DIGITAL TRANSFORMATION SERVICES ARE CRITICAL TO BUSINESS SUCCESS

A ZK Research White Paper December 2017 DIGITAL TRANSFORMATION SERVICES ARE CRITICAL TO BUSINESS SUCCESS

TABLE OF CONTENTS Introduction: Digital Success Depends on IT Modernization 3 Exhibit 1: Digital Transformation Is Widely Adopted 4 Section II: The Challenges Associated with Becoming a Digital Company 5 Exhibit 2: Digital Technologies Are Creating a Growing Skills Gap 7 Section III: Introducing Digital Transformation Services 8 Exhibit 3: Business Outcome Services Life Cycle 13 ABOUT THE AUTHOR Zeus Kerravala is the founder and principal analyst with ZK Research. Kerravala provides tactical advice and strategic guidance to help his clients in both the current business climate and the long term. He delivers research and insight to the following constituents: end-user IT and network managers; vendors of IT hardware, software and services; and members of the financial community looking to invest in the companies that he covers. Section IV: Cisco Is the Right Services Partner for the Digital Era 16 Section V: Conclusion and Recommendations 22 Exhibit 4: Digital Transformation Services Offer Many Benefits 23 2

Introduction: Digital Success Depends on IT Modernization Digital disruption will affect EVERY industry vertical, including the market leaders. Digital transformation is now a critical initiative for almost all companies. The ZK Research 2017 IT Priorities Survey found that 84% of organizations now have digital initiatives underway (Exhibit 1). Company and IT leaders recognize that business disruption is happening faster than ever, and those that can move quickly have an excellent opportunity to sustain market leadership. However, those that can t do so will fall behind and struggle to survive. Indeed, a recent report from SAP found that 80% of companies that have undergone digital transformation efforts reported an increase in profitability, compared to only 53% of other companies. Digital disruption will affect every industry vertical, including the market leaders. In fact, business leaders responding to a 2017 survey from IMD felt that four out of the top 10 companies in every vertical will be disrupted within the next five years. This is why businesses must focus on becoming a digital company. Waiting will only cause them to fall behind their more aggressive peers. It s important to understand that success in the digital era does not need to come from intimidating moon shots ; rather, it can come from a series of smaller initiatives that transform the business over time. For example, an established retailer does not need to become Amazon overnight. It can start by implementing guest WiFi and a mobile application and then 3

Z K R e s e a r c h D I G I T A L T R A N S F O R M AT I O N S E R V I C E S A R E C R I T I C A L T O B U S I N E S S S U C C E S S Exhibit 1: Digital Transformation Is Widely Adopted digital signage to complement it. These changes are Does your organization currently have a digital transformation initiative underway? non-disruptive to the business, can be implemented Unsure If businesses are to SUCCEED No quickly and can be part of 3% 13% a larger digital mandate. However, this piece- in the digital era, their technology infrastructure Yes needs to be modernized and 84% skills updated. meal approach is difficult to implement with legacy IT infrastructure and processes. If businesses are to succeed in the digital era, Source: ZK Research 2017 IT Priorities Survey their technology infrastructure needs to be mod- ernized and skills upgraded. This undertaking can be quite daunting even for the largest, most technically savvy companies. Digital transformation services are a new category of services that can help companies of all sizes evolve from what they are today to successful, thriving digital businesses capable of competing both now and into the foreseeable future. 4

Section II: The Challenges Associated with Becoming a Digital Company Although digital transformation efforts appear to be well underway, several barriers are preventing companies from moving faster. During the last 12 months, ZK Research has conducted one-on-one interviews with more than 50 business and IT leaders to better understand Lack of agility was the MOST COMMON concern reported by interviewees. the status of their digital initiatives and what their main challenges are. The following are the issues that came up most often: LACK OF IT AGILITY This was by far the most common concern reported by interviewees. In the digital era, companies must be able to experiment quickly and roll out new services to keep ahead of their competition. Legacy IT infrastructure and processes are far too rigid to enable organizations to achieve the level of dynamism required by digital businesses. Therefore, they must focus on modernizing the underlying infrastructure to realize the level of agility required today. INABILITY TO WORK ACROSS BUSINESS AND IT SILOS In today s businesses, the lines of demarcation separating responsibilities are clear. Lines of business, application development, IT operations, network engineering, security and others each exist in their own silos. Businesses need to strive for line-of-business outcomes where everyone in the company is responsible for the success of digital initiatives. However, this is difficult to do when every 5

department is looking at the business through its own lens. A common set of data is required to ensure every group has the same view of the key performance metrics that fuel the company s success. 69% of businesses lack the right people, knowledge and technology to transform. RISK AVERSE Digital transformation can be intimidating to many companies, as is the fear of spending money on new technology and not knowing what the return on investment (ROI) will be. This happens when a company lacks data and the ability to analyze processes before and after implementation. A lack of data leads to a lack of insights, which increases the level of risk that businesses encounter regarding digital transformation. LACK OF TALENT AND SKILLS The skills and technology required to run a digital business are significantly different from those needed in the past. A recent IDC report found that 69% of businesses lack the right people, knowledge and technology to transform. The danger for businesses is that the rate of technology innovation is accelerating, which is widening the complexity chasm (Exhibit 2). CYBERSECURITY Historically, securing a business meant implementing high-performance firewalls and other devices at a well-defined boundary between the internet and the enterprise. However, the ZK Research 2017 Security Survey found that 90% of security spend 6

Exhibit 2: Digital Technologies Are Creating a Growing Skills Gap Endpoints on the Network Virtualization Cloud Mobility Digital Transformation Internet of Things Containers DevOps Complexity Chasm IT Budgets Source: ZK Research, 2017 Time is still focused at the perimeter even though only 27% of breaches occur there. New digital-enabling technologies such as the Internet of Things (IoT) and the cloud are creating new entry points that hackers are exploiting at a furious pace. Also, the increased complexity of IT 7

has made it significantly more difficult to secure the environment. LACK OF BUDGET The ZK Research 2017 IT Priorities Study found that 83% of IT budgets are used to maintain the current environment, leaving only 17% for innovation far too little to modernize the infrastructure. If businesses are going to become digital organizations, Digital transformation services are a set of technical and professional services FOCUSED on helping businesses become digital organizations. it s imperative that they reduce the overall cost of running the infrastructure so more budget can be allocated to modernization. Section III: Introducing Digital Transformation Services As the name suggests, digital transformation services are a set of technical and professional services focused on helping businesses become digital organizations. While legacy services are geared more toward maintaining the status quo, digital transformation services are designed to optimize the current environment to maximize investments in current infrastructure and accelerate the journey to becoming a digital company. Digital transformation services is an umbrella term for two categories of services that focus on business outcomes and technical expertise. The combination of the two can close the widening skills gap that companies are facing with respect to transforming themselves. Business Outcome Services These services can be thought of as the evolution of optimization services that tackle the 8

challenges associated with continually optimizing performance, securing the environment and accelerating the transition to new technology. Additionally, the services will reduce the operational expenses (opex) associated with running the IT environment, which is badly needed by many companies. For example, ZK Research has calculated that opex accounts for Machine learning should be used to MONITOR key performance indicators (KPIs), set baselines, monitor anomalies, view trends and correlate data. 60% of the overall total cost of ownership (TCO) of running a data center. Therefore, if companies want to allocate more resources to innovation, the first step is to lower their opex. Outcome-based services are a broad set of services that enable businesses to both maximize the value of their infrastructure via alignment to business outcomes and prepare for the future. ANALYTICS IT infrastructure generates massive amounts of data, and it s critical that organizations are able to interpret the data to gain new insights. However, the process of manually inspecting data is too slow because of the volume being generated today. Therefore, machine learning should be used to monitor key performance indicators (KPIs), set baselines, monitor anomalies, view trends and correlate data. Analytics services should include access to experts who can help interpret the data and relate it to business outcomes. The insights generated by analytics services can be used to create a common set of data that all departments in a company can leverage to tear down the silos. Also, analytics can be used to help measure the success of digital initiatives, alleviating the risks that so many businesses fear today. 9

AUTOMATION Digital businesses require IT to operate faster and with more accuracy. Given that 35% of downtime is due to human error, according to the ZK Research 2017 Network Purchase Intention Study, it s not realistic to expect the IT staff to do the same tasks in a shorter period of time with fewer errors. Instead, businesses should automate the critical tasks associated with supporting the infrastructure. This includes creating trouble tickets, testing infrastructure and alerting operations of issues. Automating day-to-day tasks improves the agility of the infrastructure and frees up time for IT and network engineers to develop new skills. COMPLIANCE AND REMEDIATION Complying with industry and internal company regulations can be a slow, painful and arduous process for most organizations. Companies need a set of services that automate audits and associated remediation for software upgrades and configuration changes, as well as enable businesses to meet regulatory and industry-standard compliance and security requirements. ARCHITECTURAL SERVICES Digital transformation does not need to revolve around large moon shot projects. Instead, companies should focus on tackling smaller projects that can improve a specific process. For example, a bank could use video terminals to allow remote agents to talk to specialists located at the company headquarters. IT operations needs to make sure the technology foundation is ready and that requires taking an architectural ap- 10

proach to deploying the infrastructure. It s important to note that there isn t one super architecture for all of IT. Rather, there should be architectural services for different domains such as the cloud, data center, campus network and wide-area network (WAN). The right architectures can improve security and IT agility and lower the overall cost of running the infrastructure. The BIGGEST impediment to a company s future success is its past success. DAN SCHULMAN, CEO, PAYPAL SECURITY SERVICES The ZK Research 2017 IT Priorities Survey found that cybersecurity is the top IT and business initiative. This should not be a surprise, as breaches are now highly publicized and can damage a company s reputation. Simultaneously, securing the environment is becoming more difficult as the number of exploitable entry points into a business has grown by an order of magnitude. Security services can ensure the right technology is deployed in the right places, which can decrease the overall cost of security but also shorten the time to detect and remediate breaches. Services can augment an organization s current security staff and fill in gaps where talent may be lacking. It s important to note that although security is listed as a separate bullet here, it s a component of all the services. TRANSFORMATIONAL SUPPORT SERVICES At the 2016 World Economic Forum in Davos, Switzerland, Dan Schulman, the CEO of PayPal, was quoted as saying, The biggest impediment to a company s future success is its past success. With regard to digital transformation, the more successful a company has been, the harder it is to disrupt its current processes. 11

However, organizations should always be challenging the status quo and finding newer and better ways of operating. Transformation support services use industry and other best practices, combined with a proven methodology, to develop digital services and drive them through completion quickly and successfully. By putting a digital transformation plan in place, these Digital services are HIGHLY dependent on infrastructure particularly, the network. services can bridge the widening gap that exists between lines of business and IT as well as the different IT silos. Business outcome services should be thought of as a set of iterative services that start with the infrastructure foundation, then enable business agility, and then set a transformation agenda. It s critical to understand that digital transformation is not a one-time event; these services constitute a continuous life cycle (Exhibit 3) that constantly optimizes infrastructure to support new digital initiatives. Also, the services should be customized on a per-company basis. Historically, services organizations used a set of standardized offers for every customer, but digital services need to be personalized today. Digital Technical Services Technical services that focus only on product support are no longer sufficient to support digital businesses. Digital services are highly dependent on infrastructure particularly, the network to be successful. Therefore, digital technical services must evolve beyond traditional support to offer prescriptive and proactive services options at the software, system and network level. 12

Exhibit 3: Business Outcome Services Life Cycle INFRASTRUCTURE FOUNDATIONAL SERVICES DIGITAL ENABLEMENT SERVICES BUSINESS ACCELERATION SERVICES Source: ZK Research, 2017 TECHNICAL SOFTWARE SERVICES This area likely has the largest technical talent gap in most organizations. Network professionals in particular have worked very little with software over the years. Technical software services provide the necessary support required to build out software-defined networks and optimize the use of software tools in the areas of the data center, collaboration, security and others. 13

TECHNICAL SYSTEM SERVICES System support services address the needs of a data center that is becoming increasingly converged, hyper-converged and virtualized. Advanced SERVICES bring together technology innovation and deep expertise to help companies drive better business results. TECHNICAL NETWORK SERVICES These services are required to understand the endto-end network rather than just the individual components, which include the data center, campus, WAN and wireless network. By moving past basic technical support, these advanced services bring together technology innovation and deep expertise to help companies drive better business results specifically by accomplishing the following: > Maximizing infrastructure uptime > Resolving complex problems > Masking the underlying complexity of IT infrastructure > Enabling the shift to an increasingly software-centric world Many choices are available to businesses looking for a digital transformation services partner. A partner must be able to deliver the following five components to meet the demands of a digital organization: 14

BROAD AND DEEP EXPERTISE Partners should have broad expertise that includes applications, systems and the network, but also the ability to go deep in each of these levels. Having both is necessary to optimize the performance of digital services. Subscription PRICING brings a level of predictability to help companies budget better. PROVEN METHODOLOGY Closing the talent gap requires an experienced services partner that has been there, done that. A proven, repeatable methodology is needed to ensure predictable results so the return on investment that is expected is actually achieved. PERSONALIZED SERVICES Although a repeatable methodology is necessary, the services partner should have the ability to personalize services for each company. A standardized foundation with personalization for the unique needs of each customer will yield the best results. STRONG SECURITY CAPABILITIES Regardless of the digital initiative, security will be a key component. The services partner needs to have best-in-class security skills to ensure that the business, its employees and its customers are protected. SUBSCRIPTION PRICING A wide range of pricing models are available, but subscription pricing brings a level of predictability to help companies budget better leading to consistently strong results. 15

The right services partner can deliver digital transformation services that enable companies to become digital organizations quickly while minimizing security and business risks. Section IV: Cisco Is the Right Services Partner for the Digital Era Cisco currently performs more than 16,000 system checks to quickly diagnose, resolve and preempt problems. Cisco is best known as a provider of IT infrastructure. However, it also has a strong services business that is currently used by more than 75% of the Fortune 100, and the vendor has more than 12,000 expert engineers, architects and advisors with over 87,000 collective hours of experience. Its services organization operates in more than 180 countries and has 170 labs across every region of the globe. Cisco utilizes automation across its portfolio of services and currently performs more than 16,000 system checks to quickly diagnose, resolve and preempt problems. The vendor has won 30 TSIA STAR Awards from 2011 to 2016 and has 10 consecutive years of J.D. Power certification for excellence in customer service. Recently, Cisco evolved its services to meet the ZK Research definition of digital transformation services with the introduction of its Business Critical Services and High-value Services. Cisco Business Critical Services Business Critical Services are built on Cisco s network optimization services but now focus on the transformation of business operations by delivering even more capabilities in an- 16

alytics, automation, compliance and security. The services provide baseline deliverables and customizable capabilities to accomplish the following: > Deliver near real-time analytics and continuous visibility > Speed case submission from hours to minutes without human intervention > Quickly test and deploy features to IT environments with new automation capabilities > Automate compliance and remediation for recommended software and configuration upgrades > Drive fast emergency response during a breach as well as proactive defense Cisco segmented the Business Critical Services deliverables into the following three themes: > Foundation services deliver innovative capabilities to help strengthen the foundation, increase availability and securely stabilize the network. Key components include the following: >> Foundational Analytics >> Compliance and Remediation >> Threat Mitigation >> Reliability Engineering 17

> Acceleration services provide core capabilities to help speed up the business by ensuring the infrastructure designs are compliant and ready for the future. Key components include the following: >> Design Engineering Business Critical Services can be used by companies of ALL SIZES to augment their current IT staff and fill in the talent gaps. >> Application Support >> Security Protection >> Orchestration and Automation > Transformation services ensure the architecture aligns to meet short- and long-term goals so customers can be ready to change the way they do business. Critical capabilities include the following: >> Adoption Strategy >> Transformation Engineering Business Critical Services are focused on more than just Cisco technology and are multivendor in nature. They can be used by companies of all sizes to augment their current IT staff and fill in the talent gaps. 18

Cisco High-value Services High-value Services focus on the technical challenges associated with running infrastructure. These services build on Cisco s industry-leading product-support services and add additional analytics, automation, expertise and scale. They deliver more proactive and prescriptive High-value Services FOCUS on the technical challenges associated with running infrastructure. services options at the software, solution and network levels to accomplish the following: > Improving efficiency via better decision making through analytics, best practices and tailored guidance > Assuring business continuity by maximizing uptime with proactive support and faster issue resolution > Unlocking IT value through expertise to close the talent gap, improve technology adoption and more effectively use technology solutions The High-value Services portfolio includes the following offers: > Software Support maximizes uptime and helps users integrate new technologies to ensure they are taking full advantage of software capabilities. Key components include the following: >> Designated experts for case and change management >> Software consumption analysis to drive greater technology adoption >> Workflow integration, proactive notifications, onboarding and training 19

> Solution Support delivers centralized support across Cisco solution ecosystems. Customers have access to a team of Cisco engineers who are experts in specific solutions and are the primary point of contact. Key components include the following: >> Accountability for case management and resolution, no matter where it Technical Services (TS) Advantage improves customer network management to INCREASE operation efficiency and minimize disruption. resides >> Onboarding sessions to accelerate adoption of this service and new technologies >> An average of 43% faster issue resolution versus product support alone > Technical Services (TS) Advantage improves customer network management to increase operational efficiency and minimize disruption. Tiered offerings are built to support operational outcomes. Critical capabilities include the following: >> Customer benchmarking, which includes peer-to-peer key performance metrics to ID differentiators and areas to drive operational improvements >> KPI scorecard, which tracks performance trends by time period >> Service-level agreements (SLAs) for response and restoration times to help maximize uptime > Service Provider (SP) Advantage helps service providers extract more value from 20

their voice and data networks, lower costs, and drive simplicity and profitability. Critical capabilities include the following: >> Designated and dedicated experts who provide problem resolution and incident review >> Actionable analytics, customer benchmarking and KPIs to improve efficiency >> SLAs for response and restoration times to help maximize uptime > Managed Services provide Cisco-led proactive monitoring, management and optimization of IT infrastructures and processes for the customer network, collaboration, data center and security operations. Key components include the following: >> Dedicated expert technical staff that supports multivendor technologies >> Predictive network analysis, remote monitoring and automated incident detection >> Technical adoption, onboarding and high SLAs/service-level objectives (SLOs) These Cisco services cover every element of Cisco s broad portfolio including collaboration, data center, Internet of Things, networking, service provider and security. 21

One unique feature of the High-value Services is that Cisco offers benchmarking where the digital solutions can be compared to those of peer organizations. This capability can be THOSE that become dynamic organizations capable of recognizing industry transitions and moving faster than the competition will be able to sustain market leadership. used to facilitate continuous improvement and enable better business decisions and competitive differentiation. Cisco s Business Critical Services and High-value Services are available directly from Cisco or through one of its many channel partners. Section V: Conclusion and Recommendations The digital business era has arrived, and it has forced organizations to be more agile and adapt to market changes quickly. Those that become dynamic organizations capable of recognizing industry transitions and moving faster than the competition will be able to sustain market leadership. Those that cannot will struggle to survive, and many will likely be acquired by stronger companies or even go out of business. Making the shift to a digital organization certainly requires a change in company culture, as digital initiatives need the support of corporate leaders, line-of-business managers and the IT organization. However, many companies risk failing with respect to digital transformation not because of a lack of will, but more because of a lack of IT agility, a shortage of IT skills, security concerns and other issues that can be hard to overcome without the assistance of a services partner. The best way to address the barriers to digitization is to use digital transformation ser- 22

vices. These services are composed of business outcome services and digital technical services that together close the skills gap most organizations are experiencing today, enabling them to rapidly become digital companies. Businesses that choose to leverage digital transformation services will realize several business and technical benefits (Exhibit 4). The adoption of digital transformation services should be a top priority for IT and business leaders. To help companies with this transition, ZK Research makes the following recommendations: > Make digital transformation a top priority. Change is difficult, particularly for companies that have had a high level of success. However, change is happening faster than Exhibit 4: Digital Transformation Services Offer Many Benefits Close Talent Gap Lower Complexity Mitigate Risk Increase Security Increase ROI Transform Through Innovation Source: ZK Research, 2017 23

ever, and it s critical that all organizations embrace the concept of digital transformation, challenge the status quo and change faster than their competition. > Augment current skills with digital transformation services. No organization can 2017 ZK Research: A Division of Kerravala Consulting All rights reserved. Reproduction or redistribution in any form without the express prior permission of ZK Research is expressly prohibited. For questions, comments or further information, email zeus@zkresearch.com. acquire the skills necessary to become a digital business overnight. Digital transformation services can be used to augment the current skill set so the shift can be made quickly, securely and with minimal risk. > Strive for constant improvement. As the organization implements digital initiatives, it s important to develop benchmarks, conduct periodic measurements and strive for constant improvement. If the company does not have the skills to tackle these tasks, leverage a digital transformation services partner, such as Cisco, to accomplish them. Learn more about Cisco Services. 24