IT modernization becoming a major growth driver in IT services

An emerging trend I refer to as IT modernization is garnering significant enterprise IT projects. The last time businesses saw a similar strategy take place was in the shift from mainframes to client-server environments. Here’s my take on the landscape for this new IT strategy along with the implications for services.

The strategy begins with segmenting workloads into that part of IT that can and should be modernized and putting the rest of it in cold storage because, at this point, it doesn’t make sense to modernize that part.

We’re at an inflexion point in IT where about 25 percent of the work is developing new applications or upgrading apps with new functionalities; this work now done in the cloud and through agile and DevOps. Another 50 percent of the work also makes sense for modernization because of the advancements of technology and IT approaches that give a significant boost in functionality or efficiency.

The remaining 25 percent of workloads is legacy applications and their associated infrastructure that currently don’t need to be modernized. These applications are stable, and there’s no significant pressure to evolve their functionality and no significant requirement to make a change. In addition, they often sit on legacy infrastructure that is also stable and not changing. Often these applications and functionality are important to the overall enterprise, but the functionality isn’t changing.

For this legacy portfolio of applications and associated infrastructure, companies are undertaking a strategy of stability and encapsulation. They develop a layer of APIs and microservices that make their functionalities extensible to the rest of IT and the business. This strategy delivers a lot of bang for the buck than replatforming, and with less risk. It also allows focusing time and attention on project that provide the business a significant payback.

The company can then take cost out of that encapsulated environment by making very modest investments almost entirely focused on creating more efficiencies and reducing the run rate cost of the environment. Lean out application teams, for instance. Or make focused investments in efficiency but not in things that require significant replatforming or take significant risk.

One strategy for taking cost out is to outsource the legacy infrastructure and apps. This enables pivoting the IT talent model and skills into the new modern applications and infrastructure. If the legacy workloads are already outsourced, a second strategy would be consolidating the spend on multiple existing outsourcers to a single outsourcer in the hopes of driving the price down. It’s important in this case to avoid large initiatives that require significant change management or investment.

This is a major component of the IT modernization strategy landscape we see taking place in enterprises. It’s also a strategy we see third-party providers targeting. TCS developed clear road maps, products and services to help clients with this strategy and reorganized its IT services delivery groups to facilitate this work. Other Indian firms are also addressing this area in a variety of ways; however, TCS stands out in the comprehensive way it is tackling this opportunity: changing its organization, making focused investments in IP and ruthlessly executing the program.

I anticipate this component of IT modernization activities will be one of the major growth drivers of the services industry over the next two to three years.

When IT shifted years ago from mainframes to client-server environments, we didn’t have APIs and microservices to encapsulate mainframe systems. Today, we can invest in APIs and microservices to prolong the life of legacy systems. The encapsulation strategy also enables migrating workloads out of the legacy environment slowly and opportunistically. They can be migrated in smaller, bite-sized pieces that are less risky and easier to migrate.