engineered hybrid cloud architecture, it is not a surprise that most retailers find themselves behind where they need to be. Ninety percent of the retail respondents indicated that they are either only evaluating a hybrid cloud architecture or in the early proof of concept stage. Hybrid cloud architectures play an important part in driving a more agile and easilymanaged IT architecture, one that's optimized through converged infrastructure for both private and public cloud delivery models. Retailers looking to make infrastructure changes in the next two years to help bridge the gap between private and public cloud will need to move quickly to catch up. Driver 3: Applications When it comes to the application transformation, retail lagged slightly behind other industries, particularly in areas of application modernization and the scalability of application platform. While many retail organizations see the need to focus on application transformation, more emphasis will be needed to bring the retail industry on par with other industries. All of the retail respondents indicated that they do not have the necessary application development infrastructure to meet the next generation cloud computing requirements. In fact, ninety-one percent of the retail respondents have modernized less than fifty percent of their infrastructure. Application Modernization 100% 80% 60% 40% 20% 0% Current State Future State No Tier 1 Apps Modernized Less than 20% Apps Modernized Greater than 75% Apps Modernized This metric measures what percentage of the Tier 1 applications have been modernized and are "cloud-ready". In a perfect environment, all of the Tier 1 applications would be written in lightweight, highly-portable application frameworks and be capable of harnessing cloud-connectivity and scalability. The ability to move high profile, mission critical applications onto the cloud will allow retailers to unleash what has always been the potential of the cloud in general. Through application modernization, retailers will gain the speed and agility that that comes with modernizing an older application, while reducing the escalating costs associated with maintaining complex, monolithic applications and middleware stacks. 6

7 Modernizing applications may involve rewriting them to be able to run in a virtualized environment. Eighty percent of the retailers who participated in our survey indicated that less than twenty percent of their applications have been virtualized. As more applications are modernized, they become eligible for placement in private, public or hybrid clouds enabling IT to scale them on demand. Application Virtualization 3% 11% 9% 9% 69% 0-20% Virtuallized % Virtualized 40-60% Virtualized 60-80% Virtualized % Virtualized Conclusion When it comes to IT Transformation, the retail industry is on pace with other industries in some areas, but lagging behind in others. The rationale for this can be found by examining the nature of the industry and some of the trends over the past five years. IT for the retail industry will, and should be, uncompromisingly focused on evolving its business model to provide more services in a more consumer-centric manner, not simply providing information. The ability to offer consumer-like services helps promotes service efficiency and ultimately may reduce operating costs by transitioning from the legacy infrastructure to more virtualized ones. The retail companies that are striving for transformation are developing innovative solutions to ensure that they are not falling behind in an ultra-competitive market. Their organizations infrastructure, operating models or IT service strategies are driving change that will enable the retail industry to be more efficient, reducing time spent managing issues and allowing for more time meeting the needs of the consumer. About the IT Transformation Workshop The IT Transformation Workshop can help IT organizations identify key transformational initiatives by measuring the readiness of their current environment. Organizations receive benchmarking data that shows where peers in their industry are in each area of transformation, and an analysis of the key gaps in their environment. At the end of the workshop, participants have a prioritized list of next steps to take, along with the estimated return on investment (ROI) that would be seen by closing the gaps in IT transformation that were identified in the workshop. 7

8 Appendix Methodology The organizations analyzed in this report began their transformation with an IT Transformation Workshop, which was specifically designed to help them assess the gaps in their IT transformation, benchmark their current state against their industry peers, determine their goals, and gain consensus among their executives on prioritizing the immediate next steps to take to achieve those goals. The CIO and his/her direct reports are the participants at these workshops. This report is an analysis of the data collected during these workshops and is a barometer of where companies are in their IT transformation. Therefore, this analysis is not a random sample of research subjects, but an analysis of companies who are actually in the midst of an IT transformation. 2 Prior to an IT Transformation Workshop, the participating retail organization completes a questionnaire that is used to assess the company s current and desired state of transformation. There are 29 questions that cover various areas: Operating Model and Service Strategy Organization and skills Packaging IT services self-service enablement, financial transparency IT service automation provisioning, metering, monitoring, reporting, and predictability Applications Application modernization, development, and platforms End-user computing Infrastructure Hybrid cloud workloads and architecture Virtualization compute, storage, app, network, and desktop Business continuity and availability Workshop participants answer each question in two ways where they are today (their current state) and where they want to be within the next two years (their desired state). A gap analysis is performed and recommendations for closing those gaps are presented to the CIO and team. The company also receives a benchmark analysis that compares their progress in IT transformation against industry and competitive peers CONTACT US 2 This report covers the 35 retail customers that participated in workshops between 2014 through mid-2015 To learn more, contact your local representative or authorized reseller. Copyright 2016 Dell Inc. or its subsidiaries. All Rights Reserved. Dell, EMC, and other trademarks are trademarks of Dell Inc. or its subsidiaries.other trademarks may be the property of their respective owners. Published in the USA 11/16 Dell EMC Perspective H Dell EMC believes the information in this document is accurate as of its publication date. The information is subject to change without notice. 8

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