ESG: IT Transformation’s Link to Agility & Innovation | Dell EMC US
ESG Research Insights Paper
Research Proves IT Transformation’s Persistent
Link to Agility, Innovation, and Business Value
Using Data to Identify What Transformed IT Organizations Look Like,
and How They Are Driving a Digital Advantage
By Adam DeMattia, Director of Research; John McKnight, Vice President of Research and Analyst Services;
Jennifer Gahm, Senior Project Manager; and Monya Keane, Senior Research Analyst | March 2018
IT Transformation is the act of modernizing and automating information technology systems and software holistically to improve IT operations and refine relevant business processes. It’s a major endeavor, but quantitative research shows it is well worth the effort to achieve real outcomes.
This report presents findings stemming from original ESG research based on a survey of 4,000 IT decision makers from around the globe. Where applicable, it includes year-over-year trending with similar research conducted one year prior (2017). Use the findings to compare your company’s IT competencies against those that have achieved “fully transformed” status and get a clear sense of what they’re accomplishing.
You can also take advantage of a complimentary online IT Transformation self-assessment. It uses the same data to provide in-depth explanations of many benchmarks, and it offers customized recommendations on where you should focus based on your transformation status. Gauge your organization against others, get ideas to transform further, and position your company ahead of competitors.
The idea of IT Transformation resonates with companies even more now than it did 12 months ago. It’s clear that senior executives view transformation as a strategic imperative. When ESG asked respondents to agree or disagree with the statement: "If my IT organization does not embrace IT Transformation, we will not be a competitive company," 81% agreed. That is a ten-percentage point increase from 2017.
How 'IT Transformation' Differs from 'Digital Transformation'
IT Transformation and another industry term, “digital transformation,” sure sound synonymous, but they do certainly differ. Importantly, one does not happen without the other:
Digital Transformation emphasizes evolving to thrive in a digital economy—for example, using smart devices, connected sensors, and data-driven insights to out-innovate, out-think, and out-pace competitors. Digital transformation focuses on embracing change to become the disruptor, not the disrupted.
IT Transformation centers on modernizing the underlying technology infrastructure. The business becomes “more transformed” by growing beyond its reliance on rigid, manual, hard-to-maintain legacy technologies. IT Transformation enables speed, efficiency, scale, and cost-effectiveness—automating manual tasks and streamlining operations to free up resources and fuel digital transformation initiatives.
81% of respondents agree that if they don’t embrace IT Transformation, then their companies won’t be competitive. That’s a ten-percentage point increase from 2017.
Regardless of how transformed your IT organization is today, it’s vital for you to understand what other companies, leaders and laggards alike, are (or are not) prioritizing, and what results they’ve seen. Those insights will help you home in on where to focus the first or next step on your own IT Transformation journey.
You will discover that, done right, technology modernization and automation, combined with proper organizational dynamics, bring tremendously positive outcomes (see Figure 1).
Figure 1. IT Transformation Outcomes
organizations are 16X
more likely to have
organizations are 2.5X
more likely to believe
their companies are in a
organizations are 18X
more likely to make faster
Enhanced IT spending
organizations are 8X
more likely to be cost-
competitive with the
More inclusion for IT
in business strategy
organizations are 6X
more likely to be involved
in business strategy
Distinguishing IT Transformation Levels
ESG categorizes a company’s IT Transformation level by examining how extensively it has adopted:
Modernized data center technologies — Transformed organizations take steps such as virtualizing their servers. They use All-Flash storage where appropriate. They run a considerable portion of their workloads using scale-out and converged or hyper-converged infrastructure platforms. They commit to a software-defined approach for networking and storage. And they adhere to a comprehensive and well-tested data protection strategy with the best-available backup, deduplication, and archiving tools at its foundation.
Automated IT processes — Transformed organizations automate their environments to help them deliver IT as a service in a cloud-like model for cost transparency, efficiency, and responsiveness. They incorporate automation to support server change configuration and storage provisioning. And they offer self-service capabilities so end-users can order and manage on-premises resources as needed.
Transformed organizational dynamics — Transformed organizations believe in tight business and IT alignment, and business units regularly inspect IT outcomes for effectiveness. The IT organization’s executives almost always report directly to the C-suite leadership team, making it easier for IT to contribute to business strategy. Transformed organizations also often adopt DevOps principles and methodologies.
The IT Maturity Curve
It’s imperative for organizations to evolve beyond a dependence on obsolete IT products and processes. But many still have a long way to go. To get a clear picture of the state of IT Transformation globally, Dell EMC and Intel® asked ESG to create a research-based, data-driven maturity model. The model defines the stages of IT Transformation and determines the extent to which organizations around the world have reached each stage. Figure 2 shows the percentage of organizations in each category.
The Trend Is Positive, and It Should Accelerate
Comparing 2018's findings against 2017’s, it appears that the IT Transformation Initiatives run by organizations are getting more mature. The rise is most evident in the lowest stage; the proportion of Legacy organizations shrank from 12% to 6%. Still, fully transformed organizations only represent 6% of the market. Room for improvement exists, and increasing urgency is warranted.
“Transformation is essential for companies that want to stay one step ahead
of their competitors.”
—VP of IT, 10,000-person life sciences company, Stage 4 IT Transformation Maturity
To gauge sentiment, ESG asked respondents if they agreed or disagreed that: “If we don’t embrace IT Transformation, we will not be a competitive provider of IT services to the business.” Most respondents ( 69% ) agreed with the statement last year. This year, 82% agreed—a 13-percentage point increase. Additionally, more-than four-fifths of respondents said they believe IT Transformation is important to the success of the overall business
More IT leaders are realizing the importance of transformation, in large part due to :
The dependency they see between IT and digital transformation. Ninety-six percent of respondents said they have digital transformation initiatives underway—either at the planning stage, at the beginning of implementation, in process, or mature. Those initiatives are linked to IT Transformation progress. Respondents whose organizations have achieved Transformed status are 16 times more likely to have mature digital transformation projects underway versus Legacy companies (66% compared with 4%).
Time-to-market pressures. Eighty-eight percent of respondents said their companies are under pressure to deliver products and services faster, which requires having a more agile approach to IT. Successful IT must allow the organization to deploy and scale digital services at the pace of business.
A pervasive requirement to reduce costs. Even Transformed IT organizations get measured on keeping costs low and delivering projects on/under budget. Success depends on having a reliable, highly automated, easy-to-deploy, and easy-to-manage infrastructure.
The research also showed a strong link between digital transformation and business confidence. When ESG asked respondents to characterize their company’s forward-looking competitive position from “very strong” to “extremely poor,” 84% of respondents with mature digital transformation initiatives underway said they were in a strong/very strong position to compete and succeed. In fact, the respondent companies with digital transformation initiatives underway were 2.5 times more likely to be confident in their organization’s competitive position than companies that are not pursuing digital transformation initiatives (33%).
Business Performance and Driving Growth
Strong business performance means different things to different organizations. But typically, accelerating innovation, speeding development, outperforming industry peers, keeping customers happy, reducing costs, and driving revenue are all good metrics.
There is a link between IT Transformation and how well a company performs at a business level. Transformed organizations were more than twice as likely to have exceeded their revenue targets in the past year compared with Legacy organizations (94% versus 44%). Respondents from Transformed organizations were also 2.5 times more likely to believe their companies will be strongly competitive over the next few years compared with respondents from Legacy companies (see Figure 3). These findings represent more evidence that IT Transformation fuels digital transformation.
“IT Transformation has been a core philosophy in our company for a number of years, and we are starting to reap the benefits of increased efficiency.”
—IT Manager, 5,000-person manufacturing company, Stage 3 IT Transformation Maturity
Competing to Win: Speeding Time to Market Through Better IT Agility
At many companies, the time it takes for a product or service to go from concept to general availability depends a lot on how transformed the company’s IT organization is. The IT group is responsible for making sure the applications employees use are performing reliably. IT also is responsible for giving the developers the right tools and capabilities to enable them to meet all product release target dates.
When IT gives internal end-users and partners what they need, when they need it, IT is also helping the business as a whole to give external customers what they want, when they want it.
As mentioned, 88% of respondents reported feeling a need to move at an accelerating pace. Are they succeeding? ESG asked the respondents to characterize their companies’ timeliness in developing and launching products and services relative to competitors. Transformed companies were 22 times more likely to report being significantly ahead of the competition compared with Legacy organizations (see Figure 4).
Transformed organizations are more apt to use technologies such as hyper-converged infrastructure, which is deployable in hours versus the weeks many legacy data center infrastructures have traditionally taken to deploy. Transformed organizations also leverage DevOps principles to release and iterate applications more frequently. And with automated IT operations, Transformed organizations can minimize man-made errors and delays. All these good outcomes are easily observable at the IT level. But significant downstream business-level impacts are also apparent (e.g., improved decision making, on-budget project completion, and/or faster task completion).
“IT Transformation has now become a very important part of any business, and those companies who lag will definitely be left behind.”
—Director of IT, retail organization with nearly US$1B in annual revenue, Stage 2 IT Transformation Maturity
Using Data to Drive Decision Making
Of course, companies can’t get products to market with speed and agility if they aren’t adept at making smart decisions. ESG asked respondents to identify how good they think their company is at using data to make better, faster business-strategy decisions versus the competition. Respondents at Transformed companies were 18 times more likely than Legacy organizations (72% versus 4%) to say their company almost always makes better and faster data-driven decisions.
That accomplishment centers on leveraging business and application data effectively. Notably, ESG found even Evolving companies lag considerably here, with only 24% of Evolving companies reporting the same level of success (see Figure 5). It appears that, in general, only companies that are the most Transformed feel really confident in their ability to process, analyze, and leverage data when plotting the course of their businesses.
Timely Application Deployment
On a similar note, ESG looked into the time frames organizations operate under when deploying applications to their internal end-users and customers, work that typically encompasses infrastructure installation, integration, provisioning, and configuration—and work that can be streamlined by automation. Transformed companies showed very strong performance here—they were nearly ten times more likely to report that most of their application deployments happen ahead of schedule than respondents at Legacy organizations (69% versus 7 %).
Keeping IT Projects on Schedule
Revisiting a finding from 2017, ESG asked respondents to assess how many of the IT projects and initiatives they undertook over the past few years were completed ahead of, on, or behind schedule.
The farther along a company is on its transformation journey, the larger the proportion of projects it has finished ahead of schedule, on average. Specifically, Transformed organizations reported completing, on average, more than three times as many of their IT projects ahead of schedule in the past few years versus Legacy organizations (34% of projects on average versus 10%).
Time to Provision VMs
The time needed to provision virtual machines ( VMs ) is a tactical but relevant measurement tied to agility. It’s certainly top-of-mind among IT practitioners, considering that the VM has become a core building block of the modern IT environment.
ESG asked respondents how long it takes them to spin up a VM, starting from the time they get the request. Respondents at Transformed companies were more than four times more likely to say that they fulfill VM provisioning requests in under four hours than Legacy organizations (33% compared with 8%).
Delivering Business Value: The Economics of IT
IT organizations have always had to operate effectively at the lowest possible cost. The research shows that organizations that have progressed farthest along the IT Transformation maturity curve are consistently achieving higher spending efficiency than less-mature organizations.
This is an extremely promising finding; after all, reducing routine IT operational costs may allow organizations to fund new, business-critical digital transformation initiatives.
IT Projects Under, On, and Over Budget
ESG asked respondents what percentage of their IT projects over the last few years have been completed under, on, or over budget. Respondents at Transformed organizations said they are completing 14% more IT projects under budget than Legacy companies (on average, 27% of projects versus 13%—more than twice as many projects).
Interestingly, it also looks like this trend is strengthening. In 2017 the gap was just 10 percentage points, with Transformed companies reporting completing 25% of their IT projects under budget versus 14.9% for Legacy companies.
Innovation versus Keeping the Lights On
ESG asked respondents to split their IT budget into two categories: budget for new projects or initiatives, and budget for maintaining existing systems and services. On average,Transformed organizations are spending 47% of their annual IT budget on innovation. Legacy companies, on the other hand, are spending just 30% (see Figure 6).
Again, there is a clearer distinction in 2018 between Legacy and Transformed organizations. In the 2017 study, Transformed companies were allocating, on average, an incremental 12 percentage points of their annual IT budget to innovation versus 2018’s 17 percentage point delta.
ESG views this finding to be yet more evidence of the increasing value associated with striving for full IT Transformation.
IT Staff Allocation
Transformed organizations don’t need to spend as much time maintaining existing infrastructure. They can shift staff from classic IT operations such as infrastructure deployment, management, and monitoring to higher-value activities such as strategic planning, architecture, and application development. ESG research shows that, on average, Transformed companies are able to shift an extra 12% of their IT staff to higher-value activities.
But what does that mean from a real-world standpoint?
Consider a 7,100-person company with a 355-person full-time IT staff. If it’s a Stage 1 Legacy company, 178 of those staffers are there just to keep the lights on.
If it’s a Stage 4 Transformed company, that number drops to 137—with 41 people instead dedicating themselves to strategic endeavors such as planning, application development, architecture enhancement, and digital transformation.
The effect of shifting IT spending from maintenance3 to innovation is significant. The Transformed organizations in this study have an average annual IT budget of US$380 million. If they allocated that money the same way a Legacy organization does (i.e., spending 70% of it to maintain existing systems), then they’d have only US$115 million left over annually to spend on new projects.
But thanks to their efficient operations, Transformed organizations have been able to create environments that are less expensive to maintain. The upshot of this improved cost structure is that the average Transformed organization is allocating US$179 million to new projects. In other words, they’re funding an additional US$64 million worth of innovation.
Cost Competitiveness versus the Public Cloud
ESG saw a big difference in respondent sentiment about how cost-competitive they think their on-premises compute infrastructure is compared with a public cloud service. Two-thirds of the respondents working at Transformed companies believe their IT infrastructure is highly competitive—in other words, it’s as good as or even better than a public cloud in terms of operating cost. In fact, those respondents were more than eight times more likely to report having cost-competitive on site infrastructures compared with respondents at Legacy organizations (see Figure 7).
Transformed companies were even twice as likely to have cost-competitive on site infrastructures as Evolving companies were—proving again that making the effort to transform fully is worthwhile. Do it right, follow the recipe to the end, and benefits will follow.
By operating a cost-competitive on-premises environment, Transformed organizations give themselves more options to leverage the public cloud where it makes sense, while keeping other workloads on-premises if those workloads are better served by local control and performance—and they’re doing it without incurring incremental costs.
3 Maintenance includes system administration and other operational costs such as power, cooling, and software maintenance.
“We see IT Transformation as being a profit driver for our company.”
—VP of IT, 500-employee business services firm, Stage 3 IT Transformation Maturity
IT Spend per Business-critical Application
Transformed companies run a higher number of critical applications and generally have more sophisticated IT environments. However, they spend less than their counterparts on a per-application basis. ESG observed this trend in 2017’s research, and in 2018, the spending differences look even more dramatic.
To normalize expenditures regardless of organization size, ESG divided respondent's IT budgets by how many business-critical applications they manage (see Figure 8). Transformed organizations spend 62% less per application than Legacy companies, 34% less than Emerging companies, and 16% less than Evolving companies.
Overall, Transformed organizations are spending 31% less per application than companies in the other stages. Last year, Transformed companies spent 14% less.
It appears that by making extensive use of automation and advanced IT solutions (as well as being smarter about organizational structure), Transformed companies have been uncovering major cost efficiencies and don’t need to spend as much on the routine maintenance of their environments.
VMs per Server Administrator
Transformed companies enjoy a distinct advantage in terms of employee productivity.
ESG asked respondents both how many VMs they manage and how many server administrators they have on staff. Together, that information painted a clear picture —administrators at Transformed organizations are managing the most VMs by far. Specifically, administrators at Legacy organizations manage an average of 132.6 VMs each, but admins at Transformed companies manage 241.5 VMs each. This looks like another good proof point of how valuable high levels of automation and operational excellence can be.
Aligning IT with the Business
The day will come (it has already arrived in some industries and organizations ) when IT becomes the prime mover of the business —i.e., it essentially is the business. For now, many IT departments are still transforming themselves to be better partners to the business. Effective partnering is something any strategic-minded IT leader thinks about and often is formally incentivized to achieve.
Examining the Measures of IT Effectiveness According to Respondent's IT Transformation Maturity Stage
Measures of IT success at Transformed organizations are different. These IT organizations are judged more frequently based on their business impact and less on their ability to cut costs. Cost reduction remains vital, but 38% of Transformed organizations report cost improvement as among their top measures of success compared with 49% for Legacy companies.
Business leaders at Transformed companies put more emphasis on measuring how the IT group supports new revenue streams. Thirty-one percent of Transformed IT organizations cite that as a top measurement metric compared with only 13% of Legacy companies.
As IT organizations progress in transforming themselves, the likelihood that they will be judged on how they enable and support revenue-generation efforts goes up, likely because they’ve already proven they understand budget optimization. For any IT executive hoping to be goaled on something more aspirational than “cost control,” the appeal of IT Transformation should be clear.
“Organizations need to evolve to address the changing business landscape. Business leaders want IT to be focused on business results, innovation, & continuous improvement.”
—VP of IT, 5,000-person retail company, Stage 3 IT Transformation Maturity
IT Involvement with Business Strategy
ESG tested the idea that IT leaders who work at forward-thinking Transformed companies are “invited to the table” earlier and more frequently to provide input to business-strategy decisions. The findings confirmed this concept definitively.
As Figure 9 shows, IT groups at Transformed companies are six times more likely to be involved in business-strategy development compared with their counterparts at Legacy companies (60% of respondents versus 9%). Conversely, IT shops at Legacy organizations are more apt to be brought in after the fact to confirm that an already-decided business strategy will be technically feasible.
This finding should be great motivation for CIOs and other IT managers who want to become more deeply involved in the way their businesses run. IT Transformation is a way for a CIO to affect strategic direction.
How Executive Leadership Evaluates the IT Organization’s Effectiveness
ESG asked all 4,000 respondents how their company measures the IT organization for success. Respondents across all the IT Transformation maturity levels reported cost reduction (42%) and on-budget/on-time project delivery (35%) were among the most frequently used measures. Other measurements included user satisfaction levels (34%), and IT’s ability to enable business process improvement (32%), ensure application uptime (29%), and enable new revenue streams (25%).
“IT is deeply ingrained in every aspect of our business, and unless IT is constantly transformed, our competitiveness cannot be maintained.”
—IT manager, Media company with more than US$1B in annual revenue, Stage 2 IT Transformation Maturity
IT/Line of Business Cooperation
Respondents described the degree of cooperation and collaboration they believe exists between the IT department and lines of business. Decision makers at Transformed companies were more than 18 times more likely to report high levels of cooperation versus Legacy organizations (74% of respondents versus 4%). This is the second year ESG has asked that question, and the delta between Legacy and Transformed companies is widening. In 2017, it was 60 percentage points.
IT as a Competitive Differentiator
ESG also asked respondents how other business units in their companies view the IT organization. Only 6% of Legacy organizations said other lines of business view the IT function as a competitive differentiator. Among Transformed companies, 31% do. That’s a sharp contrast—Transformed IT organizations are more than five times more likely to be viewed by senior leadership and other important company stakeholders as a competitive differentiator for the business (see Figure 10).
The Bigger Truth
At this point, the business world has enthusiastically accepted that digital transformation is worthwhile for companies and for customers. ESG’s research data supports that position.
Select IT organizations have employed infrastructure technologies and processes broadly to make them more agile, flexible, innovative, user-oriented, and customer-focused. To put it another way, they are engaging in IT Transformation, and, by doing so, they are moving the conceptual digital transformation conversation from “ideal” to “real.”
“IT Transformation means being able to transform a less flexible organization into a more proactive and agile team that can respond quickly to business needs.”
—CIO, retail company with more than US$5B in annual revenue, Stage 4 IT Transformation Maturity
These leaders implement high-performance All-Flash arrays to support increasing amounts of performance-sensitive applications. They utilize scale-out architectures as scale-up solutions become depreciated, and roll out converged and hyper-converged platforms to speed deployment and lower the management burden. They incorporate software-defined networking and storage solutions to add flexibility to their environments while lowering costs. They deploy high-performance servers to run next-generation workloads and implement comprehensive data protection solutions to ensure always-on availability. They add automation for resource elasticity and enable self-service provisioning to provide users with public cloud-like experience. And they ensure that communication between IT and business stakeholders is meaningful to deliver results.
As this research has shown, this is not transformation for transformation’s sake. The factors that collectively establish a company’s IT Transformation status, i.e., its place on ESG’s IT Transformation maturity curve, are numerous and diverse. But they share one theme—when taken together, they are strongly correlated to operating economically, productively, and responsively. Those achievements can help any organization out-innovate and outperform its competition.
Assess Your Own IT Transformation Maturity
To enable greater IT Transformation maturity, you must first understand how your organization stacks up today. Dell EMC, Intel®, and ESG have made available an interactive online assessment based on this research. This free and frictionless tool allows you to see where you stand in relation to your peers and helps you gain more awareness into your strengths and weaknesses. You'll also receive a blueprint action-plan with the steps you can follow today to help your organization transform.
Start the journey toward transforming your IT organization, accelerating the pace of innovation, and fueling tomorrow’s digital transformation initiatives today.
To gather data for this report, ESG conducted a comprehensive online survey of IT executives from private- and public-sector organizations in 16 countries: U.S. (13%), Canada (3%), U.K. (13%), France (10%), Germany (13%), Italy (2%), Netherlands (1%), Russia (1%), Australia/New Zealand (6%), Japan (12%), China (3%), India (10%), Hong Kong (3%), Brazil (5%), and Mexico (6%). The survey was fielded between September 19, 2017 and November 6, 2017.
To qualify for this survey, respondents were required to be familiar with their organizations’ current and future IT budget and spending plans and involved in their organizations’ infrastructure (e.g., storage, servers, networking, virtualization, and/or data protection) purchase processes.
After filtering out unqualified respondents, removing duplicate responses, and screening the remaining completed responses (on several criteria) for data integrity, a final sample of 4,000 respondents remained.
All respondents were provided an incentive to complete the survey in the form of cash awards and/or cash equivalents. Note: Totals in figures and tables throughout this report may not add up to 100% due to rounding.
To calculate maturity levels, ESG asked each respondent questions about their IT environment and processes—allocating a corresponding number of maturity points to each question and answer. The sum of the points represented an organization’s total maturity score.
An organization could earn 0 to 100 points. Those with 0 to 25 points were classified as Stage 1 (or Legacy) organizations. Organizations earning 25.5 to 50 points were Stage 2 (or Emerging) organizations. If they earned 50.5 to 75 points, they were Stage 3 (or Evolving) organizations, and if they earned 75.5 to 100 points, they were Stage 4 (or Transformed).
Criteria for Evaluating Respondent Organizations’ IT Transformation Maturity
ESG’s maturity model determined organizations’ IT Transformation maturity based on respondents’ answers to a subset of questions included within the more than 60 questions in the survey. The figures that follow detail these questions.
The data presented in this report is based on a survey of 4,000 qualified respondents. The figures below detail the demographics of the respondent base: individual respondents’ current job responsibilities, as well as respondent organizations’ total number of employees, primary industry, and annual revenue.
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