In-Depth

The Digital Transformation of IT

• 12/02/2016

Nothing stokes more fear in CEOs than the threat of becoming a casualty of an upstart using technology that can deliver a disruptive business model. The Internet era is littered with examples of casualties such as Blockbuster Video, the once-giant retail chain that met its demise after it didn't respond rapidly when Netflix embraced an all-digital delivery model. Just as Web application infrastructures introduced e-business transformation, intelligent cloud services, a growing number of connected devices, the spread of social network interfaces and advances in 3-D visualization, analytics, cognitive computing and new forms of collaboration have brought digital transformation into full view in 2016.

The rise and success of digital upstarts such as Airbnb and Uber, with no legacy business built on cloud-native platforms, are the more recent examples of how a new player can change the landscape of any given industry. The impetus driving digital transformation is that businesses are under pressure to become more agile and more innovative. Consequently, digital transformation is already showing its impact on IT spending, organizational management and tech skills requirements. All indicators suggest that despite the hype these changes will continue to proliferate from early adopters to the mainstream in the coming years.

Fueling the evolution of digital transformation this year were the introduction of new frameworks and technologies such as intelligent bots, machine learning, conversational computing, augmented/virtual reality, automation, robotics, autonomous vehicles and the ability to process exponential floods of new data gathered from social feeds, Internet of Things (IoT) devices and emerging schemas such as Blockchain. These technologies have come out of the research labs and into varying degrees of implementation, while giving business and IT leaders a clearer view of capabilities coming in the near term and others in the not-too-distant future. Paving the way for this next wave of computing and interaction are new intelligent cloud services, software-defined infrastructure and modern programming environments, containerization and micro-services optimized for cloud-native and device-independent use.

Leading early adopters such as Accenture, Boeing, General Electric (GE), Lowes and PCL Construction, among others, have revealed how they're either experimenting with these technologies and, in many cases, how they're already putting them to use to change the way they work and create new products and services that were inconceivable in the past. They've also been able to accelerate existing efforts from what might take months or years to achieve to only days or weeks in some cases. Major IT providers including Microsoft, IBM Corp., Google Inc., Amazon Web Services Inc. (AWS), Dell Inc., Cisco Systems Inc., SAP and Salesforce.com Inc. have all talked about how their current and forthcoming offerings are largely centered around enabling digital transformation. Researchers and consultancies such as Gartner Inc., IDC, Forrester Research Inc. and McKinsey & Co. have centered their forecasts around the new digital transformation era.

A survey published late last year by the McKinsey Global Institute showcased a digital divide that has formed since the e-business era, showing the gap between the digital leaders and other organizations: "Most sectors were only 12 percent as digitized as the leaders in 2005. Despite a massive rush of adoption and change since then, the rest of the economy was operating at only 14 percent of the leaders' digital capacity in 2013."

Digital Impact on IT
Additional surveys and early case studies suggest that the fear among business and technology leaders of missing the next wave is real. The Gartner 2017 CIO Agenda Survey published in October found that while IT budgets are forecast to rise by a modest 2.9 percent (up from -0.3 percent this year), an average of 18 percent of the 2,598 respondents reported they plan to shift their spending on technology that can facilitate digital transformation. That figure will jump to 28 percent in 2018, according to the survey. Those that have already embarked on digital transformations, which Gartner characterizes as "top-performing businesses," where digitization is built into their business model, 34 percent of their IT spend will go toward these efforts next year and that figure will rise to 44 percent in 2018.

Another example showcasing the fear comes from a recent survey of 4,000 IT and business decision makers conducted by Dell, which found 45 percent are worried about becoming obsolete within the next three to five years. Nearly half, or 48 percent, said they don't know what their industries will look like in three years, while 78 percent are concerned that digital startups are a threat to their businesses now or in the future. The findings validate Dell's $67 billion acquisition of EMC Corp., which closed in September nearly a year after it was announced, said founder, chairman and CEO Michael Dell.

"The physical reality is transforming into a digital reality and physical businesses must transform, as well," Dell said, speaking in the keynote address at the Dell/EMC customer and partner conference held in Austin, Texas, in October. "It's the sunrise of a new era, the digital dawn. And we are looking out onto this new day and transforming it to embrace that opportunity."

Ford's Smart Mobility Initiative
Faced with competition from the likes of Google, Tesla and Uber, all of which are threats to various aspects of its business, Ford Motor Corp. is among several auto companies that have embarked on such digital efforts. Ford has partnered with Pivotal and Microsoft to create a new business unit called Ford Smart Mobility LLC. In addition to investing $182 million in Pivotal, which is a unit of Dell, Ford decided to build its Smart Mobility initiative with the Pivotal Cloud Foundry platform, the popular Platform as a Service (PaaS), which it'll host on Microsoft Azure.

Software continues to play an increasingly critical role in vehicles at Ford. Its new F-150 for example, has 150 million lines of software code to provide more precise engine performance, transmission calibration and better fuel economy, as well as improving hands-free access with its SYNC 3 technology. Ford identified its focus on software as the "secret sauce" to its EcoBoost fuel efficiency feature, which the company claims lets engineers maximize use of every drop of fuel "at the molecular level." Ford said it has 275 patents for EcoBoost along with 200 that are pending that cover various aspects of software control and calibration.

Source: Foote Partners 2016 IT Skills and Certification Pay Index

GE Builds Digital Platform
GE is another company that jumped on the digital transformation bandwagon a few years ago, realizing that software represented the future of its business. Like many early companies embarking on this strategy, GE has a chief digital officer, Bull Ruh. In addition to that role, Ruh is CEO of GE Digital, a unit the conglomerate created last year because of its decision to focus on software as a digital asset using its widely touted Predix platform. GE describes Predix as a cloud-based OS for the industrial Internet, designed to connect industrial components, analyze large quantities of data, and provide real-time information and analytics. It's designed to run apps that can support the company's own assets and those of outside companies.

Predix runs on multiple cloud platforms with some components running on AWS and others set to be deployed on Azure. The latter arrangement came together this summer when GE chairman and CEO Jeffrey Immelt made an appearance at Microsoft's Worldwide Partner Conference (WPC) in July during CEO Satya Nadella's opening keynote. Immelt said the decision for GE, the 140-year old industrial giant, to "become a software company" was formed about six years ago.

"We said to be a better industrial company, we can't allow our digital future to be created by others," Immelt said. "And so we've invested massively to drive this digital transformation. We're in a line of demarcation for industrial companies. There's a past, and there's going to be a future. And the future is really going to be derived on who digitizes the fastest."

Microsoft's Focus on Digital Transformation
During that keynote address at the WPC, Nadella emphasized that customers he's met with all now share this view. Among the CEOs Nadella has met with, the common denominator is customers want technology that can help them better personalize how they engage with customers, allow employees to make better decisions, use machine learning and predictive analytics to create more intelligent operations, and to "transform their products and services and the fundamental business model -- it's these digital outcomes that every CEO deeply cares about," he said. "In fact, the thing that we will talk a lot about is every customer of ours now is not only looking to use digital technology, but they are building digital technology of their own. And that is really the opportunity."

Microsoft continued to emphasize how its focus on productivity and its "cloud-first, mobile first strategy" is enabling digital transformation at its recent Ignite conference in Atlanta. Scott Guthrie, executive VP leading Microsoft's cloud and enterprise business, said digital transformation was a key reason customers were embracing its cloud offerings. For example, he showcased BMW, which is releasing software that provides better customer engagement and an "immersive end-user experience" within the vehicle that spans both dashboard display and native mobile apps that the car owner can use to manage the car remotely.

Both run on a Microsoft Azure-based solution that BMW built using Azure IoT and the company's Azure Data Analytics services, Guthrie explained. "The team at BMW was able to go just from concept to release in under a year, and was able to transform the car ownership experience of every BMW customer," he said. Another company undergoing a business transformation mentioned by Guthrie at Ignite is Rolls-Royce, which is moving from purely selling engines to providing complete managed engine services to airlines using Azure Cortana Intelligence and Dynamics 365.

Lowe's Pilots HoloLens
It's not just the auto and aerospace giants that are embarking on digital transformation projects. Among the early adopters of Microsoft's HoloLens "enhanced reality" 3-D visualization headsets are home improvement retail giant Lowe's Companies Inc., which recently announced plans to have showrooms set up in five of its stores that would allow a customer to visualize what a new kitchen will look like based on a myriad of design and configuration options, giving them 3-D views of how cabinets, countertops and appliances might look in their own home.

"Lowe's customers will be able to experience a holographic representation of a completely new kitchen, adjust finishes and options instantly, and share their designs easily online," explained Scott Erickson, general manager for HoloLens at Microsoft, in a March blog post announcing the pilot, initially at two stores before extending it to five in September. "This implementation is a new, innovative way that Lowe's is enhancing the customer experience. Customers will be able to rethink home renovation using the power of holograms." In the future for example, it could extend to the various other home renovation projects Lowe's offers, he noted.

Modernization Without the Bells and Whistles
Not every digital transformation has to encompass radical changes in business processes and use of artificial intelligence. In many cases, organizations are just looking to use digital technologies to become more efficient and agile to keep up with their industries. One example is PCL Construction. Crews working for the global construction company with $8.5 billion in revenues and more than 4,000 employees, generate terabytes of data when planning and building shopping malls, stadiums and high-rise structures.

Documents are dispersed throughout a variety of systems ranging from SharePoint and OneDrive to Dropbox and Box, as well as local file servers. PCL also uses systems that create and render CAD files from the likes of AutoCAD and BlueBeam, designed specifically for the construction industry. Making all files accessible and secure to mobile and desktop users and both internal employees and external partners and at job sites throughout the world became increasingly difficult, yet a critical priority.

"In the earlier days of OneDrive for Business, it wasn't as easy to use and to collaborate with external partners and being in construction, while that's critical for any business, it was really critical for us because we are always in constant communication with our building owners, architects, subcontractors and engineers," says Chris Palmer, a solutions architect at PCL. "The sharing of documents that continue to get larger and larger and larger became more difficult with document sizes that were growing. These new 4-D and 5-D models can be quite huge and our internal datacenter was having a hard time handling them."

As a result, PCL deployed a file management system from Egnyte Inc. The Egnyte Connect solution is a hybrid cloud storage and file synchronization and document management platform, which PCL has deployed locally at its 31 locations throughout the world with data synchronized to Microsoft Azure. PCL uses it to connect with Office 365, Dynamics 365, Salesforce.com, AutoCAD and BlueBeam.

The hybrid capability provides access to large files quickly when people are on-premises, but get cloud-based access from a Web, iOS or Android device remotely or at a job site, according to Palmer. "Wherever and whenever they are working they can now get at their data, and that's the big digital transformation that I am seeing," Palmer says. Asked about the impact the move to embrace more digital initiatives is having on the IT staff in his organization, he said they're significant.

"Trying to scale our resources to be as agile as the technology platform allows for and to take advantage of that platform so you really get the cost-benefit advantages that are available to it has been a challenge," Palmer says. "We've had a lot of success, we've got a really engaged and bright team here, but it's a revolutionary change as we move from being administrators, to managing service offerings. The corporate datacenter is really moving into cloud datacenters, so when you do that, IT departments have to change how they operate and what they do in order to be successful."

New Skills Required
PCL's focus on digital transformation and the move to cloud services has changed the IT skills required. "We don't have the need for in-depth knowledge of storage or subsystems like we did when you were managing all of that stuff on-premises, when that's being offloaded into a cloud platform," Palmer says. "If you're not provisioning the storage, you're not having to manage it. However, you end up having to build up your skills with things like integration, and how do you connect different systems together, and you end up looking for different skills that aren't necessarily technical, because you begin looking for people who are really good at adapting an agile mindset that are more accepting of change."

Most of PCL's IT team has adopted and built up the skills needed to manage these new environments, he adds. "I think IT tends to attract people who are already going to change, but to truly be agile, to truly move into that developer's world, [using] the advantages of the cloud, you've got to have people that are willing to adopt that, willing to see the change and then work with it. It's almost more of a people skill than a technical skill."