Leading the Evolution ™
WHITE PAPER
SURVIVAL OF THE FITTEST
Business transformation through application
modernization – a commercial imperative
WHITE PAPER | SURVIVAL OF THE FITTEST
Executive Summary
It is a fact that history is littered with far more business failures than
successes. Many of those that succeed have been driven by a desire
and capability to fundamentally transform and evolve their businesses.
In fact, the biological evolutionary mantra of ‘survival of the fittest’
can just as readily be applied to the business world, although fittest
does not necessarily mean the biggest or even the best. From a
business context, perhaps adaptability and the ability to evolve when
required are more important.
“It is not the strongest of the species who
survive, not the most intelligent, but those
who are most adaptive to change.”
Charles Darwin
Modernizing existing mainframe enterprise applications has
provided thousands of organizations with the agility necessary to
enable business transformation and achieve significant growth
and competitive differentiation. This paper examines three proven
mainframe application modernization strategies and the business
imperative in considering them.
Business Transformation – or is it
Technology Transformation?
Transformation is often defined as a change or alteration, sometimes
a radical one. When applied to the corporate business world,
business transformation is a significant change, one that creates
new opportunity. This new opportunity can come from either a
seismic shift in a company’s direction and strategy or through a more
evolutionary approach, such as expanding into a new market with the
same core foundation of products, services and infrastructure.
One aspect of business transformation that is constant in today’s
business environments is the role of IT. It is hard, if not impossible,
to consider business transformation in the 21st century without a
significant role played by technology. In this age, IT is fundamental,
and should be at the heart of any successful business strategy.
Consider the different functions in any business today and the fact
that every single one runs on and relies upon IT.
However, business transformation is not solely technology
transformation, as people and process change are also important. But
business transformation without technology transformation simply
cannot exist in modern business, regardless of geography, industry or
competitive positioning. Consider how technology has changed the
nature of the world today, a world in which we transact, download
movies and music, watch television, and shop, all over the Internet. IT
is an essential component, whether it drives, or is driven by, business
transformation.
Industry analyst firm Forrester calls this Business Technology (BT)
transformation (1), where every business activity is enabled by
technology and every technology decision hinges on a business
need. Business and technology are inextricably linked – business
transformation equals IT transformation.
Why is it an Imperative Now?
The nature of business is changing. Whether in retail, manufacturing,
financial services or any other industry, the rate of change is
unprecedented and ever-increasing. Consider how much banking had
changed in the 100 years prior to the 1990s compared to how much
it has changed in the last 20 years. Up until the 1990s, banking was
still branch-led and most customers had, and often knew their bank
manager personally. Fast forward to present day and very few clients
still have a bank manager. Also consider how the nature of making
payments has changed – check books are effectively a thing of the
past and online banking, being able to make payments and move
money around between accounts without ever needing to move
from the armchair or talk to anyone, never mind the bank manager, is
commonplace.
Consider online retailers like Amazon, that fundamentally changed the
meaning of ‘going shopping’, and supermarkets across the globe that
have branched out into selling much more than just food, for example
financial services. Both the nature of ‘traditional’ industries, and the
business methods and channels in use, have changed almost beyond
recognition. These changes have been compounded by the economic
downturn and uncertainty of recent years. As a result, the concept
of ‘business as usual’ has effectively ceased to exist, leaving business
transformation virtually unavoidable.
The key drivers for business transformation include:
Maintaining and extending competitive advantage
Improving and simplifying customer service
Regulatory compliance and governance
Customer retention
Business expansion
New geographies
Growth into new or adjacent industries
Because of the rapidly shifting business landscape of today, many
companies have had no other choice but to transform their businesses
to address these challenges.
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Application modernization is a proven strategy that has helped many
of these organizations to achieve their business transformation goals,
while at the same time significantly reducing the cost of IT operations.
Organizations that are not considering application modernization
strategies to enable business transformation risk falling behind
competitors who see these strategies as key to continued success.
Defining Application Modernization
In some cases, organizations have opted to replace these missioncritical applications with either an off-the-shelf package (which often
entails a loss of key business logic and competitive differentiation) or
with a project to completely re-write applications from scratch. There
are countless examples of such IT projects running massively overbudget, over-time and delivering little or no value.
Application modernization strategies provide a low-risk, low-cost
alternative that enables business transformation:
Application modernization is the continuous evolution of an IT
environment and application portfolio, with a focus on reusing
and modernizing existing applications as opposed to rewriting or
replacing systems.
Enabling Business Transformation through
Application Modernization
Enterprise applications are the heartbeat of the world’s economy, to
the extent that they process around 80% of all business transactions
worldwide. These applications typically enable significant competitive
advantage and offer unique differentiation, whether at a sales or
service level. They are vital to the success of the business, yet a
perception persists that it is expensive to operate and difficult to
update them sufficiently quickly to meet the accelerating pace of
business change.
“In response to business demands for
greater application agility and capability,
many organizations are transforming their
application environments by addressing
application modernization and adopting
new technologies, such as service-oriented
architecture, extending information and
process management, and blending a more
complex assortment of software acquisition
and deployment options”
Susan Landry, Mathew Hotie, Gartner (2)
Application modernization strategies are a proven method to achieve
the business agility necessary for delivering the type of fundamental
change that can drive businesses growth, competitive advantage and
new positions of strength. For organizations running business-critical
enterprise applications on mainframe environments, there are three
key strategies to consider as outlined in Table 1.
Strategy
Description
Migrating or re-hosting
applications off the mainframe
Moving one or more applications
off the mainframe, with little or no
change to underlying code
Dramatically reduce operating costs
Faster time-to-market
Improve customer satisfaction
Moving development off the
mainframe
Enabling the development process
to occur on PC environments
before the code is moved back
to the mainframe production
environment
Reduce costs through improved developer productivity
Increase focus on innovation
Faster time-to-market
Moving testing off the
mainframe
Enabling testing processes
to occur on PC environments
before the code is moved back
to the mainframe production
environment
Reduce costs through greater testing efficiency and
Table 1: Application modernization strategies enabling business transformation
Key benefits
lower demand for mainframe resources
Improve product quality
Faster test cycles
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Migrating Applications off the Mainframe
Migrating business-critical applications off the mainframe can
be an extremely effective application modernization strategy,
with organizations having achieved significant benefits that have
contributed towards, or led, business transformation initiatives.
Application migration is most appropriate for mission-critical
applications, or for entire medium and smaller sized mainframe
environments.
Application migration generates significant cost savings in the first
instance and as a result, the ways in which an organization can use
this method to transform its business are almost endless. For example,
the savings achieved could be used to put in place a platform for
international growth as in the case of leading UK retailer Tesco (3).
Other examples include organizations saving millions in operating
costs to be able to focus on improving the quality of customer
service, thus improving competitive market position, as in the case of
American healthcare supply chain management firm Owens & Minor
(4). Alternatively, money saved through application migration can be
re-invested in product innovation, enabling a more concerted effort
to retain and enhance competitive differentiation.
Table 2 was developed by the CIO of a leading retailer to consider the
options when comparing application modernization with re-writing
the stock control system, or replacing it with an off-the-shelf package.
It is clear that modernizing the existing system was the lowest cost,
lowest risk option, delivering value rapidly, while maintaining the
significant competitive differentiation that had already been built in
the application.
Moving the Development Process off the
Mainframe
As opposed to application migration, where entire applications are
permanently moved off mainframe environments, alternative options
exist for organizations that want to maintain production environments
on the mainframe. One such alternative is to move the development
of enterprise applications away from the mainframe and onto PC
environments. There are typically three main application development
and management processes that run on a mainframe environment:
Development and unit testing
Pre-production testing
Production
Of the above, testing and production typically take up to 90% of
mainframe processing power, which often result in development
processes taking a prolonged time to complete, inefficient
development and slow delivery of new features and updates. The
scenario can be a common one for a mainframe developer – taking a
break to make the tea while waiting for a program to compile.
It is possible to move the development environment off the
mainframe and onto a PC environment, with no requirement for code
changes, where much more local processing power can be available
to a developer. This immediately results in more efficient developers,
who in turn are able to deliver functionality updates faster and
therefore have more time to focus on product innovation.
Whether using cost reduction to enable business growth, improve
competitive position, increase customer satisfaction or improve timeto-market, migrating applications from mainframe environments
is a proven application modernization strategy to enable business
transformation.
Approach
Cost
Risk
Time to value
Competitive advantage
(0 – 10)
Modernize existing
system
1x
Low
4 Months
10
Rewrite
4x
High
3-5 years
6
Package
10x
Medium
2-3 years
0
Table 2: A view of the options considered by the CIO of a leading retailer
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This may not sound in itself like a foundation for business
transformation, but consider the following statistics. A UK financial
organization was faced with the following business challenges:
By moving testing processes off the mainframe, organizations can:
Reduce the costs of key functional testing activities
Slower time-to-market in an increasingly competitive industry
Complete testing phases faster, resulting in quicker time-to-market
Increasing cost of developing new features
Improve quality through more extensive testing, completed in a
shorter timeframe
Increasing application maintenance costs
The company approached these challenges by moving development
off its mainframe environment. The productivity improvements
experienced enabled savings of 30 days per developer per year.
Significant product advancements can be achieved with 15% more
development time. For this financial organization this equated to
savings of $8million per year, which in turn enabled increased focus
on product innovation as the savings were re-invested back into the
business.
The costs saved within the testing process can be re-allocated to other
areas of the business, such as increasing focus on customer service
or product innovation, while faster time-to-market and improved
product quality can lead to improved competitive position.
Moving the Testing Process off the
Mainframe
Table 3 further emphasizes the business impact that moving testing
processes off the mainframe can have. The testing processes carry
no risk of affecting production systems and can generate a very
positive outcome on product delivery timescales. In addition,
moving integration, QA, system and user acceptance testing off
the mainframe can carry significant cost savings. This is often an
overlooked area for organizations that are looking to reduce costs and
accelerate delivery with the lowest risk approach possible.
A high percentage of mainframe processing power is typically
allocated to the testing process, often around 45-50% of MIPS.
Testing is obviously critical to an application’s stability and the amount
of testing required can often result in a bottleneck in any product
release lifecycle, impacting the time-to-market for new products
and services negatively. Unfortunately, the investment required
in mainframe capacity to complete testing phases in optimum
timeframes is significant, to the extent that reduced test case
execution or extended timeframes are more typically adopted.
For instance a Portuguese financial organization moved preproduction testing and developer tasks off the mainframe and onto
a PC environment, creating a replicated production test environment
on Windows. The company was able to save 400 MIPS of processing
power that had been allocated to testing, equating to cost savings
of $400k per year. In addition, greater performance enabled the
organization to realize increased productivity of every QA and test
individual resulting in an additional $800k per year cost saving. As a
result, ROI was achieved within 10 months.
Type of z/OS workload
Cost saving potential based on
MIPS allocated to type of workload
Risk of negatively impacting
production systems on z/OS
Positive impact on
delivery timescales
Development
Low
None
High
High
Medium
Low
High
None
High
Unit test
Production
Disaster recovery
Integration test
QA test
System test
User acceptance test
Table 3 Impact of moving testing processes off the mainframe
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Summary
With the ever-increasing pace of change in today’s business
environment and IT budgets under the microscope as a result of
economic uncertainty, business transformation has become the norm
rather than the exception.
Consider that for the past four decades, organizations have
unnecessarily paid a premium for the same level of 99.999 availability
for production environments as for development and testing
activities. High levels of availability is certainly necessary to support
business-critical applications, but not during development and
testing. Not surprisingly, organizations are reviewing their mainframe
environments to free up operational budget at a time when reducing
costs and transforming business is a commercial imperative. Many
organizations are considering moving off the mainframe altogether
as new technologies have matured and can provide similar levels on
availability.
Business Benefits
Successful expansion into new international markets
Significant cost reduction
Ability to maintain a single code base across the entire group
Lower risk and faster than re-write or replace
For firms that are running critical applications on mainframe systems,
application modernization is a proven initiative to deliver business
transformation.
“Elements of our common operating model
are already in place and benefiting some of
our businesses. Micro Focus’ modernization
expertise is not only helping us maintain
the momentum behind this strategic IT
project, but is also playing a key role in the
development of our United States presence.”
Application modernization strategies have enabled:
Colin Cobain, Group IT Director, Tesco
Tesco, a leading UK retailer, to successfully achieve international
growth
A UK financial organization to increase competitive advantage
through reinvesting $8million savings of developer time enabling
greater focus on innovation and improved time-to-market
Owens & Minor, an American distributor of healthcare products, to
focus on significant improvements to customer service to maintain
and extend competitive differentiation.
It is clear that business transformation has become an imperative and
organizations that are not considering application modernization
strategies will almost certainly struggle to compete against those that
do.
Appendix
Tesco Case Study
Business Challenges
International growth was a high business priority, with the goal of
launching the Tesco Express store concept in the US and Turkey.
Tesco’s success in the UK has been built upon its Continuous
Replenishment (CR) system, which was housed on a mainframe. With
a global AIX system, replicating a mainframe environment in North
America was not an option.
Solution
The CR system was migrated to AIX and integrated with the Oracle
retail system.
Owens & Minor Case Study
Business Challenges
Owens & Minor, a leading US distributor of healthcare products,
needed to modernize its existing, business-critical ERP system
while retaining unique business logic. Maintaining the competitive
advantage embedded in this business logic while reducing costs to
enable re-investment in customer-led improvements was imperative.
Solution
The custom ERP system was migrated off the mainframe to Windows.
Business Benefits
Enabling increased focus on customer service initiatives to further
enhance superior service levels
Ability to re-invest savings in user-interface modernization through
an approximate 77% reduction in IT infrastructure costs per year
Platform for role-based user interfaces, reducing 25 screens to
5-10, resulting in increased staff productivity and efficiency
Greater performance capacity and faster response times
Retaining and further optimizing 20 years of business process value
and competitive advantage
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UK Financial Provider
References
Business Challenges
1. Forrester’s IT Forum 2010: The Business Technology
Transformation: Making It Real
A UK Financial Provider needed to improve the time-to-market of new
initiatives significantly, reduce the cost of developing new features and
reduce mainframe costs as well as remove bottlenecks in development
processes.
Solution
Development was moved off the mainframe
2. Toolkit Tutorial: How to Avoid the Top Three ERP Implementation
Mistakes, Gartner, 7 September 2007
3. See appendix, Tesco case study
4. See appendix, Owens & Minor case study
Business Benefits
$8m savings per year
About Micro Focus
Significant improvement of developer productivity
Micro Focus, a member of the FTSE 250, provides innovative
software that allows companies to dramatically improve the business
value of their enterprise applications. Micro Focus Enterprise
Application Modernization and Management software enables
customers’ business applications to respond rapidly to market
changes and embrace modern architectures with reduced cost and
risk.
Modern development environment improves overall time-tomarket
Portuguese Financial Provider
Business Challenges
A Portuguese Financial Provider needed to reduce the development
and testing costs on the mainframe, while at the same time improve
performance as well as QA and testing productivity.
Solution
Development and testing was moved off the mainframe
Business Benefits
Upwards of $1,2million in yearly cost savings
ROI in 10 months
Greater performance and increased QA and testing team
productivity
For additional information please visit: www.microfocus.com
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