Is Legacy IT Infrastructure a Toxic Asset in the Digital Economy?

by Nick Lippis

Digital transformation describes the new digital economy that leverages algorithms, mobile, and cloud computing, social media, etc., to reach customers delivering products/services at speed, with increased flexibility plus usability and lower cost. Digital transformation companies usually deliver a big customer “wow” factor too. From a business perspective, digital transformation represents new revenue streams that possess a global footprint.

Fundamental to the new digital transformation economy is AGILITY, Companies like Robinhood offer a fundamental new model to trading stocks that eliminates the $10 per trade industry practice of the past decade. Spotify offers streaming music services to hundreds of millions, eliminating the need to own media. For start-ups and those firms born during the 1990’s internet revolution, digital transformation is the next business wave. For established players, digital transformation is increasingly representing a choice of either being digital or being marginalized at best and out of business at worse. Since the inception of ONUG, the community has been navigating the confused waters of digital transformation for the large enterprise.

Digital transformation is a compacted term that encapsulates new business models, which are unleashed thanks to new approaches to and capabilities of IT. There are thousands of disruptive innovators in the digital economy; think of self-driving cars, mobile shopping, subscription-based fresh food delivery, cryptocurrency, health tracking apps, virtual reality, etc. Think of Uber, Airbnb, Lending Club, Tesla, Sonos, Nest, and other businesses that virtually created their own niche. I’m sure you get the picture. These are disruptive innovators that were mostly invented outside of existing sectors.

For internet age firms like eBay, Salesforce, PayPal, or Amazon, digital transformation is a natural extension of existing business models. For start-ups, the barrier of entry to the digital economy is particularly low as they are prime candidates for cloud computing’s existing consumption model; that is, go to AWS, Azure, or GCP with a credit card, open an account, and start coding a product. Capital for a data center or IT in general is minimal. Development cost is lower than ever, and most importantly, speed is on their side to test new products and push services quickly to market.

For the vast majority of established firms on the Forbes 2017 Global 2000 list, digital transformation requires a completely different approach than to those in the start-up or internet era communities. Developing a plan and navigating its execution is complicated, thanks to product/service cannibalization and legacy infrastructure. Consider that “90% of CEOs believe the digital economy will impact their industry, but less than 15% are executing a digital strategy,” according to MIT Sloan and Capgemini. Given the speed at which digital transformation companies are gaining and the measured response of established players, there comes a point in time when extraordinary times call for extraordinary measures; that time is now.

When Jim Hackett, CEO of Ford, was announced in May of this year, Bill Ford, its chairman, opened up with, “Extraordinary times call for extraordinary leadership.” Bill was not thinking of Harald Krüger, CEO BMW, or Mary Barra, CEO General Motors, or Matthias Müller, CEO Volkswagen; he was thinking of Elon Musk, CEO Tesla. Tesla’s market cap is greater than GM, Ford, and Fiat Chrysler! GM was founded in 1908; Tesla was founded in 2003!

So why the hold up when CEOs know that new serious entrants into their markets will not be their traditional competitors? There are multiple factors, but the most pressing are legacy business and IT models. The ONUG Community is collectively navigating the choppy waters to the digital transformation world.

Miscommunication and setting poor expectations are continued themes that hold companies back from successfully executing digital transformation. Many C-level executives believe that digital transformation is as easy for their large company as it is for start-ups. This is understandable, as many C-level executives are experts in their business, but not IT. But despite the C-level attention to digital transformation, more often than not, new IT transformation does not get the required strategic funding, plus organizational structures and processes are quite often left untouched, impeding change. For example, at the C-level, it’s conventional wisdom that public cloud services are lower cost and faster to deploy workloads than private cloud services; that is, a private cloud infrastructure built by enterprise IT.

What we’re finding at ONUG, is that public cloud services for the large enterprise do not necessarily guarantee lower cost or increased reliability, and are clearly not as secure or trusted as private cloud infrastructure. A new digital transformation narrative for the large enterprise is to expect higher cost, not lower cost, in exchange for greater agility and global footprint. Once this narrative sinks in, it’s highly likely that overall IT spending will come under a new review cycle.

Legacy IT supports existing business workloads and revenue streams. It also contains the lion’s share of IT spend. As digital transformation workloads generate greater revenues and strategic importance, expect legacy infrastructure to be increasingly commoditized. Many are starting to view legacy infrastructure like toxic assets (that is, mortgage-backed securities, collateralized debt obligations, and credit default swaps) were viewed in the 2008-2009 time frame when banks bundled them up and sold them off. The thinking here is that Gartner’s bimodal IT strategy does not work and to survive in the digital transformation age, corporations need to focus on all digital all the time.

At ONUG Fall in New York City, hosted by GE, the ONUG Community will continue its journey toward a digital world by exploring hybrid multi-cloud software-defined technology options, building vs. buying cloud infrastructure, IT cloud operational models, IT workforce changes thanks to machine learning and artificial intelligence, container automation, cloud trust models, and more. We look forward to you plugging into the ONUG network at the conference on October 17th and 18th, where you can chart your own digital transformation course with best practice learnings from other ONUG Community members.


Author Bio

Nick Lippis pictureNick Lippis


Nick Lippis is an authority on corporate computer networking. He has designed some for the largest computer networks in the world. He has advised many Global 2000 firms on network strategy, architecture, equipment, services and implementation including Hughes Aerospace, Barclays Bank, Kaiser Permanente, Eastman Kodak Company, Federal Deposit Insurance Corporation (FDIC), Liberty Mutual, Schering-Plough, Sprint, WorldCom, Cisco Systems, Nortel Networks and a wide range of other equipment suppliers and service providers.

Mr. Lippis is uniquely positioned to comment, analyze and observe computer networking industry trends and developments. At Lippis Enterprises, Inc., Nick works with entrepreneurs evaluating new business opportunities in enterprise networking and serves as an independent investor and advisor.


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