Data access, integration, analytics and automation provide the core insights that fuel digital business success. Whether the goal is to improve data-driven decision making or to predictively automate complex business processes, much of an enterprise’s digital business agility and operational effectiveness depends on the responsiveness, scalability, and resiliency of the digital infrastructure used to enable mission critical applications, data operations, and connectivity. Rapid access to accurate and timely data is fundamental to digital business resiliency and the ability of organizations to adapt to quickly changing business conditions.

Industry leaders continue to prioritize digital infrastructure spending in uncertain times

Digital infrastructure resiliency and agility are particularly crucial in periods of uncertainty and disruption, which many organizations are experiencing – the confluence of disrupted supply chains, rising inflation, geopolitical instability, energy price spikes, the ongoing global pandemic, and climate change. IDC’s global March 2022 Future Enterprise Resiliency and Spending (FERS) survey of 828 global decision makers found that 65% expect concerns about supply chain disruption, inflation, labor shortages, geopolitical tensions, and COVID variants will continue through much of 2022, restraining the pace of recovery in global economic activity through 2022 and into 2023.

These decision makers see IT supply chain disruption and inflation-driven price increases as having the most impact on their IT budgets. Despite these fears, 80% stated that they expect their IT spending to be the same or higher in 2022 compared to 2021. 

IDC's Future of Digital Infrastructure North American Awards Program Nominations are Open

Has your organization enabled outsized business results by making strategic digital infrastructure investments? Are you willing to share your insights and perspectives on best practices?

IDC's Future of Digital Infrastructure North American Awards program is currently accepting nominations for organizations that have achieved best in the industry digital business outcomes.

Click here to learn more.

Making the right decisions about where to invest in digital infrastructure modernization and integration will fundamentally impact an organization’s ability to execute its digital business agenda. Globally, many organizations have invested in hybrid and multi-cloud strategies to replace or augment traditional on-premises data centers. In general, the motivation for the move to hybrid and multi-cloud approaches has been to better align IT spending with business priorities and empower developers with on demand access to highly scalable infrastructure and advanced IT services.

In many cases, organizations prioritized speed, leading to dozens of disconnected infrastructure investment decisions being made independently by IT, cloud, DevOps, and data science teams – each focused on its own specific business priorities. Corporate mergers and acquisitions have added to the mix. 

Some enterprises now rely on a myriad of public cloud services and on-premises platforms supporting many generations of bare metal, virtualized and cloud native computing and storage. Many developers have built dependencies around specific public cloud APIs or service offerings and organizations often suffer from sticker shock related to the cost of public cloud storage, maintaining high-availability service levels, and/or network egress fees.

Beyond Hybrid and Multicloud – Planning for “Distributed by Design” Digital Infrastructures

Many organizations tell IDC they are drowning in technical debt and struggling to execute strategic digital business programs due to operational friction related to integrating and coordinating across so many data and application silos. Organizations struggle to take full advantage of AI/ML technologies as they try to apply them across diverse data sets created and maintained in a range of formats and physical locations. Cross-cloud control planes and monitoring and service request tools provide limited visibility across these resources but often the underlying operational tools and processes remain largely separate.

These challenges will only worsen unless IT decision makers, DevOps teams, data science and line of business teams can find better ways to design increasingly distributed environments. Some of the innovations poised to drive more complexity in the coming years include:

• Specialized Silicon for High Performance Computing: The emergence of a new generation of high-performance computing silicon solutions optimized for AI/ML and related data intensive workloads will force organizations to make workload-specific infrastructure deployment choices.  As-a-service high performance computing options available from cloud providers and traditional storage and data management vendors will provide more affordable and democratized access to these resources than has historically been possible.
• Public Cloud Extensions to Dedicated Data Centers: The rapid expansion of public cloud service provider interconnections with third party hosting and colocation provider locations combined with increased availability of private cloud as-a-service extensions to dedicated customer locations – all using the same control plane on the public cloud services. The resulting seamless operational control plane increases the strategic importance of the public cloud provider’s overall service delivery capabilities and architectural impact.
• Edge Driven DataOps in an Interconnected Zero-Trust World: The rapid proliferation of data diversity in terms of where and how data is created, stored, and protected from edge to data center to public cloud is driving the transformation of the way that data is connected, migrated, accessed, and analyzed. The explosion of edge data forces organizations to rethink data retention, storage, and protection strategies. DataOps is becoming a critical new discipline.
• Self-Driving Automation: Infrastructure as code automation was just the first step in what will prove to be a fundamental transformation of the way that digital infrastructure is deployed, scaled, optimized, and maintained. Coupled with AI/ML analytics and observability, self-driving code-based automation will allow internal IT teams to simplify and abstract away many time-consuming operational tasks while ensuring consistent security, compliance, performance, and cost management.  
• Ubiquitous As-a-Service Sourcing: Cloud providers led the way in offering complex infrastructure-as-a-service solutions for a consumption-based fee. Increasingly, all things infrastructure from hardware to software to management, security and analytics are being offered via as-a-service models that permit consistent deployment and operations across on-premises and public cloud footprints. As-a-service options often include remote vendor-provided monitoring, support, and lifecycle management and provide an important option for off-loading internal operational staff responsibilities, which provide choice of when and where workloads are deployed and where data is processed and managed.

Collectively, these emerging platforms and operational innovations point the way towards the need for more modular, “distributed by design” approaches to digital infrastructure architectures that prioritize workload-optimized deployment choices, consistent AI/ML-driven software-defined automation, policy driven operations, API-enabled integrations, and SLAs tied to business outcomes and KPIs.  Successful digital businesses will work to move beyond ad hoc hybrid and multicloud silos and enable more modular, consistent and distributed by design architectures to take full advantage of the next generation of digital infrastructure technologies.

Interested in learning more about the Future of Digital Infrastructure? Download our latest guide, Investing in a Business Outcomes-Driven Digital Infrastructure: Lessons Learned from IDC’s 2021 North America Best in Future of Digital Infrastructure Awards Program.

The acceleration of technology has transformed the way we interact with each other and businesses, and how we conduct business. We have made enormous progress in digital transformation economically, socially and personally. Large budgets (in the hundreds of millions) are being allocated by big businesses, investing in their digital strategy as the leading way to achieve their growth goals. But what does this mean for you? How do you need to pivot and what technology opportunities exist that will help you change how you support your clients, for future sustainability?

It is important to understand the key parties that make up the digital-first world, and how they interact and conduct exchanges with each other.

1. Enterprises: They will create the digital-first business models so they can effectively engage consumers and generate revenue from digital services.
2. Government: As consumers spend more of their time online, Governments will recognize the need to reshape their economy to thrive.
3. Consumers: They will fuel the digital first world with their digital-first habits.

How Enterprises Will Create Digital-First Business Models

According to our most recent global study, 95% of organizations report they are implementing a digital-first strategy to support new digital revenue streams. By 2027, the average enterprise will see 41% of their revenue come from digital products and services.

By 2027, 41% of an enterprise’s revenue will come from digital products and services. 

Download: The new Digital Playbook for B2B Marketers

How Governments Will Digitalize their Economies

As citizens increasingly engage with technology, Governments will seek to influence how digital is used to shape their society and accelerate their own economies. We will see Government investing in creating a digital workforce, developing smart cities, and supporting digital currencies. We will also see Governments putting forth regulations to influence how technology is used in their society, most certainly regarding consumer privacy laws around data and responsible AI.

How Consumers will fuel the digital first world

By 2024, 80% of the world’s population will be online. To get there, we expect an additional 466 million people will come online in the next two years. In 2024, they will spend $10.5 Trillion online, an increase of $1.2 TRILLION in spending from today. While consumer electronics fueled the past two decades of spending, the next two years will be fueled by digital services such as online learning, peer to peer lending, and subscription-based services.

The Digital Tipping Point

As enterprises adopt digital business models, the tech industry will subsequently hit a digital tipping point as it relates to SaaS apps, spending on digital initiatives, and digital talent. Soon, digital will no longer be something for early adopters or even the early majority. Digital will move to the late majority. This will change the way you engage with your customer, what you sell them and how you demonstrate value.

“By the end of this year 52% of the spending on applications will go to SaaS versus 48% to software run on premise.”

There are three foundational elements we expect to occur:

1. SaaS adoption. An increased allocation on SaaS, means that enterprises will have a significant portion of their enterprise data running on a cloud-based platform. They will benefit from easier flow of data from one system to another, and greater enterprise intelligence.
2. Tech spending on digital initiatives. Tech spending for digital initiatives will soon outweigh spend on non-digital initiatives. This means that that majority of organizations will have achieved the digital transformation goals they planned 3-5 years ago, and will start to experience the agility, innovation and digital revenue that comes with achieving those goals.
3. Digital technology skills outnumber non-digital technology skills. By 2024, organizations will begin to win the talent battle for digital technology skills. This means many of them will start to have the support they need for operational support of their digital business.

Related: The Future of Digital Infrastructure

The result of the tipping point will be an emergence of new priorities for customers. They will be asking important questions including:

• How can they cost-effectively scale their digital operations with tech such as cloud and IT automation tools?
• How do they effectively manage data to establish themselves as a trustworthy organization?
• How do they modify the practices of their software development teams to rapidly innovate around digital experiences and services?

Your role will be a critical one, and it is to help your customers attain scale, trust and impact in their digital business, at a time when organizations are worried about their over-expenditure on tech investments. The high costs to create and maintain technology systems will drive organizations to seek out ways to reduce those costs through autonomous operations.

“In our recent study, we found leading organizations in digital infrastructure operations lean heavily on autonomous operations. 84% of them told us they deploy full stack AIOps and AI/ML insights to drive continuous and automated optimization of their digital infrastructure.”

Your clients will be headed toward autonomous operations as they lean more into digital infrastructure, and it is an opportunity for you to provide them with the tools they need.

How to Help Your Customers Thrive in a Digital First World

Your clients need help continuing to create innovative digital experiences and services to fuel their revenue growth. We group these needs in terms of scale, trust and impact.

1. Scale:  The primary goal for most organizations is cost-effective digital operations. In the past, overspend for the overprovisioning of their infrastructure may have been more common, but it isn’t any longer. Today, there is an opportunity for you to help them optimize cloud spending for architectural benefit and to support their business goals.
2. Trust:  At the core, most organizations have a vision to be a trustworthy, purpose-driven organization. As your clients seek to be a trustworthy enterprise, they are prioritizing initiatives around cyber security threats, data sovereignty, AI ethics, D&I and environmental sustainability.
3. Impact:  Organizations are focused on rapid innovation. Those who can quickly respond to changing customer and market dynamics, with digital innovations, attain a competitive advantage.

“43% of tech leaders plan to deliver innovative digital products and services at a faster pace than they have in the past two years.”

A digital-first world is underway, and a typical organization is looking at their role in it in terms of how they can achieve scale, establish trust and make an impact with their customers by driving engagement across product lines. Let this serve as a framework for thinking about the technology opportunities that exist and how you must support your clients as they pivot to being a digital first enterprise.

Related Reading

Technology Strategy, Research and Insights: Ms. Whalen’s international team of 1,100 analysts leverage research and advisory services to empower business transformation for the Global 2000, and counsel technology suppliers on creating effective offerings for the digital economy.

Podcast: The Future of Digital Infrastructure – In conversation with John Hill, Chief Digital and Information Officer at Carhartt, the podcast dives into the radical digital transformation this 132-year-old American apparel company embarked on.

As we reflect on the many changes wrought over the past two years, one will be that we have transitioned from discussing “digital transformation” to the active embrace of digital-first business and technology strategies — technology underpins the business model of the future. Further, this new digital-first business model includes the Future CIO as a member of its leadership team as it strives to deliver the transformational capabilities, services, and products the business needs to meet this new imperative.

The Future CIO must go beyond their usual focus on operational efficiency – they need to help the business cope with macro challenges like geopolitical instability, new supply and energy disruptions, and significant economic uncertainty. They will also be critical execution leaders as lines of business and operational teams struggle with micro challenges like changing client expectations and significant price instability in raw materials and labor.

This Future CIO blog offers three actionable steps for digital leaders to consider as they tune their organizations for the balance of 2022 and into 2023 amidst the geopolitical, economic, and social volatility being experienced worldwide. 

Embody a Strategic IT Leadership Model

The first crucial step is to embody a leadership model that aligns with the business on priorities for transformation. Strategic connections support collaboration and organizational communication toward a unified sense of purpose for both IT priorities and overall business strategy. Strategic technology then supports the business’ ability to handle volatility. The new strategic partnerships include collaboration on IT financial management, supporting responsive strategies that address market factors and are holistic for the business rather than just focused on cost, and extend beyond the traditional budget and service measures that often govern IT spending.

Collaborative partnerships replace traditional support models by building business engagement and enabling commitment-based communication. Transformational success depends more than ever on effective CIO communication into and at all levels of the organization.

“Communication can’t be a PowerPoint or an email; it has to be a continuous and consistent push to communicate to the organization and to the company.”

Peter Weis, CIO, Matson

A strategic IT leadership model reaches beyond technology — it enables genuine communication and collaboration. Strategic leadership gives strength to others across the organization, so all stakeholders participate in the “what’s next” dialogue. Future CIOs must have their feet firmly planted on the ground to withstand the winds and deliver that “next” value.

Know and Embrace Your Highest Value to the Organization

More than ever, the CIO’s highest value will be their ability to look at the integrated business and IT portfolio and make the tough decisions. Digital leaders will continue to be asked to do more with less, but there is an unprecedented opportunity to give the business cause to pause. Post-pandemic business reassessments create the ideal inflection point for IT to successfully recalibrate their road map and bring forward difficult conversations.

Use this opportunity to do three things:

1. Freeze low-value projects that are consuming resources and distracting the team. Lead with the business to assess every initiative and clearly prioritize projects that best accelerate business goals. Identify opportunities to leverage existing digital ecosystems to quickly acquire capabilities without having to build them. Have the difficult conversations about what is unique to the business model and only fund “special snowflakes” if they are truly critical and unique.
2. Dig even deeper to make the hard decisions inside the technology road map to align technology investments with the “next” business priorities. Be ruthless to call out a zombie project if you find one and focus on shorter-term deliverables with the highest strategic value. Look for 90- to 120-day paybacks for opportunities to be more impactful to digital strategies.
3. Recognize that IT will continue to be asked to do the impossible. Often the only way that can be done is by incurring technical debt. Make investment strategy and trade-offs an explicit conversation with IT and business colleagues.

The highest value the Future CIO will bring to their organization is to continuously recalibrate the investment road map to deliver the right things, in the right order, at the right time.

Recognize, Now More than Ever, the Human Element

As organizations adapt to these turbulent times, Future CIOs are challenged to deliver improved experiences for all stakeholders including customers, employees, and suppliers. Actively engage the team to gather and discuss perspectives from both inside and outside the organization, building the entrepreneurial skills that will ensure engagement and support retention of critical IT skills.

The Future CIO will extract every ounce of performance from their IT organization, and skilled entrepreneurial teams will be the Future CIO’s highest-leverage tool for the future.

We are in a digital-first age. The leadership opportunity for CIOs is to differentiate their contributions by channeling enough positive energy to power the whole team. It may require letting go of some things and embracing other things. Choose to focus on the art of the possible. To learn more about how digital leaders can step into the role of Future CIO and lead the transformation agenda, register for the upcoming webinar, live on June 22nd at 1 PM/ET. Click the button below to register.

Agile development allows organizations to respond rapidly to changing competitive forces, address developing customer needs, and drive strategic changes. Agile’s benefits are sometimes at the expense of control and visibility into development, particularly predictability of delivery and costs, forecasting, and quality. These pitfalls can negatively impact the full value of Agile. Where the business once asked, ‘Why does IT take so long to do everything?’ they might say, ‘Why has development become unpredictable and difficult to budget and forecast?’

Learn More: Regain Control of IT Spending

A summary of three pitfalls that can affect the value of Agile:

1. Lack of visibility: Many organizations improve visibility by defining consistent reporting frameworks (dashboards) across development teams.
2. Poor predictability: To address this challenge, development organizations can turn to automated source code analysis tools. 
3. Challenging cost management: Structured approaches to measurement of productivity, efficiency, and cost must be introduced (that don’t impact the core value of Agile).

“Addressing story points will help teams extract more value from Agile development.”

Daniel Saroff, VP Consulting, IDC

The raging conflict in Eastern Europe has taken a hit on the global ICT market, and the effects of the Russia-Ukraine war will linger for years to come. According to IDC’s Worldwide Black Book: Live Edition, March 2022, the conflict will generate a loss of worldwide ICT spending worth $5.5 billion in 2022. According to IDC, ICT spending is expected to grow 4% globally, against the 5% expected in the previous update.

European spending will grow slower than expected at 2% in 2022, against 3.7% as previously forecast. The growth slowdown is driven by the impact of the war on Central and Eastern Europe (CEE). CEE spending in ICT will decline 10% compared with our previous forecasts for 2022. ICT spend is driven down by Russia, where spending is expected to drop by 25%, and Ukraine, where the market is now expected to be 54% smaller in 2022.

According to the latest update of IDC’s Worldwide ICT Spending Guide Industry and Company Size, V1 April 2022, the conflict will affect 2022 spending across all industries in CEE, but resource industries, consumer, transportation, personal and consumer services, and education will see the largest drops. As outlined in IDC’s Impact of the Russia-Ukraine War on the Global ICT Market Landscape (#EUR148961322), there will be negative effects on energy price levels, boosting inflation (food prices are rising double digits in the region), and thus on organizations’ budgets around Europe.

The impact of sanctions on Russian energy exports, together with supply chain disruption, will hit particularly the resource industries. Reciprocal airspace bans between Russia and the EU, as well as rising fuel prices, put added strain on transportation. Supply chain disruption in the food value chain, base raw materials, and finished products, will impact some manufacturing and distribution segments, while reduced product availability and inflated prices will also reduce spend among consumers, with indirect effects on most B2C industries. Russia and CEE countries will experience disruption of networking and IT supply chains and skilled workforce, which will contribute to a reduction in telecom spending this year. Last but not least, priorities in government budgets have been shifting swiftly towards defense and measures to contain the impact of inflation and resource shortages, leading to cuts in other areas, including education.

The impact of the severe sanctions against Russia, with many international businesses pulling out of the country, is wiping out almost $1.2 billion in ICT spending in the country. Education, personal and consumer services, and telecommunication will be among the most affected sectors in Russia this year.

Supply chain disruptions are affecting Eastern Europe and are leaving Russia troubled with reduced access to partnerships with and distributors in Western countries. Inflation is impacting the Eastern European region and is having a negative impact on both B2B and B2C demand.

Andrea Minonne, Senior Research Analyst, IDC UK

In Russia, software and hardware will be among the most impacted technology groups. The Russian services market will also experience a slowdown, but it will be less impacted thanks to strong reliance on domestic partners. Additional detail by technology can be found in IDC’s recent press release Russia-Ukraine War to Adversely Impact Europe ICT Spending, IDC Says.

IDC expects further impacts to constrain the ICT market in Europe, beyond Russia and Ukraine, which will be reflected in the upcoming forecast releases. IDC’s Worldwide Black Book: Live Edition provides technology forecasts by country and is updated every month. The March 31, 2022 release contains the initial impact assessment of the war and its effect on ICT spending across regions and across technologies. IDC’s Worldwide ICT Spending Guide Industry and Company Size forecasts technology spending across 120 technologies, 20 industries, and 5 company size bands, and it is usually updated twice a year. On April 13^th, 2022, IDC issued a special release, reflecting early assessment of the impact of the conflict on ICT spending in Russia and Ukraine.  Our industry forecasts for all countries will be refreshed, as planned, in July 2022.

“We’d rather disrupt ourselves first before we get disrupted.” –Gayatri Narayan, Senior Vice President, Digital Products and Services, PepsiCo.

While some enterprises, such as PepsiCo, recognize the competitive imperative when it comes to digital innovation – the ability to develop innovative products and services that differentiate their business, create competitive advantage, or disrupt the market – many are falling short.

Why should organizations care about digital innovation? Revenue, for one thing. Digital represents a major source of revenue for organizations, as illustrated below.

However, there’s a difference between digital products and services and innovative digital products and services (for more, see IDC’s blog, There’s Digital… And Then There’s Digital Innovation). In fact, IDC is predicting that by 2026, enterprises that successfully deliver on digital innovation initiatives will derive a quarter or more of their revenue from digital products and services.

We asked organizations about their investment in innovation and their spending on maintenance during the pandemic period (2020 and 2021), currently (2022), as well as their planned investment in the next two years. What we found is that we’ve already reached a tipping point in North America. During the pandemic investment tipped towards innovation, with enterprises telling us that they were already spending more of their technology spend on innovation versus maintenance. That will continue to tick up in the next couple of years.

If the revenue potential is so great, and enterprises are already investing, why isn’t everyone successful? Well, because it’s hard. As IDC’s research has identified, there are several areas where enterprises are struggling, and areas where they can learn from the examples set by digital-native companies – younger organizations founded around digital products or services that typically don’t have technical or organizational debt and are more comfortable accepting risk.

What makes Ms. Narayan’s quote so powerful is that it reflects a recognition of – and willingness to accept – risk, which is typically a prerequisite to developing and delivering digital innovation. Many organizations are not willing to accept that risk, or don’t have the expertise to help mitigate it. For technology suppliers, this presents a real opportunity to help their customers recognize that, like it or not, disruption is coming and then provide the tools and expertise necessary to reduce the risks involved with being the disruptor rather than the disrupted.

Enterprises Need to be More Deliberate About Digital Innovation

Most organizations are used to buying and customizing software. Delivering innovative digital products and services, however, requires expertise in generating innovative ideas, developing software, scaling that software and continually iterating on it. When we asked both enterprises and digital natives about their innovation programs or initiatives, we found that, almost across the board, digital native companies are much more likely to adopt various types of programs and initiatives designed to spur and maintain innovation.

What is particularly telling is that 41% of the enterprises said that they were not adopting any of the innovation programs we asked about. In stark contrast, only 1% of the digital natives answered the same way. And, while there is no standard set of activities that enterprises should adopt, doing nothing will certainly not generate innovative digital products or services.

What are digital native organizations doing differently? Well, at a basic level, things like entrepreneurship programs, beta programs, and hackathons are indicative of cultures that foster innovation. These are things that digital natives are doing much more commonly than enterprises.

Enterprises Must Reduce Dependence on One or Two Technologies. According to our survey data, digital natives are nearly twice as likely as enterprises to use platform services and buy from cloud marketplaces.

Enterprises concentrate on just a couple of approaches for acquiring software to support software innovation projects – buying commercial software and customizing it or just building custom software. Digital native companies, on the other hand, employ a variety of technologies, which suggests that they are good at matching the technology with the job. And, they’re willing to accept the risk of adopting new technologies, recognizing that it may increase complexity, but that there are also ways to mitigate that complexity.

When we asked enterprises and digital natives to look ahead to the next two years, we found convergence between the two groups. Enterprises expect to move away from their dependance on one or two things and source their software from many different places and many different types of technologies.

Perhaps most interestingly, the top response (buying software or services from a cloud marketplace) and the bottom response (developing software internally) are the same for the two groups. It’s not that either type of organization is less interested in developing custom software; it’s more a recognition of some of the challenges of increasing development of custom software, such as skills shortages.

Again, there are take-aways for technology vendors:

• Make sure you are available where your enterprise customers are going to want to buy your products and services. For instance, make your offering available in cloud marketplaces because enterprises expect to buy a lot more from cloud marketplaces.

• As enterprises change their approaches to support digital innovation, they will inevitably face more complexity. Vendors should consider how they can help customers manage that complexity.

Enterprises Must Evolve their Sourcing Strategies

When asked to describe their sourcing strategies, enterprises identified senior leadership mandates as their top answer. Digital natives, on the other hand, said that engineering management makes sourcing decisions on case-by-case bases.

Neither answer is great. Ultimately, organizations should develop sourcing strategies through collaboration between technology and business leaders, and those strategies should be strategic rather than tactical.

Technology vendors should think about how they can guide enterprises toward more mature sourcing strategies.

Enterprises Need Help Making Data-Driven Decisions

We found that the cloud native organizations are much more likely to track KPIs closely. Why? It has much to do with the kinds of tools they are using to track software projects against business KPIs. Digital natives are far more likely to be employing these tools to track KPIs. In contrast, nearly 80% of the enterprises that we surveyed indicated that they were not using any of the tools we asked about to track KPIs.

It’s not that enterprise aren’t tracking KPIs – they are – but they’re doing it manually (using spreadsheets, for instance) and that’s not a recipe for accuracy or success. Technology suppliers that can step in with tools to help track important KPIs related to digital initiatives can capitalize on the opportunity.

Evolving the Business Model to Outcomes as a Service

What is an outcomes-as-a-service model? It’s a focus on selling a desired outcome (improved performance, reduced costs, etc.) not just a product or service. This is a bit forward looking… but, it is worth thinking about, particularly as more digital native companies pivot to this model.

Download: Should Your Organization Adopt an Outcomes-as- a-Service Model?

A good example of this approach is Jotun, a company that sells paint that inhibits growth of barnacles and other substances on the hulls of ships, slowing down the vessels. Shifting the focus from the product (paint) to the outcome (improved efficiency), the paint manufacturer uses data analytics to illustrate how the improved condition of the hull reduces fuel costs and mitigates environmental impact. It now offers a guarantee – if its paint doesn’t produce the expected outcome in terms of reduced fuel costs and environmental impact, the customer receives a refund.

Even for digital natives, this is new – only 4% said that they have already sold an outcome, but 39% indicated that they are working on it… and that is significant.

Learn more about IDC’s Future of Digital Innovation research in our upcoming webinar, Digital Innovation: The Enterprise Journey to Maturity, on May 12.

Over the last 12-plus months, one of the major topics here at IDC has been the future of connectivity. IDC’s Future of Connectedness is an evolving framework of technologies, operational goals and business outcomes that transform the way enterprises use connectivity to improve business agility.  Investment in connectivity accelerated partially from business continuity requirements during Covid-19 and partially driven by businesses’ desires to take advantage of new digital tools that could improve their operations and increase revenues and profitability. Here at IDC, we look at the elements of the future of connectivity as illustrated below.

Telecommunication service providers, where I spend most of my time doing research, are at an interesting place when it comes to the future of connectivity. Telco transformation, as I covered in a recent report The Future of Connectedness: How Telecom Operators Need to Transform to Remain Relevant, is very similar to that of the broader business segment’s digital transformation.

Telco service providers are enterprises, consuming communication services and technologies internally while supplying communication services and technologies externally. The issues and drivers of future connectivity impact telco’s internal communications and processes and guide telco decisions on the future of their external communication networks. The figure below shows the three areas telcos are transforming themselves in their quest for relevance.

• New ways of doing business: Telco service providers need to change their internal processes to deal with increased network and service complexities, while also improving their customer relationship tools. This includes the adoption of collaboration and data intelligence tools that help connect employees, customers-and-partners; increase productivity and data sharing; and help eliminate LOB silos (in particular, between the business/marketing and IT). Also, the adoption of artificial intelligence/machine learning (AI/ML) technologies will help providers better predict outcomes and accelerate decision making around streamlining operations and limiting the possibilities of human errors.
• New technologies, network architectures, and class of vendors: Telecom service providers are deploying new networks like 5G or trialing new architectures, such as OpenRAN, implementing the principles of software-defined networks, and migrating network functions to cloud providers to lower the operational costs and create network platforms to support new types of services. A large portion of this transformation has taken traditional purpose-built network appliances and moved them into virtualized and cloud-native environments. Essentially, this is turning network hardware into software. This network evolution gives telco service providers increased service agility and has opened the way for new vendor partnerships.
• New classes of services and service partners: Ultimately, telco transformation is about remaining relevant to the business end user. This requires the ability to offer new services that increase the value of the telco’s underlying connectivity service and enhance the telco’s role as a transformation partner to the business community. Not all of this can be achieved solely by the telco operator. This requires new partnerships with companies that have different industry vertical and technology expertise to deliver new services. Of three areas of changes, offering new services can be the most difficult and the longest to achieve.

These three areas are interdependent. Delivering new services that will help keep telcos relevant to their customers requires coordinated effort. Telcos cannot not offer new digital services without the proper investments in their networks and their internal business processes. IDC just published its first forecast on 5G network slicing which provides an example of the challenges facing telcos when it comes to transforming themselves to offer new types of connectivity services.

5G network slicing, part of the 3GPP standards developed for 5G, allows for the creation of multiple virtual networks across a single network infrastructure, allowing enterprises to connect with guaranteed low latency. Using principles behind software-defined network and network virtualization, slicing allows the mobile operator to provide differentiated network experience for different sets of end users. For example, one network slice could be configured to support low latency, while another slice is configured for high download speeds. Both slices would run across the same underlying network infrastructure, including base stations, transport network, and core network.

Network slicing differs from private mobile networks, in that network slicing runs on the public wide area network. Private mobile networks, even when offered by the mobile operator, use infrastructure and spectrum dedicated to the end user to isolate the customer’s traffic from other users.

5G network slicing is a perfect candidate for future business connectivity needs. Slicing provides a differentiated network experience that can better match the customers performance requirements than traditional mobile broadband. Until now, there has been limited mobile network performance customization outside of speeds. 5G network slicing is a good example of telco service offerings that meet future of connectivity requirements. However, 5G network slicing also highlights the challenges mobile operators face with transformation in their pursuit of remaining relevant.

For 5G slicing to have broad commercial availability, and to provide a variety of performance options, several things need to happen first.

• Operators need to deploy 5G Standalone (SA) using the new 5G mobile core network. Currently most operators use the 5G non-standalone (NSA) architecture that relies on the LTE mobile core. It might be the end of 2023 before the majority of commercial 5G networks are using the SA mode.
• Spectrum is another hurdle that must be overcome. Operators still make most of their revenue from consumers, and do not want to compromise the consumer experience when they start offering network slicing. This means operators need more spectrum. In the U.S., among the three major mobile operators, only T-Mobile currently has a nationwide 5G mid-band spectrum deployment. AT&T and Verizon are currently deploying in mid-band, but that will not be completed until 2023.
• 5G slicing also requires changes to the operator’s business and operational support systems (BSS/OSS). Current BSS/OSS solutions were not designed to support the increased parameters those systems were designed to support.
• And finally, mobile operators still need to create the business propositions around commercial slicing services. Mobile operators need to educate businesses on the benefits of slicing and how slicing supports their different connectivity requirements. This could involve mobile operators developing industry specific partnerships to reach different business segments. All these things take time to be put into place.

Because of the enormity of the tasks needed to make 5G network slicing a commercial success, IDC currently has a very conservative outlook for this service through 2026. IDC believes it will be 2023 until there is general commercial availability of 5G network slicing. The exception is China, which is expected to have some commercial offerings in 2022 as it has the most mature 5G market. Even then, it will take until 2025 before global revenues from slicing exceeds a billion U.S. dollars. In 2026 IDC forecasts slicing revenues will be approximately $3.2 billion. However, over 80% of those revenues will come out of China.

Now this should not discourage mobile operators from investing in 5G network slicing. It can still play a role in helping businesses meet their future connectivity and digital transformation goals. It will, however, take several years for the slicing to mature and become a significant source of revenues for mobile operators.

Visit idc.com/FoX to learn more about IDC’s Future of Connectedness research.

Today’s experience economy is largely focused on utilitarian dimensions of customer experience – factors like simplicity, speed, and convenience. However, this is table stakes, and customers have come to expect these as a necessity to even do business. In the digital-first world, attracting, and crucially holding the attention of the future customer will require brands to differentiate on the human element of customer experience.

Shifts caused by Industry 4.0 have vastly altered customer expectations throughout the last few years which was greatly accelerated by the pandemic. The three areas that will impact customers’ perception of experience are:

1. The rise of intelligent context. With an explosion of data, customer expectations are experiences that are specific and contextual to their needs.
2. The age of experiences. Every element of customer engagement from the content or frequency to the choice of channel informs the whole experience; dissolution of channel boundaries requires organizations to bring fluidity to experiences.
3. Social Accountability. Trust and privacy are paramount to a customer’s choice in brand. Brands are being held accountable by customers for their ethics and values, both, toward customers and the broader society/community.

This new age of experiences requires enterprises to recognize and act on the following four tenets:

• Focus should be on digital-first and digital at the core, but not digital-only.
• Engage intelligently and differentiate from other brands by honoring the emotional dimension of the customer experience.
• The winning combination of a differentiated experience is excelling in the micro-moments as well as whole journey experiences with a focus on customer outcomes.
• To be perceived as an organization that delivers empathy at scale, brands must act as a steward of the customer and their data.

The following four themes illustrates IDC’s thinking of a human-centered digital-first experience:

First, is about experiences becoming Immersive. Customers should perceive experiences as intuitive, positive, and memorable. The convergence of physical-digital with augmented reality, Zero UI, or machine learning/AI and IoT can deliver desired customer outcomes while customers navigate their journeys on “auto-pilot”.

Second, Customer Value Parity will become essential. Organizations will need to shift their thinking and success measures from value obtained from the customer to value delivered to customers. For example, with the rise of decentralization, customers have more control of their information and how they allow brands to use that information. By tapping into technologies such as journey analytics, social listening, and customer sentiment analytics, brands can determine the next best value centric customer outcome to offer customers.

The third theme is Empathy. Organizations will need to elevate personalization to create individual and intimate experiences through a continuous understanding of customer context. Technologies such as affective computing, socially aware/ethical AI enables an organization to actively learn about a customer to progress from predictive engagement to prescriptive action.

The fourth is about Engendering Trust with customers. With pervasive digitalization, how will a customer trust a brand if their data isn’t secure, or if customers constantly perceive bias in terms of how systems/technologies employed by organizations make customer decisions? Being transparent on data privacy and usage goes a long way in creating greater customer loyalty and trust.

IDC is seeing examples of organizations that are already pursuing a vision of a reimagined future digital-first experience. These companies are focusing on the fundamentals of understanding wholistic customer data and insights, applying this intelligence in the right contexts, and focusing on delivering customer outcomes that deliver value and empathy at scale to their customers.

Further, not only do these organizations offer a stellar digital-first, customer facing experience, but they extend that across the mid- and back-office functions. The more mature organizations extend the customer-centric mindset further with a cross-ecosystem approach with partners and suppliers as well.  

For details about the organizations who are pursuing a vision for a reimagined digital-first experience and more information about the Future of Customer Experience, watch our March 2022 Directions presentation on “Rethinking the Digital First Experience”.

It is not surprising that the geopolitical conflict between Russia and Ukraine is having an impact worldwide. Factors like sanctions and cyber security are particularly of interest in terms of their potential to have adverse effects on talent and expatriation plans as well as digital investments and currency reserves. With research experts around the globe, IDC is analyzing the effects of the Russia-Ukraine conflict on global markets and we answer eight questions from prominent business leaders worldwide.

The manufacturing industry is no stranger to disruption or transformation. New entrants, shifts in customer buying behavior, supply chain constraints, regulations, geopolitics all have provided varying degrees of strife for discrete and process manufacturers throughout history, and all seem to have had a sometimes-crippling effect over the past 12-24 months. As much as things change, they stay the same. The manufacturing industry however has had to confront the need to think differently even as the challenges seem like those of the past.

As manufacturers navigated the turbulent waters of the past 24 months and look out to the coming years, innovative technologies will be critical to their growth and sustained success. Digital transformation can sometimes be viewed as a buzzword or marketing term to be discounted. However, IDC research highlighted that organizations able to close the digital gap returned to growth faster and were nimbler than their peers who did not embrace digital transformation. Furthermore, in IDC’s Future Enterprise Resiliency & Spending Survey Wave 7 (August 2021), only 14.6% of manufacturers sampled planned to spend less budget on IT year-over-year from 2020 to 2021. But this investment isn’t just on cool technology or pilot projects. To succeed organizations are leaning on transformative technologies like cloud, artificial intelligence (AI), mobility, augmented and mixed reality, the internet of things (IoT), and machine learning (ML) to grow profits, increase innovation, enable employee productivity, drive operational efficiency, and improve the customer experience.

Along this journey of digital transformation, manufacturers are establishing a broader set of offerings which now include more value-add services for customers. Historically, manufacturers or their dealers focused primarily on consumable sales or standard service contracts to ensure equipment uptime and customer productivity. However, as commoditization of products and rising customer expectations for experiences grew, the ability for a manufacturer to deliver a new set of outcomes has now become table stakes.

The era of service as an aftermarket activity solely resulting from the sales of equipment is becoming a relic of the past. Leading manufacturers and service providers recognize the importance and impact of the service experience in building customer loyalty, retention, and satisfaction. However, though the concept of service is apparent for many, the ability to execute on this promise of quality service experiences is no easy task. Customer expectations evolve quickly, competition looms to take back wallet share, and the front-line service team often lacks the tools to deliver more enhanced experiences while trying to efficiently close the work order at hand.

In IDC’s Product and Service Innovation Survey (May 2021, n=808), manufacturers stated a need for faster response to product quality & service issues, the desire to improve key customer metrics, and to establish more capabilities around remote service, collaboration, and resolution as top drivers for their respective service lifecycle management efforts. As manufacturers decide to address these drivers and others, I recommend these companies consider confronting the following questions:

• What do your customers or customer’s customers value?
• Does your organization have the digital capabilities to address business model shifts quickly at scale?
• Does line-of-business work with IT to identify, select, and deploy new technologies?
• Do your dealers, distributors, suppliers, and partners have a shared set of insights to act upon?
• Do you have the leadership in place across the enterprise to weather future disruptions with both a short- and long-term strategic vision?

To learn more on Service Business Model Transformation you are invited to join Aly Pinder at the Digital Manufacturing Summit being held May 19^th in Chicago.