Accelerating the Digital

Enterprise

CONFIDENTIAL AND PROPRIETARY

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NASSCOM Infrastructure Management Summit

Andrea Del Miglio, McKinsey

Bangalore, September 4th, 2014

McKinsey & Company |

Introductions

Andrea Del Miglio, McKinsey & Company

▪ Partner, Milan office - Italy

▪ Leader of McKinsey IT infrastructure and

Cybersecurity Practices in EMEA

▪ Extensive experience in supporting large

organizations with IT strategic sourcing

▪ 7 years of experience before McKinsey

within the IT sector within specialized

consulting firms and large IT vendors

1

McKinsey & Company |

What is a Digital Enterprise?

Digital Enterprise

Enterprise configured to deliver maximum

strategic and operational value from

established and emergent technologies

and associated shifts in customer behavior

and competitive landscape

2

McKinsey & Company |

Industry revenues rapidly compressing and shifting away from Incumbents

“Digital” transforms industries in a consistent way

New trends

emerge

Innovative startups

create disruptive

business models

Early adopters

start embracing the

new models

Advanced

incumbents start

adapting to the

new model

Mainstream

customers

adopt

Laggard

incumbents

die

Advanced

incumbents and

established

“startups”

constitute the

new normal

Tipping

point

Consumer

Traditional

Media

Digital Media

Retail banking

Industry revenues rapidly compressing and shifting away from Incumbents

Time

Flow of value to adjacent industriesMargin compression

3

McKinsey & Company |

Five year run-rate

A successful digital transformation can deliver up to 40% increase in

revenues and significant cost benefits…

4

Pharma

Health-care

Insurance (P&C)

TIL (Rail)

Telco

CPG

Retail Banking

40

30

19

17

8

6

25

19

9 5

4

6

2

4

ThreatOpportunity

16

8

18

16

13

6

1

3

1

1

1

10

PercentProjected impact

RevenueIndustry Cost

SOURCE: McKinsey analysis

McKinsey & Company | 5

…yet many organizations, especially in developing markets are currently

unable to assess progress on digitization

SOURCE: McKinsey Quarterly Survey on Digital Business practices, April 2013

23

36

Named a

metric

41

None being

used

Don’t know

44

37

Asia-pacEurope

25

North America

Percent of respondents (N = 789) reporting a

metric used to measure the progress of their

digital programs

Two thirds of organizations express no clear

view on the most important metrics to

measure progress of their digital programs

A significant share of organizations are

sceptical of the value from digitization

Percent of respondents reporting Unknown / Zero

/ Negative Operating Income impact from

digitization spend (N = 850)

McKinsey & Company |

Digital leads to a rapid change in foundational IT disciplines…

From … … toProcess

▪ 1-size SDLC methodologies ▪ Tailored methodologies, e.g.,

agile, iterative

▪ "Big project" management

focused on day-to-day PM

activities and low-level metrics

▪ Leadership-level monitoring,

course correction, and value

tracking for critical IT projects

Application

development

and

maintenance

1

▪ Complex, unmanaged

application and data

architectures with point-to-

point interfaces and data silos

Application/

data archi-

tecture

2

3

▪ Managed services or portfolio

carve-outs with open partnerships

▪ Selective partnering for hard-to-

build skills

Partner and

vendor

management

▪ General focus on pure scale

▪ Limited understanding of infra

spend by towers and users

▪ Applications tied to boxes

▪ Increased focus on enablement

▪ Transparency into cost and usage

▪ Virtualization and cloud services

increasingly separates boxes from

apps

Infra-

structure/

data center

management

4

Detailed next

6

▪ Planned, SOA-based architecture

▪ Underlying enterprise master data

strategy with effective governance

▪ Increasing importance of Chief

Data Officer role

▪ Large SI projects for big

developments

▪ Loosely managed

procurement and staff

augmentation

McKinsey & Company |

…and require new capabilities in IT infrastructure to match the flexibility

needs of digital applications

7

Integrated appliances

Open-design general-purpose stacks

Cloud orchestration platforms

Application management and automation

tools

Software defined networking and storage

McKinsey & Company |

Setting up and delivering new IT infrastructure digital capabilities poses

three key challenges for large organizations

8

A

B

Significant digital talent gap

C

Coexistence of next generation

technologies with legacy infrastructure,

often outsourced to traditional vendors

More fragmented vendor landscape and

need of new collaboration models

McKinsey & Company |

The digital talent gap is significant across many IT disciplines

9

“77% of executives we

interviewed mentioned skills gaps as a hindrance to driving digital transformation. The skills

needed go beyond pure IT to include specific technologies such as social media or mobile, as well as the analytic skills to drive value from big data. ”

The Digital Capabilities your Company needs, MIT

Sloan Management Review

“The rapid adoption of the agile development methodologyhas created a sizable talent gap (…) Demand outstrips supply by

nearly4x”agiletalentstudy.com1

Demand for Big Data talent in the United States could be

50 -60% greater than its projected supply by 2018

McKinsey Global Institute Big Data report

SOURCE: MIT Sloan Management Review, agiletalentstudy.com; McKinsey

1 Study conducted by Yoh from 2010 and 2012 for the US job market

A

McKinsey & Company |

… and often outsourced

to traditional vendors

Percent of total IT infrastructure spend

New digital capabilities in IT infrastructure must coexist with

traditional assets, which are often outsourced to traditional vendors

44

Internal

spend56

Outsourced

spend

Spend on "traditional" IT

infrastructure is sizeable …

27

8

10

3

Data center

End user support

48

Networking

Other

Indexed to total IT spend (average), percent

Banks mostly outsource to traditional

vendors, e.g.

▪ IBM owns > 80% of datacenter

outsourced spend

▪ BT owns > 60% of networking

outsourced spend

10

B

SOURCE: Gartner, IDC

EMEA BANKING EXAMPLE

McKinsey & Company |

Having traditional IT infrastructure outsourced makes the digital

transformation more challenging, but can also provide benefits

11

Challenges Benefits

Traditional vendors are often not

perceived as the most natural

owners of next-generation IT

infrastructure services

A close integration of traditional and

new infrastructure stacks is required

to enable the digital transformation

Rigidity and complexity of outsourcing

arrangements can hinder the pace of

the digital transformation

Many contracts fail in delivering the

expected benefits and drain

managerial resources due to a

conflicting interaction with the vendor

Good contracts can free up

resources and management share

of mind for the digital transformation

Outsourcing provides full flexibility

to ramp volumes up and down,

supporting the trial-and-error mode

that many digital projects require

B

McKinsey & Company |

Dynamic vendor landscape for Next Generation Infrastructure calls for

assessment criteria beyond priceExamples

C

12

New entrants and repositioning of incumbent players

result in a diverse and very dynamic vendor landscape

Careful assessment

of vendors required

▪ Flexibility of

infrastructure solutions

and fit to agile

development needs

▪ Avoidance of

technological silos with

proprietary

technology

Proprietary

Virtualization

Cloud

orchestration

Cloud

management

Open source

McKinsey & Company |

Description

Contracting

model

Challenges

for Digital

While staff augmentation and managed service models continue to

apply, the demand and project management model needs rethinking

Staff augmentation Work-package

arrangements

Managed services

Support of defined deliv-

erable or application area

Ownership for a service or

product lies with provider

Per-use or fixed price for

using platform / service

Time and materials ▪ Fixed price

▪ Time and materials

Involvement of businessManagement of supplier

and contract over fast

cycles

Loss of proprietary know-

how at end of projects

Suited to fill short-term

knowledge gaps

Suited to leverage out-of-

the-box solutions and

supplier expertise in digital

services

C

Provision of specific re-

source with a specific skill set

13

McKinsey & Company |

There is therefore a window of opportunity (or threat) as enterprises will

ramp up their digital programs

14

Enterprises are looking for support

on their digital programs beyond

traditional vendors

Entry barriers are less evident,

as the digital infrastructure is kept

separate from the legacy stack

Talent gap may further widen in

the short term, potentially leading

to a talent war

Enterprises will negotiate contract

terms and conditions better

supporting their digital needs

Clear window of

opportunity for attackers

and new entrants, but

capturing it is not trivial and

require a step change

Serious threat for

incumbent players and

traditional vendors, which

are in any case repositioning

fast

Uncertainty for

organizations looking for a

strategic partner, as the

selection is performed on a

fast changing landscape