Organisations and governments can better respond to today’s most critical challenges and opportunities by

assessing, rationalising, modernising, and managing their enterprise applications.

Envisioning an applications transformation journey

Viewpoint paper

applications to accelerate success.Harness

Table of contents

Executive summary ................................................ 1Applications are the key to greater efficiency, growth-oriented innovation, and IT cost reductions ..... 2Technology and market challenges .......................... 2Applications and these challenges .......................... 3What CIOs should do ........................................... 8Next steps ........................................................... 8Conclusion .......................................................... 9

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Executive summaryCIOs and their IT organisations are caught between the proverbial rock and a hard place.

On the one hand, they are challenged by their organisations to invest more in innovation—to support the enterprise goals of driving revenue, reaching new clientele, and improving customer satisfaction. They are challenged to both support and exploit mobility. There are significant internal objectives, too, especially around increasing business efficiency and providing a single view of information to both internal and external users. Furthermore, IT leaders are challenged to be more flexible and agile in responding to market opportunities and threats.

On the other hand, CIOs often find themselves limited in their ability to address these challenges. It isn’t just about applications that are hard to change, but processes that get in the way of fast response. It’s also about the demands of the current environment—with significant resources dedicated to maintaining and delivering the business services already in place. Cost cutting can be done, but at significant effort and with considerable pain.

These barriers make objectives like innovation, mobility, integration, and agility seem out of reach. It’s made especially difficult when CIOs understand that these are all interrelated. It is difficult to do one well, without doing something about the others. But in the HP experience, they are all achievable—in a timely matter, with clear and quantifiable business benefits.

However, there must be an intentional plan for transformation. Further, it must be for more than IT infrastructure. The plan must also include applications and the governance and the management of the portfolio, all blended with the right sourcing strategies for delivery, for development, and for testing.

Delivered with the right services partner, this plan can be implemented better and delivered faster. Why a services partner? HP research and experience show that most organisations will admit that they do not have all of the resources and skills necessary for an extensive IT transformation. This is where a partner like HP can help. We have a collaborative and flexible approach to applications services that complements the skills and capabilities you have in place. Our experts can design and help implement an applications transformation program that is aligned to your business goals and objectives. And we can leverage decades of HP experience in applications and leadership in IT technology on your behalf.

This viewpoint paper is not about HP. It is about getting your organisation positioned for innovation, mobility, integration, and agility. It documents the linkages between these objectives and your applications. It addresses why you need to include applications in your strategy to meet these objectives—and why doing so can help you realise better outcomes. It’s based on market research about the real issues facing organisations like yours.

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Applications are the key to greater efficiency, growth-oriented innovation, and IT cost reductionsPowerful new trends are affecting people, organisations, and entire industries. Enterprises of virtually every kind are now being driven to become instant-on organisations capable of delivering:

• Innovation as measured by service quality and competitive advantages

• Agility to drive faster responses to changing business and customer needs

• Optimisation to achieve lower costs, improved processes, and better return on investment (ROI)

• Lower risk by managing security threats, data, regulations, and the unknown

These organisations will have to increasingly rely on applications to find and exploit new opportunities; drive operations; energise supply chains; and manage market, customer, and citizen relationships.

What this means is that businesses and governments should be rethinking their applications—both to meet the challenges of today’s environment, and to better leverage applications to fully exploit the opportunities presented by market trends and specific technology. This will involve taking a more comprehensive approach to applications: not just examining the portfolio, but evaluating governance, development and testing, management, and the broader strategies and environments that support those key systems.

One place to start is an examination of technology and market trends: how organisations and governments can leverage applications to address the challenges those forces present, and how specifically addressing applications enables enterprises to fully realise the promise of this emerging landscape. Next, let’s explore the variables and requirements of a world-class applications approach, and the tangible steps organisations and governments can take to reach that objective.

Technology and market challengesBusinesses and governments face an array of daunting challenges, as well as promising new opportunities. To better understand the critical role of applications in the coming enterprise environment, HP surveyed chief information officers in a cross section of industries and asked them to identify the primary forces affecting their organisations.

That research revealed that the top issues were mobility, innovation, integration, and sourcing/development, with the important ranging from a level of 6.7 to 7.5 on a scale of 1 to 10. The two forces driving those issues were budget and integration (sometimes referred to as interaction or information).

Based on this research and other industry insights, HP has identified the following as the key elements shaping CIO thinking about how IT and applications improvements can drive business results:

Budget (Money)As the global economy continues a tentative but promising recovery, many organisations and governments continue to focus on reducing both IT-related operating and capital expenses—often by modernising, rationalising, and better managing key applications. Their focus on budget is also driven by a desire to do more without spending more. It’s a balancing act—to spend more on innovation, organisations must spend less on management and operations, both of infrastructure and for their applications. This “flipping the ratio” is a key success criterion for the Instant-On Enterprise, because it allows organisations to invest directly in resources that deliver differentiation and added value, and partner with others for those areas that do not.

Interaction/Integration/InformationAcross virtually every industrial sector, organisations increasingly interact and share with customers, citizens, supply chains, and partners. The quality of these interactions is improved IT transformation as information can be shared across business and department processes and across applications. Integration with suppliers and distributors, sales, and marketing can improve business efficiency and even help establish competitive advantage or mission success.

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MobilityMobility is reshaping the world, and with it, the world of software applications. Some six billion people now inhabit the planet, spending 200 billion minutes each day on social networking. They use technology ranging from laptops and PDAs to cell phones, kiosks, RFID tags, and more. Mobility is being used to transform business processes and open new markets—changing the competitive landscape in many industries. Mobile, cloud, and ubiquitous computing has fundamentally altered the role and expectations of IT in the enterprise and government, and these have created an environment where business and department processes, models, and key applications are closer and more important to individuals, organisations, and governments.

Innovation (New Value)Today, IT units are challenged to do more for their organisations—to bring new capabilities and services to market more quickly; to fully leverage mobility, cloud computing, and other advances; and to find and exploit opportunities to build revenue and new value. Chief information officers are held more accountable for both top- and bottom-line performance.

Sourcing Strategies and Development Doing everything one’s self is not only the most expensive way to manage an IT organisation, but often means experiencing learning curves and not benefiting from industry best practices in one’s own operations. To meet the needs of today’s business, government, and economic environment, organisations are increasingly evaluating the areas in which it makes sense for them to invest and add value directly and where to partner or outsource.

Applications and these challengesAs the global economy emerges into a hoped-for recovery, few now question the savings, increased productivity, and value that IT has delivered to organisations. Business and government entities now face a new environment—defined by mobility, greater interactions, and the need for new value and new development strategies. Business and organisational processes and capabilities are delivered through applications. To achieve the needed strategic alignment, CIOs now seek to manage their portfolios of applications to better serve their organisations and meet mission objectives.

Let’s take a look at how can they do that:

Budget (Money)As organisations adapt to a world of information, opportunities, and experiences, many are hobbled by aging applications and rigid systems. Maintaining those obsolete systems often consumes the majority of an IT budget and seriously reduces the money available for investments in innovation, growth, and new value. The essential economic challenge for many organisations is to transform their applications portfolios to gain greater speed, agility, and productivity.

Challenge: In difficult economic times, organisations naturally seek to reduce applications expenses and other IT-related costs. Surveys and estimates show that more than half of a typical organisation’s software budget can be consumed by maintenance and operations. In fact, some organisations spend up to 90% of their IT budget just to keep the lights on.

To survive in recessionary economies and to thrive in growth economies, IT organisations must have operational spending under control, so as to maximise the resources available for innovation. Ideally, organisations want to “flip the ratio” of spending—something that seems like an aspirational goal for most, but is actually quite achievable.

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Enterprises must optimise to reduce operating costs whilst improving process performance, and can modernise to improve efficiency and productivity. Our experience with applications rationalisation shows that many IT organisations and governments do not align investment to value for their applications, impacting their overall returns and value to the organisation. Those who manage applications with the old adage “if it isn’t broken, don’t fix it” discover that their rigid IT environments are not only more costly to maintain and change, but that labour and infrastructure to support them are becoming more expensive—if the IT specialists are even trained on that outdated technology any more. Furthermore, organisations that insist on doing everything themselves spend more than they should in areas that don’t add value to their business or organisation.

Opportunity: As the global community emerges from the economic downturn, today’s optimised organisations seek to capitalise on wise investments and to shift IT spending toward transformation, growth, and value-producing activities. An operational excellence approach to managing applications—leveraging strategic and experienced partners, advanced tools, and metrics, an ITIL framework, and improved processes—can improve quality and lower applications-related costs. By right-sizing applications support, organisations can handle more issues at lower-cost support levels, whilst delivering better overall services. With rationalisation and modernisation, the portfolio of applications itself is optimised for the organisational needs going forward, not in support of those in the past. Making use of development resources outside of the organisation, and making use of sourcing innovations—not just for operations but for areas like testing and communications—can both reduce spending AND provide the resources to invest in innovation.

Through planned modernisation, organisations have reduced applications-related operating costs by up to 60%, maintenance costs by 50% or more, and new development costs by up to 50%. Applications rationalisation and management can free funding for growth-oriented projects and initiatives. In fact, this is exactly what HP’s internal IT organisation did for HP.

Interaction/Integration/InformationApplications are the key element in efforts to better manage markets, to energise supply chains, to streamline operations, and to improve customer and citizen relations, service quality, and business and government decision-making. Business and government processes are required to make better use of information kept in disparate databases and applications (often not part of the organisation itself). They must deliver a more complete “view” to their users, cutting across organisational bounding and business and government processes alike. Said integration increases the volume of information involved, this volume being compounded by the proliferation of data sources, data types, transactions, and users alike. Additionally, competitive advantage and mission objectives can be derived by making appropriate use of publicly available external information as well as information purchased from third parties.

Savvy managers want applications portfolios that are better integrated to enable new business and governmental processes, products, and services. They also need modern enterprise architectures that can capitalise on the unique opportunities of the emerging more integrated, interactive environment. They need to be able to adapt to changes in information, to new opportunities in integration, more quickly.

Challenge: Historically, applications were developed and utilised within the four walls of an enterprise, and many legacy systems were “cemented” into place with inflexible coding and connectivity.

Today, with the ubiquitous Internet access, with more complex supply chains, and with workforce mobility, organisations need improved integration, sharing capabilities, and data that are open and secure. They also need applications that can interact across geographies, technologies, and systems. Rigid applications, which were never designed to handle today’s more diverse business and government processes and information sources, can greatly hinder the evolution toward a more connective and interactive enterprise.

Today, with the ubiquitous Internet access, with more complex supply chains, and with workforce mobility, organisations need improved integration, sharing capabilities, and data that are open and secure. They also need applications that can interact across geographies, technologies, and systems.

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These challenges are reinforced by our research findings. Two-thirds of CIOs surveyed said integration is more important today than it was two years ago, and integration will continue to be important for the next several years. They were equally divided in terms of whether integration of applications within a business process, or integration across business processes, was the most important. Their biggest challenge? Developing and enhancing applications for integration was their biggest challenge, with nearly one in eight saying they don’t have the resources or skill sets they need to do this work.

Opportunity: Aggressive companies and governments are working to improve the quality and efficiency of their work, the quality of their relationships, customer and citizen satisfaction, and even revenue by integrating applications and information across business processes. By seamlessly integrating information from across the enterprise and third parties, they can extract even more competitive or mission advantage. But to realise this, they need to break down the walls between software applications, and then leverage mobility, CRM, and business intelligence. Advanced applications can improve access to information, and thus support faster and smarter decision-making.

By focusing on improving existing applications, replacing manual processes with automation, and exposing existing data and software through better integration, organisations can meet higher expectations for quality, functionality, and software availability. Health care organisations, for example, can leverage advanced applications to connect physicians, pharmaceutical companies, and retail pharmacies. Governments can integrate information maintained in multiple locations to improve security. Organisations in virtually any sector can use improved integration to facilitate partner sharing and communications, to strengthen business processes, and to more quickly and efficiently launch new products and services.

MobilityAs we have seen, mobility and other market trends are creating both challenges and opportunities for business and governmental organisations. Mobility in this context refers not only to the use of mobile devices, but also to the increasing use of social media

and of location-based and location-aware services, all of which drive end-user expectations for immediate access to information. Further, users now expect their service providers to remember who they are, to know where they are, and to know what they are interested in.

Because of this, the future will be defined by greater workforce, supplier, partner, and customer mobility. This emerging landscape will be marked by tighter bonds amongst people, systems, and organisations. At the same time, organisations will be challenged by the explosion of locations, touch points, devices, and technologies.

The pace and randomness of this dynamic and mobile environment put powerful new pressures on IT systems, from servers to storage, but most importantly, on applications.

Challenge: Social media, the consumerisation of IT, the changing demographics of a more mobile workforce and citizen population, and the competitive advantages provided through exploitation of mobility and mobile devices are transforming how employees, customers, and citizens expect enterprises and governments to operate. Whilst mobility and social media facilitate instantaneous connections and collaboration, both inside and outside of an enterprise, those environments also create greater complexity, concerns about security and access, and the need to manage new devices, information flows, and technologies.

CIOs often struggle to meet the pace of change in a self-service environment, whilst keeping up with competitors, customers, and citizens, all whilst ensuring continuous operational performance. Unfortunately, most of the applications running in today’s environments simply cannot support a true instant-on, mobile experience. This is not just a technology issue (related to the increasing diversity of devices and user interfaces), but also a function of the sheer volume of applications found in most IT organisations, and often the age of them as well—especially those tied to mission-critical applications and processes. It’s hard enough to change applications from a functionality perspective. How can you expect to keep up with this increasing demand for access?

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This challenge is supported by our research findings. Three-quarters of those surveyed said that mobility was increasingly important to their organisations and business. Yet, less than half thought they had the resources and skill sets in place to meet those demands. Furthermore, to deal with mobility, they are making sweeping changes across every element of their applications environment.

Opportunity: To fully leverage mobility, social media, and other advances, organisations and governments are working to transform their applications—through a logical process of assessment, modernisation, rationalisation, and portfolio management. By focusing on both up-front development and operational requirements, applications can improve the overall performance of mobile and social media applications at every point in the system life cycle when designed and managed for that purpose. Using modern development processes, organisations can quickly adapt and evolve their applications to keep up with changing needs. Using automation and as-a-service models for testing can deliver both better quality and better time to delivery.

Better applications also allow organisations to design new processes and methods to meet changing customer and constituent demands. Improved software systems encourage closer, more personal interactions with customers, employees, and partners. These systems support more efficient and secure transactions. And they allow IT departments to leverage mobility and other emerging technologies to deliver better outcomes for the business or government.

Innovation (New Value)To pursue new value, organisations must innovate. In business especially, they must innovate to survive. Market leaders are innovative by definition. Citizens more highly value governments (and governmental leaders) that innovate in delivering services. And to do that, IT departments need to shift spending away from routine operations and into new projects.

In recent research funded by HP, 95% of the C-level executives (with minimal differences between private and public sector) said that innovation is important to the success of their organisations. More than four out of five CEOs said that it was very important—the highest rank in the survey. In turn, these C-level executives identified “applications and software for more flexible processes” as the #1 area they’d invest in first.

Through applications transformation, they can move toward more strategic, value building, growth-oriented investment. But this transformation is not just about applications modernisation—it’s about overhauling their governance processes, their management processes, and even their applications life cycle processes and tools.

Challenge: Increasingly, organisations are looking to IT as the source of innovation and new value. Why? The HP survey reveals that they need to innovate to:

• Meet changing customer or citizen demand (29%)• Produce higher quality products and services (24%)• Increase efficiency (23%)

Almost every organisation, however, is challenged to find the resources needed to invest in innovation and to ensure the applications that are produced are agile enough to quickly and easily support new goals and objectives, to take advantage of new opportunities as they arise.

When asked where they needed to innovate and add value, the responses were evenly distributed across a broad range of activities, including mobility, integration (both within business processes and across the business), analytics, the use of external information, and the use of business intelligence (BI) tools. With all of these being important, how can IT leaders effectively focus on innovation in their organisations?

Opportunity: Applications transformation is essential for any organisation that hopes to become more innovative. Through applications transformation, the applications portfolio is rationalised and modernised to run in a modern IT environment. Management, in turn, is improved, along with operations. This adds the flexibility for more choice in IT sourcing decisions and frees up significant IT resources and spending to be used for new value projects.

Application modernisation and management efforts enable large enterprises to better track and control systems, and to create flexibility, economy, and value. Cloud-based and service-oriented solutions can additionally drive value by improving interactions with partners and associated streamlining supply chains, and by opening new revenue streams.

Using modern development processes, organisations can quickly adapt and evolve their applications to keep up with changing needs.

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Whilst in the past, physical infrastructure created significant barriers to innovation; today smarter and more nimble competitors can use applications to bring new ideas to market quickly and efficiently. We see this, for example, in Asia/Pacific where the absence of significant legacy infrastructure is enabling firms to aggressively adapt cloud strategies.

Sourcing Strategies and DevelopmentDoing everything in-house is becoming increasingly difficult. This is not just because of cost and capital investments, but because of the challenges of keeping up with technologies and innovations in the market place, and in the learning curve necessary to make use of those innovations in your own activities.

Organisations today are evaluating the historical models of “own everything, run everything”—and are often turning instead to making better use of sourcing alternatives aligned to their business goals and priorities, including a blend of in-house, managed services, hosted environments, outsourcing, and now cloud-based services.

Challenge: Forward-looking CIOs now also recognise the cost of developing an application is typically far less than the cost of running that system over its life cycle. By taking a holistic approach to application development—addressing technology platforms, operating environments, talent and security requirements, and other variables—organisations can better manage both the up-front and long-term cost of a given system. By considering operations and management during the development phase, organisations can lower their total cost of ownership. Through the use of automation and as-a-service testing models, they can also radically reduce time to deployment whilst maintaining quality and security.

New and more flexible options are also now available for operational requirements. The traditional model of owning and running your own hardware may no longer be the best model for many organisations. That approach requires significant CAPEX and OPEX spending, requires substantial learning curves to incorporate new technologies and changes, and is costly when technology strategies must be adjusted. Sourcing strategies can help align the deployment model chosen for each application, thus maximising costs, flexibility, agility, and other business, mission, and IT outcomes.

But sourcing alternatives are not just available for operational deployment, but for applications management, for development, for testing, and for modernisation.

HP research confirms this observation. Today, roughly half of an enterprise’s business-critical applications are internally developed, with one-fourth coming from customised third-party applications, and one-fourth coming from “off-the-shelf” third-party applications. That will not change much in the future, CIOs say, and there is no clear trend to where business-critical applications will come from in the future. Furthermore, only one in eight CIOs (13%) have seen their applications backlog shrink in the past two years, whilst nearly one-third (31%) saw it increase. Why? Resources (36%), skill sets (34%), and modernisation stand out as the key issues.

Opportunity: Optimised sourcing alternatives for all applications-related projects and initiatives can yield measurable benefits for a business or government entity. Virtual environments—leveraging outsourced, cloud, and service-oriented assets—can reduce hardware and software requirements. These services are available not just for operations, but for all applications life cycle related areas. These and other transformational efforts can significantly reduce the 70 to 80% of the IT budget that is typically spent on noncompetitive, nondifferentiating applications, thus freeing funds for more innovative uses.

To fully realise these opportunities, an applications assessment and transformation strategy should capitalise on today’s most advanced technologies, including the selective use of public and private clouds, hybrid delivery models, staff augmentation, out-tasking, and classic IT outsourcing. A range of transformational assets—including automation, tools, business level agreements, and consumption-based models—allows organisations to reduce complexity and improve performance, whilst paying only for what they truly need.

Organisations can also wield applications to create and support a true Instant-On Enterprise. Well-developed and sourced applications, properly managed and governed, can be used to build more flexible systems, to improve the efficiency of processes and transactions, to strengthen security, to govern an organisation to meet legal and ethical requirements, and to support more intimate and customised interactions with customers, constituents, and partners.

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What CIOs should doApplications are the heartbeat of any business. To create a measurable competitive or mission advantage, organisations should leverage applications to drive more efficient processes and to create richer customer and citizen experiences. For CIOs to create a more effective and productive enterprise applications portfolio, they must:

• Ensure the organisation’s applications strategy is aligned to and supportive of your broader business and government strategies.

• Invest in a comprehensive applications rationalisation initiative to assess, prioritise, and get your portfolio under control. If you have already done so, do it again (if it has been more than five years) or make it part of your governance processes.

• Modernise mission-critical applications and infrastructure where needed.

• Understand thoroughly your applications-related costs and ROI, and know where your IT organisation can add significant value to the business.

• Outsource or out-task any function or application that does not deliver unique added-value to your users (whether customers, citizens, or employees).

• Look for additional ways to build added value—often by leveraging cloud-based solutions, service-oriented architecture (SOA), business process management, testing, development, and other solutions.

• Leverage strategic partners—for their expertise, knowledge, skills, and ability to jump-start and accelerate your own value.

• Recognise the very real and significant “cost of doing nothing.” Then plan and pursue a logical path to transformation—and start now.

Next stepsMany IT departments manage applications portfolios that span proprietary systems, industry-specific solutions, and packaged software distributed across operating units and geographies across the globe. To achieve the ideal balance of cost-effectiveness, speed, and quality of outcome, a successful applications improvement effort must harness technical capabilities, proven methodologies, and extensive human resources —and also work as broadly across the organisation as is possible. Although local transformation efforts can be successful, organisational-wide ones will have the largest impact.

Whilst most organisations have some of the needed elements, and many have internal teams addressing aspects of this challenge, it is costly and difficult for any single company or department to effectively marshal this full range of capabilities. Many organisations don’t have resources available to undertake these efforts and often don’t have the specialised training, skills, or experience to make them happen quickly.

For these reasons, we recommend organisations work with an external IT services partner that offers proven experience in transforming applications into modern, agile environments. Because they provide solutions for many companies, a capable partner will have the frameworks, processes, and resources—including the leveraged benefits of managed, outsourced, and cloud technology alternatives—needed to ensure maximum success for an applications transformation effort.

HP stands ready to help organisations and governments meet the demands of their marketplace and missions, with flexible applications that are managed effectively and designed to reduce costs.

HP has more than 45 years of experience in the modernisation, rationalisation, and transformation of enterprise applications. The company delivers applications consulting, development, testing, integration, outsourcing, and management, including industry-specific solutions. This portfolio spans the full applications development life cycle, from strategy and planning through design, build, and testing of applications, implementation, and ongoing management of packaged and custom enterprise applications.

With more than 50,000 applications professionals worldwide, HP serves 700-plus applications solutions clients, providing maintenance and integration support for more than 1 million applications and 2.6 billion lines of code worldwide. Those capabilities are designed for a focused purpose: to support the convergence of consumers, citizens, and enterprises, and to provide the people, technology, and innovation needed to shift from merely utilising IT to leveraging it for better results.

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ConclusionApplications are the heart of most modern enterprises. Regardless of size or industry sector, all organisations rely on applications to manage markets, drive their supply chains, coordinate operations, and build and maintain more responsive and lasting customer or citizen relations. For many enterprises, applications are how they deliver new products and services.

To meet today’s most crucial challenges—of mobility, integration, creating new value, and developing better systems—organisations need applications capable of delivering positive business and mission results. Unfortunately, most CIOs struggle to address these challenges because of rigid IT environments defined by overly complex systems, data proliferation, siloed processes, and applications sprawl.

The good news is that companies and governments can now adopt a logical, transformative approach to information technology. That approach incorporates two key elements: a cohesive and integrated application portfolio designed to enable new processes, products, and services to drive leadership and differentiation; and a modernised enterprise architecture that can adapt quickly to capitalise on new opportunities and efficiencies.

By taking a logical pathway to transformation, and by partnering where appropriate with experienced applications specialists, businesses and governments can build and maintain more responsive, cost-efficient organisations. This will help them become the Instant-On Enterprises that will compete and succeed in the emerging global environment.

© Copyright 2011 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. The only warranties for HP products and services are set forth in the express warranty statements accompanying such products and services. Nothing herein should be construed as constituting an additional warranty. HP shall not be liable for technical or editorial errors or omissions contained herein.

4AA3-5670EEW, Created August 2011

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