Predicts 2018: Application Strategy and Governance

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1 Predicts 2018: Application Strategy and Governance Published: 14 December 2017 ID: G Analyst(s): Matthew Hotle, Paolo Malinverno, Stefan Van Der Zijden, Mark O'Neill, Deacon D.K Wan, Mike Gilpin Digital business shapes our latest predictions. Application leaders must innovate to speed up delivery of digital products and services via product management of products, APIs and platforms. This bimodal approach should range from continuous modernization to lean startup practices for innovation. Key Findings Digital business is accelerating the shift to multiple modes of delivery. It requires a hybrid of various operating models, including a shift from project management to product management. These multiple modes of delivery enable enterprises to synchronize continuous modernization of systems of record with Lean Startup-style work on systems of innovation. Beyond meeting the needs of specific digital applications, enterprises' growing portfolios of APIs are becoming the foundations of their digital platforms. Product management must be applied to APIs that underpin digital platforms, so as to treat the teams that consume them as customers, while maintaining a product roadmap for platform work. Recommendations Application leaders responsible for application strategy and governance should: Plan for multiple operating models by identifying explicit harmonization and synchronization points. Transform critical systems of record into stable platforms for digital business by selectively applying continuous modernization where it will have the most digital business impact. Accelerate the delivery of the most innovative and valuable digital products and services by adopting product management practices from the Lean Startup community.

2 Maximize the business impact of new platform investments by applying product management practices to the APIs that underpin digital platforms shared by multiple products. Table of Contents Strategic Planning Assumptions... 2 Analysis...2 What You Need to Know... 2 Strategic Planning Assumptions... 4 A Look Back...11 Gartner Recommended Reading List of Figures Figure 1. Bimodal Application Governance... 3 Strategic Planning Assumptions Through 2020, more than 75% of organizations will have to maintain multiple governance, delivery and operating models to meet the needs of digital business. Through 2020, every dollar invested in digital business innovation will require enterprises to spend at least three times that to continuously modernize their legacy application portfolio. Through 2019, a startup product management and engineering culture will penetrate more than 50% of enterprises' innovation efforts. By 2020, 75% of APIs under management will expose platform capabilities, as opposed to just serving particular products. By 2020, 50% of midsize and large organizations will have a role responsible for API product management, up from 10% in Analysis What You Need to Know Gartner's research into application strategy and governance addresses the disciplines needed to manage and lead an application organization, and the strategies required to increase the value and effectiveness of a portfolio of applications and therefore of an organization's work. Page 2 of 13 Gartner, Inc. G

3 Since we published our first Predicts on this topic in late 2015, the shift toward multiple modes of delivery has accelerated, due to the impact of digital business. Application organizations pursuing digital business initiatives have found that: They can no longer succeed by operating traditionally, but must shift toward a product delivery model. APIs are more important than they had realized. Not all core systems of the past can succeed in a digital world, and modernizing those that can is expensive. For the most part, the predictions in this document are a linear evolution from the position in The metadirection of digital business was already decided then. This set of predictions gets more specific about the metatrends, and clarifies the process of innovation that is so critical in a digital world. Figure 1. Bimodal Application Governance Source: Gartner (December 2017) Gartner, Inc. G Page 3 of 13

4 Strategic Planning Assumptions Strategic Planning Assumption: Through 2020, more than 75% of organizations will have to maintain multiple governance, delivery and operating models to meet the needs of digital business. Analysis by: Matthew Hotle Key Findings: Because of its need for agility, digital business requires either an iterative or an agile method for at least Mode 2 work. Agile methodology requires a different operating model from the traditional waterfall model. Most organizations are culturally incapable of moving quickly to agile methodology across all their operations. Market Implications: In most organizations, digital business is prompting substantial changes to the "operating model" that defines how work enters the organization and how IT and business leaders prioritize, fund and deliver that work. The need for substantially shorter time-to-market requires the use of an agile method, or at least a very tight iterative method. Both methods involve a product metaphor, in contrast to the more traditional project-based delivery model. In a product-based model, the product owner prioritizes a backlog of work by organizing it into "chunks" planned for future delivery, which agile teams continually address. So, instead of funding projects, organizations need to fund workstreams, which significantly changes their operating model. This means that most organizations of significant size will have to maintain at least two operating models for a number of years. Most organizations crave the simplicity of a single operating model, but moving an entire organization to an agile operating model is extremely difficult in the short term. For large organizations, it can take years. Application leaders therefore need to: Work out the mechanics of how to run separate operating models. Synchronize work that spans the separate operating models. Bring about a shift to a values-driven culture for agile work, while ensuring that the people doing the nonagile work aren't perceived as tired and tired and traditional. Taken individually, these challenges are significant. Taken together, they are a potential minefield. Recommendations: Application leaders looking to drive digital business strategies should: Page 4 of 13 Gartner, Inc. G

5 Plan for multiple operating models by understanding the work that is being performed and the operating models that are necessary to deliver it (bimodality). Create explicit harmonization and synchronization points between the operating models by assigning the management of touchpoints and strategy to a specific group or manager (perhaps the project management office or an API product manager). Related Research: "How to Make Bimodal Application Governance Work" "How to Lead Organizational Change in an Application Organization" "The End of the Waterfall as We Know It" "Technology Insight: The Hybrid Application Platform" "Monetize Your Business by Adopting the Value-Optimizing I&T Operating Model Pattern" Strategic Planning Assumption: Through 2020, every dollar invested in digital business innovation will require enterprises to spend at least three times that to continuously modernize their legacy application portfolio. Analysis by: Stefan van der Zijden Key Findings: Digital business initiatives are exploring and exploiting new business models, channels, ways of improving the user experience and technologies, such as the Internet of Things and artificial intelligence, while remaining dependent on data and functions in core systems. To be able to reuse the data and functions used by the core systems, those core systems must be encapsulated and made available via APIs. Core systems cannot be modified rapidly enough to keep up with the pace of change dictated by digital business. Many organizations are unwilling or unable to accept the risks, costs, time requirements and general impact of large "rip and replace" modernization programs. Market Implications: Many application leaders face a conundrum. They have to provide timely support for digital business, but their current application portfolio impedes this endeavor. And they cannot simply replace their current portfolio because they don't have the budget, mandate or time to do so. What they must do instead is gradually transform their legacy core systems into platforms for digital business. This entails step-by-step modernization of core systems by implementing APIs and Gartner, Inc. G Page 5 of 13

6 refactoring specific components to provide just-in-time support for digital business initiatives. That is what we call continuous modernization to support continuous delivery for such initiatives. Investing in a digital product or service therefore involves investment in modernizing core systems. In general, current application portfolios and core systems aren't in a good state. They have typically been neglected, so they are laden with technical debt (see "A Primer on Technical Debt"). Also, the core systems' technology, architecture and ecosystems aren't built to support digital business. Consequently, we expect that any investment in digital products or services will require at least three times more investment in preparing core systems to provide ample support. Here is an example that shows the sort of time scales involved. An insurance company implements a mobile app for registering and tracking claims. The app requires APIs on top of the core systems in order to read, add and update claim information. Building the app might take two months of work. Adding APIs to the core systems and changing the code to enable claim creation outside those systems might take six months or more. Recommendations: Application leaders who are starting or continuing with modernization as part of their strategy should: Minimize cost and risk by using continuous modernization if rip and replace is too costly, risky or time-consuming. Provide a stable foundation for digital products by planning and funding modernization efforts. Prioritize your continuous modernization efforts by adopting a "what obstacle kills me first" approach. Identifying and fix the friction points (those components and functions in the core systems that are not providing ample support) by focusing on business fitness. Ensure modernization efforts stay on track by establishing dedicated modernization teams to work alongside product and platform teams. Synchronize modernization efforts with functional changes by coordinating backlog and cadence between product, platform and modernization teams, to ensure timely support. Related Research: "Bimodal IT Is Essential to Successful Application Rationalization" "Which New and Old Applications Will Enable Digital Business?" Strategic Planning Assumption: Through 2019, the startup product management and engineering culture will penetrate more than 50% of enterprises' innovation efforts. Analysis by: Deacon Wan Page 6 of 13 Gartner, Inc. G

7 Key Findings: Product management practices have a commanding influence with the startups, communities and internet giants in innovation centers such as San Francisco, Seoul, Toronto and Tel Aviv. Crowdsourced and freelance workers are commonly used in startup engineering cultures to enable leverage and scale, with comprehensive social collaboration techniques to address challenges with new ideas coupled with skilled delivery teams. Startup teams have a culture of collaboration with passion to drive product success, via continual innovation in the global digital community. Enterprises have scaled gracefully with systems that ensure repeatability and predictability, but creativity is stifled by lengthy project requirement documents, endless incoming s, departmental meetings and the ever-present "us against them" priorities and budget battles. Enterprises face no less urgency than startups in ensuring their survival. Market Implications: Enterprises using a traditional development framework have benefited from stability, reliability and steady growth. While this approach has worked well, the competiveness in 2018 and beyond requires a much more nimble approach and a persistent mindset focused on innovation. To keep up with the changing business environment, enterprises are introducing and accelerating the shift to this new culture of rapid innovation. We are seeing application leaders promoting startup-like, bottom-up ideas to effectively reduce organizational latency and increase the quality of new products and the speed with which they are produced. This promotes improved customer experience and significant savings in time and resources. Application leaders are in the perfect position to drive innovation by adapting product management practices for their organizations. They should invest in evolving products, maturing technologies, and exploring business potential, while grooming the skills and leadership capabilities that agile product teams require. Application leaders can also encourage their companies to proactively exchange ideas, helping to push boundaries by challenging traditional processes. This can lead the enterprise to take more risk in innovation, adopting a "sometimes you win sometimes you learn" attitude to hasten digital business success. Recommendations: In order to lead their organizations to embrace a startup-like attitude to product management and engineering culture, application leaders adding innovative practices to their strategy should: Embrace diversity and nurture the new culture by increasing awareness of product management practices and how stakeholders can collaborate to address new demands to support digital business with continuous delivery. Be explicit about product managers' roles by clearly defining work and deliverables. Gartner, Inc. G Page 7 of 13

8 Champion revenue generation and innovation by continually engaging business stakeholders and IT to leverage the latest technology. Carve out an investment funding pool from the annual budget by setting an innovation target to drive change while tracking spending per product instead of per application. Ensure product managers are encouraging teams to move from a "keeping the lights on" mentality to one that focuses more on innovation by making product innovation a distinct responsibility for product managers. Mediate risk in innovative efforts by failing quick, but not big. Related Research: "Moving From Project to Products Requires a Product Manager" "Product Managers Are Key to Digital Business Success" "2017 Strategic Roadmap for Application Strategy" "Market Guide for Product Roadmapping Tools" "It's Time to Integrate a Mobile App Strategy Into Your Application Strategy" "Redefine Your Application Strategy to Exploit Conversational AI for Digital Business Success" "2017 CEO Survey: Midsize Enterprise Spotlight" "A Day in the Life of a Product Manager" "Midmarket Context: '3-2-1 Is a Simple Way for CIOs and CEOs to Discuss Business and Technology Agenda Integration'" Strategic Planning Assumption: By 2020, 75% of APIs under management will expose platform capabilities, as opposed to just serving particular products. Analysis by: Mark O'Neil Key Findings: APIs are a core enabler of digital business, but initial API projects have been characterized by a "stovepipe" approach whereby particular APIs are dedicated to particular products, such as mobile apps or web dashboards. Platform APIs also include APIs that have been delivered in front of systems of record. These APIs are typically delivered through an API mediation layer, which applies capabilities such as security and monitoring (see "Design an API Mediation Layer to Underpin Your Digital Business Technology Platform"). By delivering platform APIs that access systems of record, an organization can deliver differentiating digital products on top of this layer (see "Systems of Differentiation: How to Build Capabilities That Provide Competitive Advantage"). Page 8 of 13 Gartner, Inc. G

9 Other examples of APIs used at a platform level include those linked to monetization (including APIs that query usage metrics or perform billing) and APIs used for security purposes (that issue tokens or return a tokenized account number, for example). Treating a platform as a product includes maintaining a roadmap of APIs that are required by customers, prioritizing these, and managing their funding. APIs delivered as part of the platform should therefore be applicable across multiple products which are built on the platform, serving the needs of both customers of the platform, and of the team managing the platform itself. Market Implications: Organizations investing in digital products often also invest, at the same time, in the APIs that underpin those products. As digital maturity grows, organizations build more and more "platform APIs" that can be used across multiple digital products, delivering capabilities crucial to those products (such as monetization and security) as well as automating the management of the digital platform itself. This trend drives the growth of API-enabled digital platforms, including the embedding of API management capabilities. There has been a general trend whereby API management has been added to surrounding product categories, often those used to deliver a digital platform, such as mobile back-end services and integration platform as a service (ipaas). Platform APIs also underpin other innovations in digital strategy. These include the growth of digital marketplaces, which are enabled by platform capabilities (such as APIs) to register new marketplace entries and to enable purchases through the marketplaces. Recommendations: Application leaders implementing API strategies should: Encourage flexibility and reuse by identifying platform APIs that can be used across multiple digital products. Enhance the use of APIs when architecting a digital platform by prioritizing capabilities that can be automated using APIs. Ensure secure and managed access to systems of record by creating an API mediation layer. Prioritize delivery of new APIs by using a product management approach to new APIs for your digital business technology platform, making use of roadmaps, and working in conjunction with API-consuming customers and partners. Related Research: "From APIs to Ecosystems: API Economy Best Practices for Building a Digital Platform" "Create the Role of API Product Manager as Part of Treating APIs as Products" Gartner, Inc. G Page 9 of 13

10 "Digital Marketplaces for a Platform World" Strategic Planning Assumption: By 2020, 50% of midsize and large organizations will have a role responsible for API product management, up from 10% in Analysis by: Paolo Malinverno, Mark O'Neil Key Findings: APIs are the basis of platform business models and play a fundamental role in executing digital strategies. Most companies will address new business moments in new interactions, which will be implemented by consuming both APIs provided by the companies themselves, and APIs provided by others, frequently business partners, as part of the API economy. In other words, the number of APIs used by a company is increasing steadily. Every API introduces a dependency potentially on very old applications and the data they encapsulate, for each new interaction. Those dependencies need to be tracked and managed. In turn, APIs will have several consumers, and their proper functioning enables valuable business interactions. Different consumers will want the API to evolve in potentially different directions. Because of this, API evolution needs to be properly governed. As the number of APIs and the business scenarios needing to consume them grows, companies will increasingly see the need for API product managers. These are some of the reasons why companies have started introducing the role of the API product manager to actively manage a set of APIs (see "Create the Role of API Product Manager as Part of Treating APIs as Products"). APIs will evolve anyway, so governance decisions will be taken one way or the other, but the role makes those governance decisions explicit, to maximize value for the company. This role appears under a number of titles, such as API program director, but always explicitly governs APIs. Market Implications: API product managers will increasingly rely on the dedicated functionality of API management platforms, which will become more and more common, and will frequently appear in application infrastructures (both on-premises and in the cloud). CIOs and chief digital officers (CDOs) will become much more interested in API usage because of the new business opportunities that they open up. This is making it easier to fund the API product manager role. Managing business demand for API evolution and setting priorities that maximize value for the company will take an increasing slice of API a product manager's time. Innovative companies will leverage the business development side of the role more and more. API product managers will play a fundamental role in the business success of digital strategies and, conversely, enterprises will find it more difficult to execute their digital strategies without an API product manager. Page 10 of 13 Gartner, Inc. G

11 Recommendations: CIOs, CDOs and application leaders implementing digital business strategies and governance should empower the API product manager to: Target developer markets by ensuring a high-quality and consistent API developer experience. Manage the API roadmap, prioritizing features by considering business priorities and investment trade-offs. Communicate to business stakeholders by articulating the business benefits of the API. Ensure value from API products by making sure the business development opportunities relating to the API are fully exploited. Related Research: "Create the Role of API Product Manager as Part of Treating APIs as Products" "From APIs to Ecosystems: API Economy Best Practices for Building a Digital Platform" "Top 10 Things CIOs Need to Know About APIs and the API Economy" A Look Back In response to your requests, we are taking a look back at some key predictions from previous years. We have intentionally selected predictions from opposite ends of the scale one where we were wholly or largely on target, as well as one we missed. On Target: 2016 Prediction: By 2018, the major impediment to delivering Mode 2 or systems-ofdifferentiation capabilities will be application governance practices that remain Mode 1-focused. As 2017 ends, there's a shift happening that's reflected in a prediction we've made for this iteration: that organizations will need to maintain (at least) two operating models. Over the past two years, we've seen PMOs and other entities try to enforce a single operating model and it has almost always been the traditional (read waterfall here) way of doing business. This has started to shift; most organizations now recognize that the traditional way of operating simply won't work in the digital world. Now it's time for bimodal application governance. Missed: 2016 Prediction: By 2018, 80% of organizations that widely adopt agile development will no longer require their traditional compliance-centric IT PMO and will disband it. Many of our clients are adopting agile, and based on our inquiries, many of them are adopting it at deeper levels in terms of how much of their work is being delivered in a product-centric, agile format. However, as we have noted in our bimodal and pace-layered research, most of those organizations continue to deliver in more than one "mode," using more than one governance model (see "How to Make Bimodal Application Governance Work") and therefore continue the operation of their traditional PMO. Gartner, Inc. G Page 11 of 13

12 We still believe, however, that as organizations continue to deepen the penetration of agile methods and the product-centric delivery model that accompanies them, the need for the IT PMO that focuses on compliance and project delivery will become less necessary, and the shift to an enterprise PMO that is focused on the implementation of business strategies via product management will become more prevalent. Gartner Recommended Reading Some documents may not be available as part of your current Gartner subscription. "How to Make Bimodal Application Governance Work" "How to Lead Organizational Change in an Application Organization" "Bimodal IT Is Essential to Successful Application Rationalization" "Which New and Old Applications Will Enable Digital Business?" "Moving From Project to Products Requires a Product Manager" "Product Managers Are Key to Digital Business Success" "From APIs to Ecosystems: API Economy Best Practices for Building a Digital Platform" "Create the Role of API Product Manager as Part of Treating APIs as Products" "From APIs to Ecosystems: API Economy Best Practices for Building a Digital Platform" Page 12 of 13 Gartner, Inc. G

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