00:03 Matt Eastwood: I'm Matt Eastwood and I manage IDC's INO research team, which is about 60 analysts covering enterprise infrastructure cloud developers and partnering. Today, I'm going to take a look at digital transformation and the impact that this is having on infrastructure and the foundational importance infrastructure has to the business. Specifically, I'll talk about how the pandemic has been a wake-up call to organizations around digital transformation. And we'll look at how this is redefining both business and IT investment priorities and take a close look at the importance of resiliency, cloud and the future of infrastructure.
00:43 ME: The pandemic forced organizations to accelerate their digital transformation out of necessity and with no warning at all. And those leaders who were not believers in the importance of digital technologies as a business cornerstone have seen the wrecking ball come straight for their companies. The technology headline of this pandemic is the role that the technology has played. For organizations without a digital presence, well, they failed to be present in a world where physical locations were shuttered. And for organizations without the proper investment in cloud collaboration and communications technology, they failed to be productive in a world defined by remote work and remote learning. And for organizations without investments in deep data intelligence technologies, they were unable to plan in a world where scenarios were changing hour by hour.
01:38 ME: All of this served as a wake-up call to the importance of digital technologies and being a digital organization. And IDC's bi-weekly global survey of tech decision makers shows that over a third of all the organizations have further accelerated their DX efforts as a result of this pandemic.
When we think of digital transformation, it's important to think about technology, deployment and operations. But another way to think of this is where we are with the third platform: Cloud, mobile data and analytics. We're seeing the creation of a new ecosystem that centers on AI, on IoT, on edge and trust, and these are all optimized for scale and agility. And we're working toward an era of autonomy where we'll have self-managing infrastructure and the networks. In telling this ecosystem story, IDC looks toward work happening across insights, reach, development, expectations and trust. The power of the third platform is in how multiple technologies come together to power digital businesses.
02:50 ME: We see a continuum of apps and data stretching from edge to core with insights extracted everywhere in-between, and new cloud native applications shaping our expectations. Connectivity needs to become ubiquitous, and trust needs to be squarely at the center of all of this.
So where are we with digital transformation today? Well, the average business feels that they're about halfway there, but the complexity of this journey is rising. We've gone from mobile engagement to digital twins and beyond, and we're stretching from edge to core to cloud and everywhere in between. And this continuum of apps and data becomes more and more dependent on one another, and also on the business operations that are built on top.
That is an outlook in overall tech spending, but what I really want to focus on with this slide is DX maturity and the model that IDC has been using and benchmarking against for the past six years. On the left side are companies who have not done much with respect to digital transformation, and on the far right are companies who are much more fully transformed into digital companies.
04:09 ME: Before the pandemic, only about 35% of organizations were what IDC terms "digitally transformed." The other 65% may have been saying that they were working on digital transformation, but in reality, they weren't making significant progress.
So, while awareness has clearly increased, and DX is a priority for more organizations, all of this is a direct result of the pandemic that we're living through. And it isn't just CIOs who are reflecting. The rest of the C-suite's reflecting on all of this as well.
Last year, IDC identified the nine most critical agenda items for the C-suite over the next five years. These agenda items are what you see orbiting on the left side of the slide, and it's how we believe CEOs will run their future enterprises.
In January, we conducted a C-suite survey to measure the perceived priority of all of these agenda items. And we re-ran the survey again in May, and the results are shared on the right side of the slide. What's interesting here is to see in our research is that the nine agenda items have been re-prioritized as a result of the pandemic. Business operations resiliency, customer experience programs and connectivity have all moved from close to the bottom, all the way to the top of this list.
05:32 ME: Before COVID, we saw IT spending growth rates running at roughly twice the rate of GDP growth, and we'd never seen anything like this before, including during Y2K and the dot-com boom. This was being driven by investments associated with the innovative use of apps and data to differentiate in the marketplace.
Early in the crisis, IDC realized that the pandemic would reshape business and IT priorities. New challenges were emerging, and suppliers of technology were selling into new unknowns, and this was quickly becoming recessionary. We saw an opportunity to bridge the internal work from shifting to home into an economic backdrop that would play out across the market over the next few years. Through this lens, we see five stages to the crisis emerging. Today, most organizations are moving between stage two and stage three. They've been moving between the business continuity focus of the crisis phase and into the cost optimization phase, and back and forth between the two.
06:35 ME: Many have taken some cost actions, including reductions in staff, but they've also reset a number of their priorities, and that will impact not only the fourth quarter of 2020, but also into 2021 as well. Eventually, a next normal emerges where a hybrid model is in place, and that's going to take some of the best new muscle memory and combine it with some of what was missing during the pandemic. IDC has been benchmarking shifts in IT spending priorities throughout this crisis. In early June, we were just beginning to see a shift globally from the business continuity focus of the crisis into the cost optimization phase.
07:17 ME: 75% of the pre-COVID IT roadmap will remain in place, but the surviving projects will generally offer a quicker return or benefit to the business, they'll provide for a combination of reduced cost and efficiency, and they'll be more easily completed and come with less overall IT risk.
But we also see about half of the organizations that we're speaking with adding new projects to their agendas. These projects are going to address weaknesses that were discovered during the pandemic. They'll take advantage of competitor weakness and enable market share gain in a flat market, and they'll also introduce new innovative business models and preparation for what comes out on the other side.
We've seen a significant acceleration in digital transformation as a result. We know that DX will drive a continuum of apps and data that stretches from the edge to the core, and IDC expects that the number of apps and enterprises will roughly double over the next four years, while data will grow 4 or 5x.
08:20 ME: And now more than ever, it's critical for businesses to have a digital infrastructure that is both scalable and agile. Cloud has changed everything. At IDC, we see cloud not as a destination, but rather as an operating model for the business-critical hybrid IT layer that will drive these digital businesses forward. Security and AI and automation will also be top areas of focus.
We asked tech leaders which technologies they expect to invest more in, and as you look at this chart, you can really group these technologies into two themes: technologies that support a secure remote work environment. Our research shows that 30% of the workforce will continue working from home in 2021, and we expect to see increased spending on video conferencing, virtual workspaces and security. The other technology investment theme around all of this is really the building of a resilient organization, which includes cloud as they scale business operations, and they use real-time data analytics to improve engagement and further automate both business and IT processes.
09:31 ME: And as the CIO of a major retailer told us, there is a huge focus on automation in our organization, as we seek to be nimbler. And as more companies look to support permanent work-from-home employee basis, we expect to see remote learning and virtual workspaces drive investments in remote access, secure connectivity and data security.
IT skills remain one of the most challenging areas for organizations to consider. We have seen more and more focus on differentiating in the market using apps and data, and this not only makes IT skills more important generally, but it is redefining the skills themselves. And with this as a backdrop, security, IT operations and AI data analytics become increasingly critical to the differentiated digital transformation initiatives that are happening.
In a hybrid world, interoperability matters, and it's very important that customers can protect their data at any place along this edge to core continuum. And as the business value of data rises, protecting these data assets is more critical than ever, and enterprises are looking for cloud solutions that are both easy to consume and tightly aligned with their key workloads.
10:50 ME: Speaking the language of the CEO will be critical. They're going to look at this through a lens that is defined by business events. After the initial focus on crisis management, they moved into business variability and started thinking about financial planning, resource rationalization and the minimization of risk to the business. And I think where you'll find them right now is in this notion of a conversation around business resiliency. How do they think about contingency planning now that they know what the bottom looks like? What do they want to do in terms of M&A? And are there businesses that they want to divest that are non-performing or non-core?
11:27 ME: What types of assets do they want to entertain acquiring? And ultimately, this is about change management. It's about new business roadmaps that will drive growth and drive profitability in this new world of the next normal that will emerge.
And of course, the CIO's job is to connect the needs of the CEO and the C-suite to the technology roadmap into the implementation hierarchy. This is about adjusting roadmaps and budget re-prioritizations. The initial response was to keep everyone and everything moving in the rush to work from home, but this haste may have added some additional and unwanted technical debt, which needs to be re-thought. But the real focus now is on capacity optimization and resiliency with the project lens shifting to include the optimization of people, process, and technology.
12:22 ME: We also see buyers shifting what they value in their technology suppliers. Well, some of the top vendor selection criteria are product reliability, technology innovation, and the ability to support security, privacy and compliance. What's more interesting is to see which vendor selection criteria have become the most important since the onset of this pandemic. We asked organizations which buying criteria they're placing more emphasis on now, and we see 65% of organizations placing greater importance on customer satisfaction. Similarly, 61% are placing a higher emphasis on customer service, and the ability of IT leaders to support the continual delivery of innovation to the business is also rising.
13:10 ME: Clearly, digital capabilities matter, and the "set it and forget it" IT practices of the past are not enough. For decades now, end users have looked to reduce spend on infrastructure and refocus the spending in applications and data and form processes, but the sheer scale coming at us won't allow for this to happen without the needed agility, speed and scale being directly linked to the success. The future enterprise will need to benchmark and measure themselves quite differently.
For what it's worth, customers think that their industries are only about halfway disrupted today. They believe the level of business transformation ahead is significant. And while they may be optimistic, they believe that IT is slightly ahead of the business, which is exactly where it should be. IT cannot afford to wait around for the business to redefine itself. They need to work aggressively and in parallel to make sure that the digital infrastructure is in place to support the anticipated business need.
14:12 ME: Businesses need to think more like innovators, and IT needs to support this mission. And it's really great to see the focus on innovation and digital products under business goals. That said, user expectations are not changing. These expectations have always been high. It continues to come down to applications and to data and tuning for performance.
Consider again speed, agility and scale in a portfolio as driving principles. What has changed is where they choose to go for help. And this is where cloud has changed everything. VARs, SIs and ISVs are all re-positioning themselves as ecosystem partners feeding off this very large base of cloud service providers. The traditional infrastructure players and their partner ecosystems run the risk of being left behind.
Influence, buying center and the associated personas are changing as well. IT operations increasingly finds itself balancing the needs of the business and developers. And while this isn't entirely new, what is new are the expectations that both have on IT operations. These folks want IT teams that support agility and portability in the business. They want to go faster, and they want more and more resources moved toward a truly differentiated outcome.
15:37 ME: As I've mentioned, the IT landscape is being stretched well beyond the core, and complexity is rising. The typical application portfolio will increase 50% over the next two years. And IDC believes these many new apps will be brought online over the next four years as we saw in the previous 40 years.
And almost 60% of new resources will be located in provider data centers or edge locations as local cloud becomes a bigger and bigger consideration. About half of these new applications will be cloud-native as componentization, containers and orchestration frameworks challenge infrastructure teams in new ways. And not to minimize the importance of applications and data dependencies, these are rising quickly, and they have a meaningful role in determining the landing zone or placement of new applications. We see about 48 dependencies already existing with enterprise applications today, and with IoT and social sentiment data becoming more important, so too will the focus on improving data integrations.
16:44 ME: So, what extent are organizations resilient? Well, in order to understand how recently organizations think they were during the pandemic, we asked tech leaders to respond. And this slide show the percent of organizations who reported very or extremely resilient. We found leadership resiliency being the ability for leaders to seamlessly pivot and communicate new priorities, goals and resources and reaction to disruptive changes. With the brand, it's the ability for an organization to enhance its reputation despite the disruption. On the operational side, it's really about an organization's ability to continue to provide business services in the face of adverse operational events. And then the workforce needs to be resilient as well.
17:27 ME: The ability of employees to handle work-related stress as a result of stress-inducing factors such as long work hours, job strains, shifting demands and job insecurity, technology is really about the ability to quickly adapt to accommodate new patterns of use. And the financial resiliency piece is about how you can adapt to the shock of a revenue stream.
But it's really particularly notable here that technology resiliency appears on the weaker end of the scale. In fact, the highest percent, or about half of all respondents, said they'll be making changes to the resiliency of their technology, and that is telling. They're looking to be able to adapt technology rapidly to accommodate new workload and usage patterns. For example, about two-thirds of organizations reported the pandemic exposed gaps or shortcomings in their AI and analytic models. What was the problem? Well, the models were not sufficiently flexible to incorporate contextual business understanding of the current situation, and the models were far too reliant on rigid rules, and therefore they were difficult to change and/or re-train rapidly.
18:41 ME: And in our mind, this is why cloud is emerging as one of the winning technologies during the pandemic. Organizations report they'll be increasing their investments in cloud technologies because it helps them more rapidly scale and build agility and resiliency into their infrastructure.
It's always important to consider the strategic areas of technology investment being made by enterprises. IDC continues to see cloud, security and data management as critical underpinnings to the digital infrastructure that's going to power this IT and business transformation.
But what's most important is where we expect to see changes going forward. We fully expect to see investments in customer experience, DevOps, social sentiment-based processes, and IoT and sensor-based technologies. Again, this helps drive enterprises toward a continuum of apps and data, and now more than ever, intelligence will get embedded into both the infrastructure layer, the app and data layer, and ultimately into the business itself.
19:43 ME: Cloud has changed everything. In IDC, we see cloud not as a destination, but rather as an operating model for this business-critical IT layer, and that will drive these digital businesses forward. For years, IDC has studied and pointed to workloads as critical areas for suppliers and users to understand. The most important consideration is that all workloads are not created equal. We live in a hybrid world which will increasingly favor a mix of public and private clouds, and this private cloud will increasingly be hosted. This slide shows where we are with cloud adoption overall, and more than half, or about half of all the organizations have never run a production workload in the public cloud.
20:27 ME: And when we do look at the most mature cloud users, we see more apps running in private clouds than in public clouds. In the world of future of digital infrastructure and multi-cloud, cloud architecture becomes a key consideration. We know that cloud architects, application teams, infrastructure teams, site reliability engineers and DevOps all have a role. But we also know that cloud centers of excellence are emerging to focus on optimizing across different cloud environments.
But we also know that the maturity of all this matters in a world where only about half of customers have run a production workload in the public cloud. When we consider this maturity, performance, security and economics become increasingly critical, while disaster recovery, backup, ease of management and compliance considerations become less critical as enterprise cloud usage becomes more sophisticated. There continues to be a pronounced move away from legacy infrastructure and toward cloud.
21:32 ME: One aspect of the cloud journey that's not generally told or understood is the rate of churn that we see in the market. And what this means is that workloads move in and out of a number of deployment environments all the time. But the churn is real across all these environments. It's not a uni-directional journey by any means. And as this happens, the focus on hybrid and multi-cloud management for applications and data will remain very strong, and it will be a significant amount of opportunity that will center around this. Hybrid cloud adoption has doubled just in the last 12 months due to advances in management tools and governance capabilities. To put a finer point on that, when we ask customers, we see a clear trend away from traditional IT and toward cloud. And more and more IT will live in service provider data centers, and the interoperability requirements of modern applications will determine the most appropriate landing zone.
22:22 ME: In a way, this is an updated view of what we used to talk about with data gravity, with the edge and cloud-native applications playing an increasingly outsized role in IT decision-making going forward. While we consider cloud to be an operating model, there are many ways of getting there.
And when we look at customer spend, it's focused up and down the technology stack. The enterprise infrastructure market is expected to grow just over 4.5% per year, but deployments will change, With cloud in mind, as infrastructure continues to redistribute, we'll see customer data center deployments decrease 10 share points as service provider-hosted infrastructure gains a bigger foothold, and cloud will move from about half to almost two-thirds of all spending over this timeframe.
23:09 ME: And of course, cloud services are moving closer to the customer with an ever-expanding set of offerings aimed at capturing this opportunity. These offerings represent public, shared and private dedicated options. And the battle to influence and control the edge is driving a new partner ecosystem across traditional IT operational technologies, communication technologies and the cloud service providers themselves. And I really recommend everyone continuing to watch this space. It's going to be a very, very dynamic change. As users chase data, more and more performance for their data-rich workloads, we'll see more heterogeneous and purpose-built infrastructure emerging as a result.
23:53 ME: These enterprise and service provider data centers and edge locations will usher the use of more co-processors, which will be designed to perform specific functions like security and offload operations from the CPU. We'll see accelerators designed to offload specific user payloads, like mathematically intensive operations that we typically see in HPC. We'll see AI and ML systems optimized to adapt and formulate potential business answers based on available information and following the ingestion of vast data sets. And finally, there'll be purpose-built edge systems designed for the deployment at vertically specific edge locations, including hospitals, factory floors, industrial environments and retail. Let's take a look at the computing market for . . . A look into just how dramatically the market has changed over the past decade. The server market or compute market has grown by $37 billion in 10 years, but that only tells a part of the story.
24:52 ME: 90% of this growth came from hyperscalers consuming through ODMs and Chinese OEMs delivering on the massive data center buildout that's been occurring in China. The traditional server market, which is composed of SMBs enterprises, governments and other service providers did grow, but much of that growth was enabled by convergence, software-defined infrastructure, and of course, cloud.
Again, the hybrid model is the future here. The storage market continues to re-formulate itself as well. In fact, with cloud and the emergence of edge and the widespread rotation to cloud-native applications, we see the value of data increasing. And to users looking to extract insights across the edge to core continuum, this will drive up the number of per-app dependencies and drive the need for an ever-increasing amount of performance from their storage systems.
25:48 ME: And as a result, the shift toward flash has been pronounced, and this is a great predictor for the coming shift toward storage class memory as well. Hyper-convergence and hyper-converged infrastructure has provided a window into the importance of software in the definition of infrastructure that's optimized for workloads spending this edge to core continuum. In just six years, this market has grown from essentially zero to almost six billion in size. This represents a CAGR of more than 100%, and comparatively, it places the growth trajectory of HCI on par over the first five years with blade servers in the 2000s, as well as Fibre Channel SANs in the 1990s.
26:30 ME: And today, hyper-converged represents about 9% of all spending on servers and external storage combined. The future enterprise lies in digital infrastructure. We see technology increasingly being hyper-personalized in order to drive customization and defined resource needs. We'll see deployment shift in infrastructure, scale and agility will matter more than ever, and providers will increasingly help define and operate these digital infrastructures. On the operational side, skills will re-orient up the IT stack as enterprises look for self-management capabilities because the app load will double, and data will grow 4 or 5x. Technology won't slow down, but how we consume it will be redefined. Infrastructure will be defined in code, and it'll be tuned for workloads driving more heterogeneity in a never-ending quest for performance at scale.
27:26 ME: We'll see new consumption models also emerge, and we'll see budgets that'll drive from CAPEX-based to OPEX-based, and they'll help position managed service platters at the center of the action. The people in process will need to keep up with the technology and the operations. Remember, the cloud-operating model defines the edge core continuum.
I think one good way to wrap all this up is to really look at a number of key predictions that we've made around all of this. When we think about edge, we think about more than 50% of new infrastructure being deployed in critical edge locations. Think of factory floors, building automation systems, big industrial environments. This will be up from about 10% today, so a very significant shift in infrastructure moving toward the edge. With workloads, 80% of new workloads will be created with microservices, and that's going to actually reduce the per-app infrastructure requirements by about 60%, but it will also drive a better resiliency. And remember, when we're talking about doubling the number of applications in just four years, this will be critical.
28:32 ME: We see much more customization. 40% of enterprises will take advantage of hyper-customization to really use more in-memory and heterogeneous computing, and this will really be about reducing the time to embed AI deeper into business processes. And then finally, on the flex consumption side, over 75% of the infrastructure at edge locations will be consumed and operated by an as a service. And this is because most organizations just don't have a good understanding of the capacity requirements that will live at the edge, and they're going to look for help with that. They're going to also look for help in de-risking, and they're going to look to transfer some of this risk to service provider partners that they trust. The COVID-19 pandemic has changed everything. The next normal will be highly digital and hybrid in nature, and it will be the basis for business disruption.
29:23 ME: The edge will stretch and stress infrastructures in new ways. We'll see unprecedented scale and shifts in computing store and network loads that will accelerate the need for more automation. AI-enabled network automation will augment human capabilities. IDC views all of this as frictionless connectivity, frictionless deployment, and frictionless operations. I'd like to thank all of you for your time and attention. I wish you only the best in the weeks and months ahead. And I look forward to taking your questions