Accelerating the Digital

Enterprise
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NASSCOM Infrastructure Management Summit
Andrea Del Miglio, McKinsey
Bangalore, September 4
th
, 2014
McKinsey & Company |
Introductions
Andrea Del Miglio, McKinsey & Company
Partner, Milan office - Italy
Leader of McKinsey IT infrastructure and
Cybersecurity Practices in EMEA
Extensive experience in supporting large
organizations with IT strategic sourcing
7 years of experience before McKinsey
within the IT sector within specialized
consulting firms and large IT vendors
1
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What is a Digital Enterprise?
Digital Enterprise
Enterprise configured to deliver maximum
strategic and operational value from
established and emergent technologies
and associated shifts in customer behavior
and competitive landscape
2
McKinsey & Company |
Industry revenues rapidly compressing and shifting away from Incumbents
Digital transforms industries in a consistent way
New trends
emerge
Innovative startups
create disruptive
business models
Early adopters
start embracing the
new models
Advanced
incumbents start
adapting to the
new model
Mainstream
customers
adopt
Laggard
incumbents
die
Advanced
incumbents and
established
startups
constitute the
new normal
Tipping
point
Consumer
Traditional
Media
Digital Media
Retail banking
Industry revenues rapidly compressing and shifting away from Incumbents
Time
Flow of value to adjacent industries
Margin compression
3
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Five year run-rate
A successful digital transformation can deliver up to 40% increase in
revenues and significant cost benefits
4
Pharma
Health-care
Insurance (P&C)
TIL (Rail)
Telco
CPG
Retail Banking
40
30
19
17
8
6
25
19
9 5
4
6
2
4
Threat Opportunity
16
8
18
16
13
6
1
3
1
1
1
10
Percent
Projected impact
Revenue Industry Cost
SOURCE: McKinsey analysis
McKinsey & Company | 5
yet many organizations, especially in developing markets are currently
unable to assess progress on digitization
SOURCE: McKinsey Quarterly Survey on Digital Business practices, April 2013
23
36
Named a
metric
41
None being
used
Dont know
44
37
Asia-pac Europe
25
North America
Percent of respondents (N = 789) reporting a
metric used to measure the progress of their
digital programs
Two thirds of organizations express no clear
view on the most important metrics to
measure progress of their digital programs
A significant share of organizations are
sceptical of the value from digitization
Percent of respondents reporting Unknown / Zero
/ Negative Operating Income impact from
digitization spend (N = 850)
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Digital leads to a rapid change in foundational IT disciplines
From to
Process
1-size SDLC methodologies Tailored methodologies, e.g.,
agile, iterative
"Big project" management
focused on day-to-day PM
activities and low-level metrics
Leadership-level monitoring,
course correction, and value
tracking for critical IT projects
Application
development
and
maintenance
1
Complex, unmanaged
application and data
architectures with point-to-
point interfaces and data silos
Application/
data archi-
tecture
2
3
Managed services or portfolio
carve-outs with open partnerships
Selective partnering for hard-to-
build skills
Partner and
vendor
management
General focus on pure scale
Limited understanding of infra
spend by towers and users
Applications tied to boxes
Increased focus on enablement
Transparency into cost and usage
Virtualization and cloud services
increasingly separates boxes from
apps
Infra-
structure/
data center
management
4
Detailed next
6
Planned, SOA-based architecture
Underlying enterprise master data
strategy with effective governance
Increasing importance of Chief
Data Officer role
Large SI projects for big
developments
Loosely managed
procurement and staff
augmentation
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and require new capabilities in IT infrastructure to match the flexibility
needs of digital applications
7
Integrated appliances
Open-design general-purpose stacks
Cloud orchestration platforms
Application management and automation
tools
Software defined networking and storage
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Setting up and delivering new IT infrastructure digital capabilities poses
three key challenges for large organizations
8
A
B
Significant digital talent gap
C
Coexistence of next generation
technologies with legacy infrastructure,
often outsourced to traditional vendors
More fragmented vendor landscape and
need of new collaboration models
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The digital talent gap is significant across many IT disciplines
9
77%of executives we
interviewed mentioned skills
gaps as a hindrance to
driving digital
transformation. The skills
needed go beyond pure IT to include
specific technologies such as social
media or mobile, as well as the analytic
skills to drive value from big data.
The Digital Capabilities your Company needs, MIT
Sloan Management Review
The rapid adoption of the agile
development methodology
has created a sizable talent gap ()
Demand outstrips supply by
nearly 4x
agiletalentstudy.com
1
Demand for Big Data
talent in the United States could be
50- 60%greater
than its projected supply by 2018
McKinsey Global Institute Big Data report
SOURCE: MIT Sloan Management Review, agiletalentstudy.com; McKinsey
1 Study conducted by Yoh from 2010 and 2012 for the US job market
A
McKinsey & Company |
and often outsourced
to traditional vendors
Percent of total IT infrastructure spend
New digital capabilities in IT infrastructure must coexist with
traditional assets, which are often outsourced to traditional vendors
44
Internal
spend
56
Outsourced
spend
Spend on "traditional" IT
infrastructure is sizeable
27
8
10
3
Data center
End user support
48
Networking
Other
Indexed to total IT spend (average), percent
Banks mostly outsource to traditional
vendors, e.g.
IBM owns > 80% of datacenter
outsourced spend
BT owns > 60% of networking
outsourced spend
10
B
SOURCE: Gartner, IDC
EMEA BANKING EXAMPLE
McKinsey & Company |
Having traditional IT infrastructure outsourced makes the digital
transformation more challenging, but can also provide benefits
11
Challenges Benefits
Traditional vendors are often not
perceived as the most natural
owners of next-generation IT
infrastructure services
A close integration of traditional and
new infrastructure stacks is required
to enable the digital transformation
Rigidity and complexity of outsourcing
arrangements can hinder the pace of
the digital transformation
Many contracts fail in delivering the
expected benefits and drain
managerial resources due to a
conflicting interaction with the vendor
Good contracts can free up
resources and management share
of mind for the digital transformation
Outsourcing provides full flexibility
to ramp volumes up and down,
supporting the trial-and-error mode
that many digital projects require
B
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Dynamic vendor landscape for Next Generation Infrastructure calls for
assessment criteria beyond price
Examples
C
12
New entrants and repositioning of incumbent players
result in a diverse and very dynamic vendor landscape
Careful assessment
of vendors required
Flexibility of
infrastructure solutions
and fit to agile
development needs
Avoidance of
technological silos with
proprietary
technology
Proprietary
Virtualization
Cloud
orchestration
Cloud
management
Open source
McKinsey & Company |
Description
Contracting
model
Challenges
for Digital
While staff augmentation and managed service models continue to
apply, the demand and project management model needs rethinking
Staff augmentation Work-package
arrangements
Managed services
Support of defined deliv-
erable or application area
Ownership for a service or
product lies with provider
Per-use or fixed price for
using platform / service
Time and materials Fixed price
Time and materials
Involvement of business Management of supplier
and contract over fast
cycles
Loss of proprietary know-
how at end of projects
Suited to fill short-term
knowledge gaps
Suited to leverage out-of-
the-box solutions and
supplier expertise in digital
services
C
Provision of specific re-
source with a specific skill set
13
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There is therefore a window of opportunity (or threat) as enterprises will
ramp up their digital programs
14
Enterprises are looking for support
on their digital programs beyond
traditional vendors
Entry barriers are less evident,
as the digital infrastructure is kept
separate from the legacy stack
Talent gap may further widen in
the short term, potentially leading
to a talent war
Enterprises will negotiate contract
terms and conditions better
supporting their digital needs
Clear window of
opportunity for attackers
and new entrants, but
capturing it is not trivial and
require a step change
Serious threat for
incumbent players and
traditional vendors, which
are in any case repositioning
fast
Uncertainty for
organizations looking for a
strategic partner, as the
selection is performed on a
fast changing landscape