Innovations in Vertical Markets Drive the Evolution of Smarter Networks

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1 Innovations in Vertical Markets Drive the Evolution of Smarter Networks Market Advisory Report Ashok Kumar, Director, Custom Research and Joel Stradling, Research Director, Business Network & IT Services May, 2014 Current Analysis ( Washington, D.C. Paris, France Phone: ; Toll free: Phone: +33 (0) Current Analysis, Inc. All rights reserved

2 Introduction The information technology industry has seen many years of cost-cutting measures as enterprises globally have tried to cope with the Great Recession through With that in the rearview mirror, enterprises of all sizes small, medium and multi-national corporations (MNCs), are starting to commit time and resources to innovation in an effort to create greater value, increase productivity, and drive down costs. Innovation in today s digital economy is technology-led and for many enterprises it is information technology-led. As part of its ongoing research practice around competitiveness and innovation, Current Analysis conducted a survey of 100 MNCs to better understand their key initiatives around innovation and the business drivers impacting IT investments and network services. This report draws out the key takeaways with implications for MNCs and the IT vendors and network service providers that serve them. Highlights from the Current Analysis survey are as follows: The 100 enterprises surveyed ranked reach and globalization as the highest drivers to produce the most positive business outcome in the next three years, with 28% of the respondents stating it as top-ranked among nine different factors to address innovation at their enterprises. Sales and marketing departments lead the innovation initiatives in almost half (49%) of the MNCs surveyed across eight vertical market segments. 70% of all enterprises stated that access to more bandwidth improves efficiency and speeds innovation at their organizations. Cloud enablement was ranked the highest of the IT enablers for innovation by 34% of the MNC respondents, 24% ranked mobility next, then followed closely by analytics/big data capabilities at 23%. Mobility enablement is expected to have the greatest degree of impact on the network requirements with 48% of the respondents rating it on scale of four or more, on a five-point scale. The top three workloads deployed on public cloud services for all the enterprises surveyed include: Enterprise applications of CRM & ERP (53%), & calendaring services (51%) and unified communications and collaboration (45%). 74% of the enterprises stated security as the one of the most important factors in network purchasing decisions. Innovation Initiatives Vary Across Vertical Industries Current Analysis surveyed IT decision makers in multi-national corporations, with 2,500 employees or more, in three world regions of North America (NA), Europe & Middle East (EMEA) and Asia-Pacific (APAC). The survey respondents were from eight vertical markets that included: Banking; Finance & Insurance; Business Services; Healthcare & Pharmaceutical; Consumer & Retail Services; Manufacturing & Logistics; HiTech/IT/Electronics; and Media & Entertainment. The quantitative part of the survey research was supplemented with select indepth discussions with large global corporations as a reality check to the survey results. The research found that there were some common business drivers across all vertical markets. Ranked among the top three critical business drivers for information technology investments by 71% of the respondents were increase in revenues, reducing expenses/cost containment, and reducing operational risks, in that order. The key innovation drivers however vary by specific vertical markets as shown in Figure 1 below. Europe: +33 (0)

3 Figure 1: Key Innovation Drivers in Vertical Markets Business Services Cloud services Mobility enablement Ultra-networked Banking, Finance & Insurance Payment Processing mbanking Common Business Drivers o Increasing revenues o Cost containment o Reducing Operational risks Media & Entertainment On-demand/realtime multicasting Video streaming Innovation Drivers Common Business Drivers in Vertical Markets Consumer & Retail Services Personalization Omni-channel Experience mcommerce Manufacturing & Logistics and HiTech/IT/Electronics Process automation M2M communications Healthcare & Pharmaceutical Home-health/mHealth Drug trial outcomes Medical robotics To elaborate on how the innovation trends and IT needs in the vertical markets might impact network service requirements, the following is a summary from the research: Changes in payment and transaction processing, with the associated increase in the need for authentication, drive greater security requirements in banking, finance & insurance segments. 100% of the finance and insurance firms surveyed by Current Analysis indicated that security was the most important factor in their network purchasing decisions. Personalization and omni-channel shopping experience initiatives in retail services result in increased data generation with more access and network bandwidth needs, as well as privacy requirements. mcommerce presents retailers with a huge potential opportunity to innovate with network-enabled, location-based services information. The online retail sales growth drives up the needs for coverage/reach, bandwidth, applications and context awareness in the networks. 82% of the consumer and retail services firms surveyed mentioned service quality as the most important factor in their network purchases. The increase in home healthcare monitoring for patient care, mhealth and remote diagnostics create more need for access and bandwidth, at the same time increasing compliance and regulations drive more network security requirements. Security was stated as the most important factor in network purchasing decisions by 79% of the healthcare and pharmaceutical firms in the Current Analysis survey. Manufacturing process automation utilizing machine-to-machine (M2M) and robotics, as well as using collaboration technologies for global teams puts demands on the network for greater speeds. The increased manufacturing and process automation need higher network quality of service for Europe: +33 (0)

4 mission-critical applications. 88% of the manufacturing and logistics firms surveyed stated that access to more bandwidth/speeds can help improve efficiency at their enterprises. Video streaming explosion and multicasting needs in the media and entertainment industry demands higher availability and resiliency of the network. Two-thirds (67%) of the media and entertainment firms surveyed expect high network availability guarantees. Network outages directly affect monetization on a real-time basis due to time-sensitive nature of content. Business services sector innovation and competitiveness is fueled by the advances in mobility and cloud services creating needs for applications-aware networks on a pay-as-you-go basis. Advances in technology allows service-oriented enterprises the ability to optimize staff and specialized talent resources globally in an ultra-networked environment. In the Current Analysis survey 79% of the business services firms surveyed, identified mobility enablement as having the highest degree of impact on their network in the next three years, when compared to 46% for all enterprises. Business Drivers and Innovations Research Results As to where the innovation ideas are springing from in the enterprises, the survey showed that sales and marketing combined lead the way in almost half (49%) of the respondents organizations. Regional differences do exist, in that EMEA (53%) and APAC (55%) respondents saw sales and marketing leading the innovation in their enterprises, more so than NA firms (38%). Two vertical markets stood out as respondents in insurance & finance (72%) and consumer & retail services (64%) saw sales and marketing leading the way in innovations in their enterprises. This might be related to the ever-changing and dynamic nature of the highly competitive sales environment in these two vertical markets. A point to note is that although the innovation ideas might not originate in IT, the support and leverage of IT infrastructure will be required to execute on the innovation plans. Figure 2 below shows the distribution overall of the respective departments lead innovations at their enterprises. Figure 2: Where Does Innovation Come from within the Enterprise? Which department leads innovation within your enterprise? Sales 27% Marketing 22% Purchasing 2% Finance 3% Manufacturing 4% Executive Management 10% (% of Respondents, n=100) Operations 16% Information Technology 16% Source: Current Analysis, Inc., Business Drivers and Innovations Research, March 2014 The enterprises surveyed ranked reach and globalization as the highest drivers to produce the most positive business outcome in the next three years, with 28% of the respondents stating it as top-ranked, shown in Figure 3 below. This is consistent with the top ranking of increasing revenues being the most critical business driver Europe: +33 (0)

5 for IT investments at their enterprises, as globalization opens up new markets for MNCs. Almost one-third of the enterprises in the APAC region ranked reach and coverage for producing the most positive business outcome in the next three years vs. EMEA (28%) and NA (24%). From a vertical market perspective, 67% of media & entertainment industry respondents value reach and coverage highly due to the greater ability to deliver content globally anywhere. Insurance & finance values agility/flexibility more with 71% of the respondents stating that as the highest priority. This could be due to the high volatility in the demands for services within the insurance & finance industry segment. Figure 3: Most Positive Business Drivers in the Next Three Years Which of the following do you believe will produce the most positive business outcome for your enterprise in the next three years? Reach and coverage for globalization Reduction in cost due to IT operations Agility/Flexibilty for varying demands Providing employees easy access to data Mitigating risks to corporate information Automating compliance to regulations Streamlining exchanges with suppliers Providing mobile access of IT apps for customers Providing mobile access of IT apps for employees Source: Current Analysis, Inc. - Business Drivers and Innovations Research, March % 5% 10% 15% 20% 25% 30% % of Respondents n=100 Enterprises in the various industries are following different approaches to innovation, so the IT vendors and service providers hoping to ride the new wave of business-driven investments need to take business-led approach to positioning their services in the particular markets. The approach needs to be adapted to align with the particular innovation drivers found in each specific vertical market. Awareness of where the innovation ideas spring from within the enterprises is extremely important for the IT vendors and service providers to understand and position service values accordingly. IT Enablers in Support of Innovations The Current Analysis survey delved into the IT enablers support of innovations in enterprises. Cloud enablement was ranked as the highest of the IT enablers by 34% of the MNC respondents, 24% of the respondents ranked mobility enablement next, then followed closely by analytics/big data capabilities with 23%. Regional differences were observed with 45% of the NA respondents ranking cloud as the greatest enabler of innovation, whereas 31% of the APAC respondents looked to mobility enablement as the greatest IT enabler. Vertical industries that ranked cloud the highest for enabling innovation in their enterprises included insurance & finance with 57% of the respondents, and HiTech/IT/Electronics at 54% of the respondents in that segment. The top three workloads deployed on public cloud services for enterprises across all the industries surveyed include: Enterprise applications of CRM & ERP (53%), & calendaring services (51%) and unified communications and collaboration (45%). The relative significance of the IT enablers to support enterprise innovation is shown in Figure 4 below. Europe: +33 (0)

6 Figure 4: Technology Enablers of Enterprise Innovations Which of the following will be the greatest enabler of your enterprise's innovation initiatives? Cloud enablement of apps and services Mobility enablement Analytics/Big Data capabilities Social media networking Source: Current Analysis, Inc - Business Drivers and Innovations Research, March % 10% 20% 30% 40% % of Respondents n=100 The Current Analysis survey further investigated the degree of impact that the IT enablers are expected to have on enterprise network requirements in the next three years. Mobility enablement is expected to cause the greatest degree of impact on the network requirements with 48% of the respondents rating it on a scale of four or five, with five being the highest. Mobility enablement had the highest degree of impact on network requirements in business services with 79% of the respondents in that segment rating it four or five. In the insurance and finance segment, 71% of respondents also had mobility as having the greatest impact on the network requirements with a rating of four or five. Cloud enablement had the highest degree of impact on the network requirements in business services (69%), manufacturing & logistics (53%) and HiTech/IT/Electronics (50%) compared to overall respondents rating 44% a four or five. The mean score for the various IT enablers and their respective degree of expected impact on the network requirements is shown in the Figure 5. Europe: +33 (0)

7 % of Respondents n=100 Figure 5: Innovation Enablers Degree of Impact on the Network Requirements 40% 35% For innovation enablers, what will be the degree of impact on your enterprise's network requirements expected in the next three years? Least impact Slightly more impact Medium impact Greater impact Greatest impact 30% 25% 20% 15% 10% 5% 0% Mean score Source: Current Analysis, Inc., Business Drivers and Innovations Research, March 2014 Mobility enablement with the proliferation of devices, including sensors deployed in M2M applications, will require greater network reach of the wired and wireless networks. There is also increased need for security services with identity management, which in turn demands another layer of security from a trusted expert and governance in place to make sure there is adherence to the security policy. Vertical markets that are likely to see the highest degree of impact on their networks are ones with highly mobile workforce of business services, insurance & finance and healthcare & pharmaceutical firms. The increasing adoption of cloud services in enterprises will need re-configuration of the network. Direct connections to the private cloud services might be required from multiple locations of the MNCs, requiring re-architecting of the wide-area networks. Big Data/Analytics growth is likely to drive data center connectivity between two or more locations where large databases are housed. The demand will be for high-speed, low-latency network services between the data centers. Social media networking use in enterprises will require more multi-media networking for communications with customers and for internal communications between employees, driving up the bandwidth needs in enterprise networks. One of the most important factors in network purchasing decisions, security, ranked the highest with 74% of the survey respondents stating that security was very important, with EMEA respondents rating it as the most important factor in 81% of the responses. From a vertical market perspective, 100% of the insurance & finance respondents as well as 100% of those in HiTech/IT/Electronics ranked security as the highest factor in their enterprises network purchasing decisions. Fraud and loss of asset value with digital means, has increased the need for security in these vertical segments recently. 78% of the media & entertainment industry respondents rated resiliency of the network to outages as the highest ranking factor in their network purchasing decisions Europe: +33 (0)

8 versus this being ranked by only 25% of all respondents. Increasing use of video streaming in the media & entertainment to broadcast live events, has heightened the need for resiliency to network outages to maintain uptimes and viewer engagement. Figure 6 below shows the results for the network purchasing factors surveyed. Figure 6: Most Important Factors in Network Purchasing Decisions What are the most important factors in your network purchasing decisions? Security Service quality Total cost of ownership Backup & Disaster Recovery capabilities Advanced/Enhanced services Resiliency of the network to outages Ease of migration from existing infrastructure Responsiveness to non-standard/special requests 0% 20% 40% 60% 80% % of Respondents n=100 Source: Current Analysis, Inc., Business Drivers and Innovations Research, March 2014 As enterprises face changing business models they look to innovations for growth in the digital economy leveraging the IT enablers. To facilitate the IT enablers of cloud, analytics and mobility, networking plays a crucial role in connecting the applications with people resources. Globalization initiatives underway within MNCs are supported well with mobility enablement, but challenges remain for the enterprises in terms of coverage and secure access to corporate information resources from anywhere. IT decision makers at MNCs surveyed expressed that mobility enablement is expected to cause the greatest impact on their network requirements in the next three years. To support the innovation initiatives enterprises will need smarter networks with wide reach and scalability for the huge increase in mobile devices and sensors sending data back and forth for real-time information and analytics to corporate data centers. With MNCs looking to cloud enablement as the greatest IT enabler for the innovations in their enterprises, networks will need to be re-architected with direct connectivity to cloud and data centers. Looking ahead, new network platforms that can monitor and manage applications throughput and dynamically route based on mission-critical applications will be required. Network resources that are triggered by the demands of the applications, on flexible basis will be required. From a secure connectivity standpoint, enterprises are looking to use multi-protocol label switching (MPLS) and Ethernet virtual private network (VPN) for mission-critical applications traffic to their cloud and data centers, with increasing adoption of newer network services. In the Current Analysis survey more than two-thirds of the respondents (68%) ranked network availability guarantee as the most important criteria when reviewing vendor service-level agreements. Higher percentage of the respondents in the vertical segments of manufacturing & logistics (100%), business services (86%) and Europe: +33 (0)

9 consumer & retail services (82%) ranked network availability guarantee as the most important SLA criteria. Increasing virtual desktop implementations to support remote locations and workers will also require virtualized disaster recovery, driving the demand for higher availability and resiliency of the networks in the future. Service outage recovery ranked very high among respondents in banking, insurance and finance. Key Takeaways Customer innovations Sales and marketing departments tend to lead/drive innovation especially in consumer retail and banking/finance. Spend less, make more a common theme for all MNCs is that they expect the network and IT to drive down operational expenditure while at the same time drive up revenue and business performance. Mobility is a huge trend, from a mobile workforce, to new mobile apps and tools from mcommerce to mobile payments. Security remains king not a single MNC can afford to compromise on network security, and this is in fact an inhibitor of innovative applications of network and IT including limiting what MNCs are willing to do with cloud. Real-time, automation and big data are all buzzwords that are on the cusp of going big in the industry. Real-time will be captured by Software Defined Networks (SDN)/OpenFlow, networks that can selfprovision and, traffic reroute and repair in an automatic fashion, and all data become a valued actionable resource. For enterprises The innovation initiatives vary across vertical markets with some common drivers. The information technology enablers to support the innovations and business objectives, need to be customized to fit particular vertical market s needs. Enterprise innovation is spurred by plans to invest in the IT enablers in the areas of cloud, mobile devices and sensors and analytics. MNCs with globalization initiatives should evaluate network service providers with on-net presence in multiple countries that can provide regional networks to optimize paths intelligently with the minimum number of router hops. The ability to ship and install/manage CPE, and provision competitive local access are also important factors for consideration. The vertical industries requiring global reach according to the Current Analysis survey include manufacturing & logistics, consumer & retail services, and media & entertainment. Enterprises in the security and privacy conscious vertical markets of banking, finance & insurance, healthcare & pharmaceutical, and consumer & retail services need to design their networks for endto-end secure connectivity and service visibility to meet increasing levels of regulatory and compliance requirements. MNCs expect to leverage the cloud infrastructure to support their innovation initiatives and deploy newer services and applications. This necessitates re-architecting the network design with direct Europe: +33 (0)

10 connectivity to data centers for providing the quality of experience for the applications. Enterprises will need to redesign their WAN and access networks for a cloud-optimized environment. Mobility enablement is expected to have the greatest degree of impact on the network requirements at MNCs. Vertical industries with large mobile workforces, such as business services and insurance & finance segments, will need to re-evaluate their networks to optimize for mobility enablement with associated increased needs of security and identity management for smart devices. Enterprises requiring rich multimedia communications, including high-end videoconferencing, should look for network solutions and service providers that can offer ample capacity with support for multiple differentiated quality-of-service (QoS). MNCs in media & entertainment and business services vertical industries have needs for video services with QoS assurances. For service providers and IT vendors Network service providers and IT vendors will need to align their product and services offerings in tune with the innovations and disruptions occurring in specific vertical markets. As an example, innovation in the banking, finance & insurance market is focused on the changes taking place in payment and transaction processing and mobile payments. Network services offered for this segment need to address the overriding need for security and identity management, including privacy compliance with increasing regulatory requirements. To address the needs of enterprises in the media & entertainment industry, network service providers and IT vendors must offer higher performance metrics of network availability guarantees and resiliency to service outage and recovery to meet the time-sensitivity that is closely tied to lost monetization. Cloud service vendors and network services providers need to work in close partnership as cloud adoption in enterprises grows and networks transform in the future to be more flexible yet offer improved performance for applications that are running on dedicated and public cloud platforms. Fifty percent of the MNCs surveyed stated total cost of ownership among the top three network purchasing decision factors. Innovative solution offerings from service providers and IT vendors, must validate the cost-benefit relationship in specific vertical market terms, with case examples. With the increasing adoption of multimedia in enterprise social media networks, end-to-end quality of service performance on a differentiated basis will be very important. Service providers need to provide customers with self-monitoring performance tools as well as management and capabilities for corrective actions in dynamic situations. Europe: +33 (0)