Digital drives enterprise software spending

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Enterprise software spending is increasing, according to Gartner’s latest IT spending forecast, growing globally from $326bn in 2016 to more than $381bn in 2018.

The greater emphasis on software is likely to be driven by the requirements of digitally powered initiatives such as the internet of things (IoT) and artificial intelligence (AI), which need new IT architectures such as microservices that can respond to events dynamically.

Gartner’s 2017 CEO survey found that 58% of CEOs see growth as their highest business priority. Such growth often arises from the adoption of new business models, introducing new products and services, expanding into new markets and geographies, upselling to existing customers and stealing market share from competitors.

Digital transformation is regarded as the top priority for CEOs.

Anne Thomas, vice-president and distinguished analyst at Gartner, said: “Most CEOs also recognise a triangular relationship between technology, product improvement and growth. They recognise that technology is the fundamental enabler of digital transformation.”

John-David Lovelock, vice-president and distinguished analyst at Gartner, said: “The impact of digital business is giving rise to new categories; for example, the convergence of software plus services plus intellectual property.”

Gartner expects these next-generation products and services to be fuelled by business and technology platforms that drive new categories of spending.

Lovelock said industry-specific disruptive technologies include the IoT in manufacturing, blockchain in financial services (and other industries), and smart machines in retail. “The focus is on how technology is disrupting and enabling business,” he added.

Gartner recommends that a digital business technology foundation should support continuous availability, massive scalability, automatic recovery and dynamic extensibility. Digital business applications must also use modern technologies to engage customers, support digital business ecosystems, capitalise on digital moments and exploit AI and the IoT, the analyst firm said.

It warned that legacy applications can be a significant inhibitor to digital business transformation, which means such systems will need modernising to work within the context of a digital strategy.

Thomas said: “Modernising core application systems takes time, and few organisations are in a position to immediately move over to a replacement system.”

Gartner believes that event-centric processing is the native architecture for digital business, and to enable growth through digital business, strategic parts of the application portfolio will need to become event-driven. “Digital business demands a rapid response to events,” said Thomas. “Organisations must be able to respond to, and take advantage of, business moments and these real-time requirements are driving CIOs to make their application software more event-driven.”

This represents a shift from a data-centric approach to IT.

In the Gartner report Articulating the business value of event-driven architecture, Thomas said digital businesses are driven by events, and digital business transformation requires competence in event capture, processing, analytics and action. One example of this is in customer engagement. In the report, Thomas said event-driven models enable organisations to use situational information more readily to provide context-enriched customer experiences.

“A convergence of events generates a business opportunity, and real-time analytics of those events, as well as current data and wider-context data, can be used to influence a decision and generate a successful business outcome,” she said. “But you can’t capitalise on the business moment if you don’t first recognise the convergence of events and the digital business opportunity.”

Many traditional businesses are shackled by their core legacy platforms, which often run systems of record, such as their main customer database application. Migrating from these systems has often been regarded as too risky, which can sometimes limit the flexibility of the business.

From a CEO perspective, the risk is that new competitive threats can emerge from startups that are not restricted by legacy systems. One example is UK challenger bank Monzo, which set up in 2016 without any mainframe technology. Instead, it relied on the Amazon Web Services (AWS) public cloud and built its core banking platform using a microservices architecture comprising a collection of small components that can scale independently, and can communicate synchronously or asynchronously.

Gartner noted that the bank’s architecture is event-driven. “Monzo Bank fights fraud using machine learning to examine the transaction event stream and improve its ability to discern false positives and negatives,” it said.

According to Gartner, Monzo’s current fraud rate is an order of magnitude lower than the financial services industry average. It also used analytics of the transaction event stream and machine learning to predict customer questions and optimise customer experiences.

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