Technology modernization and transformation

Businesses that have been around for a while know that early technology decisions can have long-term implications. From migrating workloads to rewriting applications, it's hard for tech teams to change or reroute their course.

Brandur Leach recently wrote about the influence of early tech decisions at Stripe where, while the organization changed, its tech foundation stayed the same. Leach became part of the Stripe engineering team in 2015 before joining Crunchy Data as a software engineer last year. 

When companies choose to modernize, there are many decisions to make from the planning stage to choosing a vendor and whether they should outsource help or not.

“The wrong decisions may not be fatal, but can take the CIO a while to recover,” said Monika Sinha, VP analyst at Gartner.

Nine in 10 IT leaders find application modernization extremely or somewhat challenging, according to an August Asperitas survey that polled 150 IT leaders in companies with at least 1,000 employees. IT leaders said challenges range from identifying the right tools and technologies, staffing, vendor choices, training on new systems to securing the support of management.

A wrong move could have consequences, whether that's wasted resources, time or money. 

“When making new technology decisions early in our current, rapidly changing environment, CIOs have to be careful not to fall into the sunk cost trap,” Sinha said in an email. “Early discussions can lead to situational blindness and confirmation bias where the only facts being considered are those that validate and support the decision.”

Sinha suggests that instead of doubling down on decisions, businesses should push to get out of sinking investments and into something more promising. 

The more invested a company is in the decision, the more likely it will want to wait and see if it eventually works. But expected benefits are not guaranteed, according to Sinha. 

Change does come with costs, though. 

“Anytime you’re going to uproot and take your business elsewhere, there’s a cost involved in terms of time, effort and resources – just with moving systems,” said Brian Jackson, CIO research director at Info-Tech Research Group. 

Weighing the cost of moving versus the potential benefits or downsides of staying is an important part of knowing what move to make next, he said.

One way that businesses can mitigate vendor or platform lock-in is by taking a modular approach to IT infrastructure. This way businesses are not reliant on vendors to solve all their needs.

If a service provider becomes too expensive or is no longer needed, business can switch over to another or cut-off ties without affecting everything in the process, according to Jackson.

The success of a modernization plan is ultimately reliant on the planning process. 

“Migrating to new technology can be a daunting task, but with a roadmap in place, CIOs are better equipped to make decisions that will help ensure the migration is a success,” Sinha said. “This may sound obvious, but a surprisingly large number of IT teams continue to migrate technology haphazardly with a minimal plan in place.”

Part of the planning process involves designing and executing a proof-of-concept (PoCs), according to Sinha. Tech leaders can use PoCs to validate assumptions, test for strategic requirements, accelerate decision making and avoid expensive mistakes.

Most companies are concerned about a prolonged economic downturn, according to Spiceworks Ziff Davis survey of more than 1,400 IT professionals, and half expect budget cuts heading into 2023.

Despite belt-tightening, IT spending is expected to remain strong. A majority of companies plan to increase tech budgets and only 6% are looking to trim spending on tech, according to the survey, which was conducted in June.

“In hard economic times, you would expect companies to pull back and you would expect those pullbacks to include IT,” said Peter Tsai, senior technology analyst at Spiceworks Ziff Davis. “The big surprise is that spending on IT is expected to increase even among companies that are actively cutting back elsewhere to prepare for a recession.”

With annual inflation holding steady at around 8%, interest rates rising and the overall economy as measured by GDP contracting, companies are preparing for recession. Yet, the outlook is not as bleak as it could be.

Most companies — nearly 3 in 5 — expect revenue to increase in 2023. Only 1 in 10 are predicting shortfalls, according to the report.

Belts are nonetheless tightening.

Reductions in enterprisewide nonessential spending are on the horizon, and many companies will reevaluate vendor contracts, decommission outdated and redundant infrastructure, delay tech purchases and cut back on hiring in order to reduce budgets, according to the report.

Tech leaders are still grappling with a talent crunch, so hiring is unlikely to contract. Nearly one-third of IT departments plan to hire additional tech staff in 2023, down slightly from two-fifths this year.

To offset the hiring slowdown, companies will increase spending on cloud-based and on-prem managed tech services, Tsai said.

“The theory is that businesses have modernized on-prem infrastructure to support cloud.” Tsai said. “Now, because of the skills gap, a lot of these companies are outsourcing the management of their infrastructure, business applications and even cybersecurity.”

Cloud investment, which comprised 26% of overall IT budgets in 2022, will continue to grow at the slower rate of 23% in 2023.

The slight decrease may be deceiving, according to SWZD’s analysis.

“Companies are moving workloads back and forth between on-prem and cloud,” Tsai said. “To do that, you have to upgrade to cloud-compatible software that isn’t going to run on ancient hardware. So, you need to update your hardware, too.”

Inflation accounts for some of the IT spend uptick, but this factor ranks below infrastructure upgrades, increased priority on IT projects, employee growth and increased security concerns.

Companies — even those that are trimming budgets — are doubling down on technology as a hedge against economic instability. 

“If you’re cutting back anywhere else within your business, you’re actually more likely to increase your IT budget,” Tsai said. “In fact, it seems like they’re cutting back in other areas so that they can increase IT spending.”

Some organizations are losing up to $1.3 million a year due to inefficient tasks weighing employees down, according to a report by Formstack and Mantis Research which surveyed 2,000 workers.

While automation might seem like the obvious answer, not all businesses are open to change. In organizations that have mostly manual, paper-based workflows, 3 in 5 respondents said their biggest struggle with implementing automation was a desire to stick to the status quo, according to the report. 

Formstack and Mantis identified financial services and software organizations as the most digitally mature compared to healthcare and education companies.

Inefficient processes can lead to wasted resources, time lost and unhappy employees. More than half of employees said they spend at least two hours on repetitive tasks daily, according to the report.

But if revamping an organization’s approach to technology was easy, everyone would do it. 

“Like most mindset and cultural shifts, the process takes time — it doesn’t happen overnight,” Chris Byers, CEO of Formstack, said in an email.

The amount of time transformation takes will depend on several factors, including the size and scale of the organization. However, the purchasing mindset of some organizations could deserve partial blame. 

More than 9 in 10 organizations with mostly manual, paper-based processes purchase tech as the need arises, according to the report. In these cases, tech is looked at reactively rather than part of long-term strategies or plans.

“This purchasing mindset leaves less digitally mature organizations with piecemealed tech stacks that don’t integrate well or adapt to business needs over time, lengthening and complicating the process,” Byers said.

Before a new technology project can be considered a success, businesses require broad tool adoption. Without a plan to address adoption issues, businesses can lose money, time and employees.

Companies faced additional costs of almost $100 million in 2021, due to a combination of employee attrition caused by frustrations with tech; compensation for employees’ technology issues; increased costs to meet strategic goals; and an inability to realize the full value of application investments, according to a report from WalkMe, which surveyed almost 1,500 senior business leaders.

Amid adverse macroeconomic conditions, companies lean on technology to accelerate operations and drive business value.

“If I look at our customer base, in general, we’re seeing that there is an appetite for them to invest more in technologies that allow them to drive efficiency, save and do more with less,” Stephen Franchetti, CIO at Samsara, said. 

For business leaders pressured to do more with less, identifying which new technology will bring the most value to the organization might seem like the most difficult part. But that's just step one.

“A lot of CIOs will say, the technology is easier,” Brian Jackson, research director at Info-Tech Research Group, said. “But getting people to use it is a whole other challenge.”

There are many reasons why employees might be hesitant to introduce a new tool into their day-to-day activities. Staff members might want to hang on to familiar processes or perceive the change as complicating their workflow. Users also might not feel comfortable enough to use the new tool or they might not know that a change has happened, according to research from Info-Tech Research Group.

In order to reach widespread adoption, IT teams need to connect with the end users whose work is supposed to improve thanks to a new tool. 

“When you’re able to understand the people that you’re actually serving and thinking about the users and explaining to them how [the new technology] solves their problems, that goes a long way in demonstrating the value,” Jackson said. 

Internally at Samsara, Franchetti focuses on a “closed loop process” in which teams go beyond the technical aspect of deploying software or tools. 

“Probably one of the most important, if not the most important, aspect of deploying technology is the last mile,” Franchetti said. The internal IT teams discuss rollout plans, training and how to communicate the change with other employees. The tech team also monitors adoption rates to identify potential problems. 

“Oftentimes, you find that if someone hasn’t adopted a particular technology, it’s probably due to the user experience associated with that,” Franchetti said. Selecting technologies with exceptional user experience can boost the likelihood of widespread adoption.

For tech departments, moving from troubleshooting to innovating, soft skills related to user experience are vital. Especially when the new technology isn’t necessarily fixing a problem pointed out by end users. 

Jackson suggests tech teams reach out to newer employees as a way to provide a proof of concept for others. This allows others to see the benefits without having to persuade workers who are entrenched in older procedures and tools.

As more companies modernize technology, leaders are reevaluating old solutions and charting the path forward.

Many businesses might turn to vertical software companies to provide industry-specific solutions, especially as the market soars. The vertical software industry is expected to reach a combined market cap of $650 billion by 2023, according to a Forrester report. 

“If you look under the hood of a large company in any vertical, you will find dozens of customized on-premise applications from legacy providers or home-grown applications,” said Himank Joshi, researcher at Forrester, in an email. “Vertical software companies have the opportunity of replacing these [custom-built] systems with modern cloud applications.”

Vertical software companies have infiltrated most industries, providing solutions from point-of-sale software to more complex, specialized applications. As vendors compete to fill holes left behind by legacy systems, businesses must decide whether to build in-house solutions or outsource from vertical software vendors.

Build vs. buy

Executives deciding whether to plug in a vendor or build tech themselves must grapple with issues of scale, staffing and technical know-how.

There are cases where vendors can only do so much. Intuit leans on AWS for most of its needs, but when it comes to solving customer problems, it made sense for the tech teams to build custom solutions.

Ashok Srivastava, SVP and chief data officer at Intuit, said he has found that vendors can be helpful but only up to a certain point.

To combat the disconnect between users and tax experts during sessions, Intuit’s natural language processing team built an application which can listen to the conversation, analyze it and provide a summary, according to Srivastava. 

Language models had to be adapted to contextualize financial codes and jargon in a way that normal transcription services would not understand. The custom-build application is one example of an in-house solution that translates specific industry needs into end-user benefit.

The decision to build in-house or to outsource is complex. Businesses that want to build must deal with economywide retention issues, which means tech teams have less experience and knowledge of business processes. In August of this year, companies added 21,000 tech hires.

Robert Fayle, research director of enterprise applications at Info-Tech Research Group, advises his clients to remember they are not in the software business and, because of the breadth and capabilities of the marketplace, it’s almost always better to buy than to build applications from scratch.

“To bring a new developer in, [it] takes six to 12 months to bring them up to where they can actually, truly be productive,” said Fayle.

Once a business decides an outside provider is more beneficial than building, it must choose a vendor. For CIOs scouring for the best provider, there are many aspects to consider.

Scale is one of the highest impact factors in picking the right vendor. For large corporations, a small vendor will not be able to keep up with volume. However, small businesses will benefit more from a reasonably priced small vendor rather than going with a big name competitor.

Big name providers will put their most senior technicians on large corporation projects, leaving less experienced workers to smaller projects, according to Fayle.

Most companies have realized benefits from cloud migration, even if those gains have not had a big impact on balance sheets, according to a new report by advisory firm KPMG.

Four in 5 respondents said cloud adoption has been a success and two-thirds said they’ve advanced business strategy through cloud, based on the survey of more than 1,000 enterprise technology leaders.

Returns have been elusive. Two-thirds of respondents said they have yet to see substantial ROI on cloud spending.

There’s nuance in cloud adoption — layers of incremental achievements across business objectives. 

The gains play out over time, with some coming sooner and more easily than others.

ROI is a long-term objective, secondary to immediate gains in speed and agility, according to Marcus Murph, CIO advisory practice leader and principal at KPMG. 

“If I’m competing against the next startup in a garage in Silicon Valley, I've got to totally change my speed and agility,” he said.

Most companies — nearly 9 in 10 — have reached an advanced stage of cloud adoption, and one-third have exceeded objectives and realized substantial ROI. 

Yet, 42% said they are behind schedule in cloud implementations.

The upfront cost of migrating on-prem legacy technologies accounts for some of the delay in implementation and ROI, Murph said. That process has been more complicated than many companies expected.

“It’s not as easy as they thought initially because some of their workload applications are far more complex than they expected,” said Murph.

Another unexpected bottleneck has been an ongoing shortage of technologists.

Lack of tech talent is the top impediment to modernization, cited by 44% of respondents. Three in 10 said that internal skill gaps are slowing adoption of new technologies.

Outsourcing to managed service providers has bridged the gap, but that creates a new problem.

“I've heard a lot of CIOs and IT leaders say that they have very few developers or engineers that actually wear the badge of their company,” Murph said. “You have this predicament where, if you need talent to build the next thing, you may not have those people on your payroll.”

The cost of workforce upskilling should be offset to some extent by optimization gains, as companies move past initial migration and implementation.

“You would expect the cost line to begin to go down as you optimize and as your spending on migration and hands-on modernization goes down,” said Murph.

The good news for CIOs looking ahead to 2023 is IT budgets should escape cuts. 

Cloud spending is expected to decrease slightly but remain at roughly one-quarter of total IT budgets, based on Spiceworks Ziff Davis’ recent budget forecast. 

The narrative is far from complete, according to Murph. “I think of it as if it were a baseball game,” he said. “We’ve played three innings and there are six left. The third, fourth and fifth innings are going to be different from the first few.”

The hype surrounding emerging technologies might allure some enterprises, but CIOs have a lot to consider before the test and implementation stages of emerging tech. 

For most businesses, technology is a utility or an order taker, Forrester research shows. That means that for more organizations, the newest emerging technology isn't worth the potential risks and time needed to experiment. 

CIOs at these companies have to sift through an ever-growing list of emerging tech to find the tools that will produce the best ROI and communicate value to stakeholders.

However, that isn’t to say that emerging technologies aren’t important. Nearly two-thirds of IT professionals say their organizations will increase spending on emerging technologies over the next year, according to Forrester data.

There is even more pressure on CIOs to make the right decision as businesses navigate lower consumer spending power and record inflation. 

Forrester weighs some emerging technologies far ahead of others, setting up a guide for CIOs on what to prioritize. In a presentation at last week's Technology and Innovation North America conference, Forrester laid out when companies could expect positive ROI from specific technologies. 

While companies could expect ROI from cloud-native computing or natural language processing within a year, others, including Web3 or extended reality won’t deliver benefits for at least five years. 

This means that organizations looking for the fastest and most fruitful ROI can start by implementing and piloting cloud-native computing and natural language processing if they haven’t already.

In the same vein, businesses should not be expecting positive ROI from emerging technologies like TuringBots, Web3, extended reality and zero trust edge for at least the next five years. 

Notably, the metaverse didn’t make the top 10 list.

“The reason metaverse is not on our list is simple: there is no metaverse,” Brian Hopkins, VP, emerging tech portfolio at Forrester, said during the event. 

“Metaverse is a concept for the future; it does not exist today," he said. "It’s a future aspiration, something you need to be aware of and keep your eye on, but it’s not a technology, not today.”

Forrester's advice aligns with what industry executives are saying. Almost two-thirds of executives say they are waiting for competitors to invest in and/or adopt metaverse technologies before investing themselves, according to KPMG data released last month.

Hopkins also warned businesses about the promise of Web3 technologies versus the reality of what it can do today. 

“Here’s the deal: no one can tell you exactly what [Web3] is,” Hopkins said. “Even more than that, no one can tell you how to make money with it.”

Last year, Web3 startups generated publicity and raised $30 billion in venture funding, according to Forrester data.

“But at this point, with all the hype and all this venture capital going into it, it’s buyer beware,” Hopkins said.

As more Gen Z digital natives enter the workplace, employees expect the user-friendly experiences they've come to embrace in their personal lives at work.

Even more seasoned employees have adapted to the evolving consumer-facing technology environment around them, from the ease of installing applications on personal devices to tailored suggestions on what to watch next on streaming platforms. 

“We’re competing against people’s previous employer, against their expectations, against things like Amazon one-click order and it will be here tomorrow afternoon,” Greg Sanker, director of IT support at Taylor Morrison, said. “That’s what we’re competing with, not with what we used to do.”

The user experience from consumer-oriented platforms allows end users to easily navigate new technologies and updates, leading employees to wonder why their workplace tech isn’t as simple to use.

It's the difference between intuitive applications and bulky spreadsheets. 

More than one-third of U.S. employees reported workplace frustration caused by technology, according to data from Eagle Hill Consulting which surveyed 1,000 employees across various industries.

Frustrated employees may even search for other job opportunities. Workers at “technology laggard” organizations were 450% more likely to want to leave to find work elsewhere when compared to employees at “technology leaders,” according to a report from Unisys.

While organizations might find it hard to release their tech baggage, there are many tools on the market that can improve user experience. One example is choosing which channels employees use to communicate with each other.

Email is still the primary mode for external communication, but many businesses have adopted collaboration tools with real-time messaging capabilities for internal use through their preferred SaaS provider. 

Despite context-switching challenges, there was a 7% rise in employee usage of real-time mobile messaging tools in the past three years, according to a Gartner survey released in 2021. 

“I think the first thing that IT leaders need to understand is that Gen Z does not use email to communicate,” Ian Tien, CEO and co-founder of Mattermost, said. “Gen Z has its own culture and its own norms of efficiency, and they're going to go to the workplace that is compatible with how they work.”

For organizations wanting to engage a technologically savvy workforce, they have to send clear signals that they’re ready to do that, according to Tien. 

Impacts on IT support

The maturity of consumer-facing technology also impacts the type of issues that IT departments get calls about.

While digital natives might have grown up with technology, there was certainly a need for employees overall to become more tech savvy during the pandemic. Hybrid work forced business employees to get up close and personal with the technology they use every day, leading many to obtain basic troubleshooting skills.

George Moussa said that, as an IT help desk support employee, he saw that there were fewer calls that could be solved with a simple fix after the pandemic.

“After the pandemic, I saw a lot of people got better using computers,” Moussa said. “For example, before we would have to say, ‘Did you try rebooting it?' But now when they call they say, 'Hey George, I already rebooted it, I did this step and that step.’”

Carbon emissions, environmental degradation and a broader palette of sustainability issues are becoming a C-suite priority for many businesses — and a technology problem for enterprise IT leaders. 

Tech not only has a seat at the table when sustainability is up for discussion — they have potential solutions at hand.

Cloud migration is already paving the way for significant carbon reductions. A 2020 Accenture-UNCG study found public cloud cut carbon emissions from overall IT operations by 5.9% globally, reducing annual CO2 from IT by 60 million tons. 

In its June survey of 500 multinational companies, Accenture found that seven in had deployed AI to achieve emissions reductions and 75% were using the technology to better measure and more effectively disclose carbon use.

With these gains in mind, corporate executives, boards of directors and other stakeholders are moving sustainability up their list of action items. The move is prompted by growing public pressure, governmental regulatory actions and the realities of weather-related operational disruptions.

Spikes in energy costs combined with the promise of revenue gains from more efficient energy can also be a key motivator.

“No doubt, sustainability is top of mind right now for many business leaders, in large part because employees and customers and investors and regulators are asking about it and are interested in it,” said IBM CIO Kathryn Guarini in an interview with CIO Dive. “It has risen in terms of attention and priority across companies.”

Indeed, environmental issues ranked as a top-10 business priority for CEOs, according to a May survey of 400 chief executives by Gartner. Sustainability jumped to No. 8 spot, from 14 in 2019 and 10 in 2015, cracking the top 10 for the first time.

Where companies find green gains

Green gains come in different shapes and sizes, and there is still vast room for improvement.

Cloud has been a big difference maker in the area of energy efficiency gains, according to Chris Noble, co-founder and CEO of Cirrus Nexus.

“Cloud is definitely more efficient, because you get better density and you're sharing hardware,” Noble said. “But it doesn't mean that you're not causing carbon to be produced.”

Cirrus Nexus introduced a cloud management platform that tracks and reduces carbon emissions using analytics to identify the most energy efficient data centers by region.

A new study by the company, released Thursday, spotlights the cleanest — and dirtiest — regions of the country for data center carbon emissions. California and Northwest rate highly as clean regions to deploy data centers; Texas falls in the middle; and the Midwest earns low scores due to its high use of coal and natural gas rather than renewables.

By shifting processing loads by region and locating data centers in areas that utilize a greater proportion of renewable energy sources, companies can reduce their carbon footprint.

But reduction may come at a cost. In addition to providing cleaner energy sources, California is also the most expensive data center region, with workloads costing up to 10% more than in other regions, according to the study.

Beyond the cloud

Individual companies and industries are finding different ways to confront sustainability at scale and push beyond the efficiency gains of cloud. 

Advanced analytics carbon footprint metrics and energy grid management software are two sustainability technology solutions in addition to cloud migration highlighted by analysts at Gartner in an April report.

“Many of the goals and the objectives that we've had at IBM, whether its adoption of hybrid cloud or the reuse of technology components, are levers for improving sustainability,” Guarini said.

Boeing introduced Cascade, a data modeling tool to reduce carbon emissions in July, with an aim toward reaching net-zero emissions, according to Boeing CIO Susan Doniz, who spoke as part of a Reuters virtual symposium on Thursday.

Boeing is looking at other paths toward sustainability as well. “When you think about reducing waste and about automation tools — that's where we play a fundamental role," Doniz said. "It’s not just about the cloud and sustainable cloud technology; it's also in how do we eliminate waste.”

For many CIOs, it’s also about communicating the potential gains of a better sustainability posture.

"We're finding those intersection points between strategic priorities and initiatives that also help to drive sustainability and actually help you to realize business results and revenue growth,” said Guarini. “That's a happy intersection point, which I think is helping companies get some momentum around sustainability.”