Developing a Cloud Strategy for Digital Transformation: Hybrid Cloud and Beyond

White Paper Developing a Cloud Strategy for Digital Transformation: Hybrid Cloud and Beyond Sponsored by: DellEMC Richard L. Villars September 2016 IDC OPINION For organizations undertaking digital transformation at the business level, cloud isn't just about picking from a specific set of product or service delivery models such as public, private, or hybrid cloud. These organizations must complete the shift to a predominantly cloud-based IT environment in the next few years, and one of the most important elements in this shift will be the extending of value for missioncritical applications (key data sources) through cloud enablement products and services. Developers and business leaders expect their IT teams to automate the provisioning of tuned IT resources for new cloud-native, mobile, analytic, and IoT workloads at the right locations while leveraging existing IT and data assets to extend business value and reduce operational costs. Achieving these goals will require the selection of a cloud service broker, not just a provider of hardware (HW), software (SW), or software as a service (SaaS). This facilitator must deliver a portfolio of integrated HW/SW optimized for cloud enablement and cloud-native development while providing monitoring, service management, and data control capabilities needed to support multiple cloud/datacenter options. Most importantly, a cloud facilitation partner must also be in the position to provide transition financing, so organizations can painlessly and quickly shift their procurement and budgeting policies and practices to more cloud-attuned models. Dell Technologies, through its combination of EMC and Dell enterprise products as well as its Virtustream and Pivotal businesses, is in a strong position to deliver IT solutions that speed the creation and maintenance of transformational mobile-first and analytic-intense applications while lowering costs and improving the agility of existing apps. The company also offers an innovative portfolio of consumption-based procurement/financing options that reduce the barriers to cloud expansion and enable closer alignment of infrastructure investment with business outcomes. DIGITAL TRANSFORMATION DRIVES SHIFT TO CLOUD-BASED IT Enterprises must be ready to engage in a continuous digital transformation process as they adapt to or drive disruptive changes. This digital transformation involves enterprisewide innovation in one or more of the following areas: organization (i.e., workforce), omni-experience (i.e., customers), operating model (i.e., business model/process changes), information (i.e., data exploitation), and leadership. From a technology perspective, the adoption of cloud-based IT systems and services is the foundational transition that underpins all of these innovation efforts. The purposes driving organizations' cloud efforts are to more closely align consumption of IT and resources with business September 2016, IDC #US41688116

activities and provide a platform for agile development and enhancement of the new engagement and analytic-based services underpinning digital transformation. The Quickening Pace of the Cloud Transition IDC conducts an annual survey of IT, development, and line-of-business (LOB) leaders around the world to gauge their pace of cloud adoption. Figure 1 presents the summary of worldwide results concerning current and planned (two years later) IT budgeting based on procurement and management models (e.g., on-premises versus off-premises and cloud versus more traditional models). FIGURE 1 IT Budget Redistribution to Cloud Q. Please estimate what percentage of your organization's total annual IT budget is allocated to each of the following procurement/management models. Today External cloud: 22.0% In 24 months External cloud: 32.1% (45.8% growth) Provider site: 43.4% Traditional outsourced 21.4% On-demand HPC Public 5.5% cloud 10.5% Dedicated HPC 6.1% Traditional outsourced 16.3% Public cloud 13.6% On-demand HPC 8.9% Dedicated HPC 9.6% Provider site: 48.4% (11.4% growth) Enterprise private cloud: 7.8% Enterprise private cloud: 10.9% Customer site: 56.6% Traditional in-house deployment 48.8% Traditional in-house deployment 40.7% Customer site: 51.6% Noncloud: 70.2% Cloud: 29.8% (Public + Private) Noncloud: 57.0% Cloud: 43.0% (44.2% growth) Public cloud, including on-demand hosted private cloud Private cloud, including enterprise private cloud and dedicated hosted private cloud Traditional noncloud IT spending n = 11,350 worldwide respondents Note: The data is weighted by GDP and company size. Source: IDC's CloudView Survey, January 2016 The message from this survey is quite clear. Today, we are already at the stage where switching to a cloud-based IT strategy is a necessity for survival, not just a strategy for competitive advantage. 2016 IDC #US41688116 2

Organizations around the world will need to complete the shift to a predominantly cloud-based IT environment in the next few years, but one of the most important elements in this shift will be the extending of value for mission-critical applications (key data sources) through cloud enablement products and services. Working Hard to Not Get Lost in the Clouds Results from IDC's CloudView Survey also make it clear that during this transition, organizations intend to spread their cloud investments across a multitude of options: some in their own datacenters but increasingly on a mix of shared and dedicated IT assets in service providers' datacenters. As shown in Figure 2, organizations are allocating 70.6% of their annual IT budgets across multiple cloud options. The only significant pool of "single cloud type" consumers is organizations relying exclusively on public clouds. This pool consists primarily of smaller start-ups that were "born on the cloud." FIGURE 2 Dominance of Multiple Cloud Deployments Q. Please estimate what percentage of your organization's total annual IT budget is allocated to each of the following procurement/management models. Today Enterprise private cloud only In 24 months Enterprise private cloud only 7.5% 2% 70.6% Multiple cloud deployments 91.7% Multiple cloud deployments 16.9% 4.9% 4.8% 2% Public cloud only Hosted private cloud only Public cloud only Hosted private cloud only n = 11,350 worldwide respondents Note: The data is weighted by GDP and company size. Source: IDC's CloudView Survey, January 2016 2016 IDC #US41688116 3

Two years from now, the percentage of budget that organizations spread across multiple cloud options will reach 91.7%. A deeper dive into the public cloud option also reveals that a significant driver of this increase is the greater use and development of cloud-native PaaS and SaaS offerings in core business services, not simply a shift in infrastructure spending to IaaS. Organizations' cloud plans must become more diversified, not more monolithic. The most obvious conclusion drawn from this analysis is that the future strategy for organizations is hybrid cloud. The goal for adopting a hybrid cloud solution is to ensure a controlled transition to a cloud model while maintaining control over data and application security. When we spoke with CIOs about their existing cloud environments, two shortcomings quickly emerged: CIOs' current thinking often positions hybrid cloud as either a combination of on-premises private cloud and off-premises hosted private cloud or a combination of off-premises hosted private cloud and public cloud. This dichotomy frequently leads to fragmentation in cloud investment decisions and partner assessments. CIOs' existing hybrid cloud portfolio (e.g., a mix of private cloud and multiple public cloud IaaS and SaaS) was not assembled based on a coherent business/it strategy; rather, it describes a situation that CIOs need to deal with going forward. The scattershot approach to the cloud portfolio up to now poses significant talent and asset management challenges. CIOs and the IT teams must embrace the task of integrating and managing diverse sets of cloud environments (cloud enabled and cloud native) in many different locations, and they need a partner that can facilitate the transition to a cloud-based IT environment. FUTURE OUTLOOK Developers and business leaders expect their IT teams to automate the provisioning of tuned IT resources for cloud-native, mobile, analytic, and IoT workloads at the right locations while achieving maximum reuse of all their IT and data assets as cloud-enabled applications evolve. The development of a dynamic, diversified cloud-based IT transition strategy that coordinates the use of all cloud options to achieve specific business purposes will be a key driver of organizations' digital transformation efforts. Shifting to cloud-based IT isn't just about picking among a specific set of product or service delivery models such as public, private, or hybrid cloud. IT organizations must deliver a diversified portfolio of cloud services (on-premises and off-premises), improve their ability to manage a growing range of cloud-native and cloud-enabled data and application assets in multiple internal and third-party datacenters, and develop a hybrid IT and developer operations model. These organizations must also realign their cloud selection and operations strategies to address a specific set of goals: Reduce staff and financial resources dedicated to planning, managing, and executing upgrades, patches, and migrations at the hardware, system software, and application levels. Achieve a high level of data control and data insight to ensure the secure use of data and sustained extraction of value from diverse information in cloud-based content repositories. Develop standardized and modularized systems that can be securely deployed and managed as a "fleet" of local cloud assets for secure, low-latency delivery of cloud applications to critical business and customer locations around the world. 2016 IDC #US41688116 4

Achieving these goals will require the selection of an IT partner that provides products and services designed to address these goals. These solutions must enable: Implementation of a consistent management, security, and governance framework across diversified and distributed application and data assets within cloud systems and critical noncloud systems Development and continuous refinement of best practices for cloud portfolio management, including robust service evaluation, cloud service provider selection, governance, and performance-monitoring practices Standardization of infrastructure hardware and software deployed in dedicated cloud environments to enable agile infrastructure and application development/delivery Simplified selection of cloud and hosted services with a range of resource tenancy and management options as well as transition assistance related to financing and network rationalization DELL TECHNOLOGIES' APPROACH TO CLOUD: FACILITATING TRANSFORMATION Dell Technologies is a leading provider of IT solutions for enterprises and cloud service providers. Following the merger of Dell and EMC, Dell Technologies has a broad portfolio of infrastructure hardware and software solutions that make it possible for enterprises to create and maintain transformational mobile-first and analytic-intense applications while lowering costs and improving the agility of existing apps. Key products in the portfolio include: A wide range of converged, hyperconverged, and engineered systems designed to enable high-performance, agile IT infrastructure for noncloud, cloud-enabled, and cloud-native workloads while reducing operational costs and boosting reliability A portfolio of broad-range cloud orchestration and management platforms that enable the adoption of rapid application development and secure integration of existing applications and data sets with new services A portfolio of storage and data management solutions that provide a framework for robust data governance practices (These solutions extend across all cloud options to ensure consistent service delivery and data control regardless of the range of infrastructure and platform resources supporting any specific application.) Dell Technologies also understands that in cloud-based IT, the traditional funding, procurement, and amortization practices associated with IT hardware and software can be major barriers. In response, the company has created an innovative portfolio of consumption-based procurement/financing options that reduce the barriers to cloud expansion while enabling closer alignment of infrastructure investment with business outcomes (see Figure 3). 2016 IDC #US41688116 5

FIGURE 3 OpenScale Payment Solutions Source: Dell Technologies, 2016 CIOs and their IT teams face the daunting task of integrating and managing diverse sets of cloud environments in many different locations. Dell Technologies has two businesses positioned to ameliorate these challenges Virtustream and Pivotal. Virtustream provides a range of professional managed services and public cloud integration and support that can speed decisions about optimal cloud enablement for all workloads. Pivotal is focused on the application layer, creating and developing cloud-native applications and transforming the development process. Dell Technologies' goal is to deliver a range of cloud service and professional services solutions that enable effective management of resources and data across all cloud types. Dell Technologies helps organizations create clearly defined and articulated IT service management policies and practices including standard configurations, service catalog definitions, and maintenance schedules. Dell Technologies aims to enable digital transformation by providing a broad range of solutions and services. As customers mature and progress in their cloud implementations and overall evolution, they require more than simply a provider of hardware, software, or software as a service and more than just a reseller of cloud services from a range of providers. They need a consultative partner that provides monitoring, service management, and data control capabilities needed to support a wide range of cloud/datacenter options. Such a facilitator must also be in the position to provide transition financing so that companies can more painlessly and quickly shift their procurement and budgeting policies and practices to more cloud-attuned models. 2016 IDC #US41688116 6

Challenges and Opportunities for Dell Technologies IDC sees a number of challenges and opportunities for Dell Technologies as it continues to expand its cloud product and services portfolio. These include: Managing business integration. Dell Technologies is bringing together a very broad range of infrastructure hardware and software solutions. While having a broad portfolio is important in the world of cloud-based IT, it can also create confusion and migration challenges for customers and prospects. Specifically: Joint portfolios of EMC and Dell The portfolio of professional/support services and partnerships with companies such as Pivotal, Virtustream, VMware, Microsoft, and Cisco To manage the broad array of solutions, Dell Technologies delivers clear road maps on product directions and partnership plans to ease customers' decision-making process. A successful transition will put Dell Technologies in a strong position to be a leading long-term cloud service broker for enterprises around the world. Addressing multiple customer bases. The shift to cloud-based IT is occurring across all industries (including service providers themselves) and within companies of all sizes. Dell Technologies must develop cloud-based IT products and services that address the specific needs of small and medium-sized businesses (SMBs) as well as large enterprises and government agencies. The company must also expand its presence in the growing base of regional and industry-specific clouds that customers will need to exploit in the coming years. Attacking the cloud marketplace with a portfolio that addresses the entire market from SMBs to global multinationals as well as client-based markets associated with IoT is an important opportunity in this time of digital transformation. FINAL THOUGHTS Organizations with aggressive digital transformation agendas must make "cloud first" the mantra for enterprise IT. For CIOs and their IT teams, embracing the tasks of integrating and managing diverse sets of cloud environments in many different locations is critical. It requires clearly defined and articulated IT service management policies and practices, including standard configurations, service catalog definitions, and maintenance schedules. The most consistent and recurring barriers to the effective use of cloud-enabling and cloud-native solutions remain security, visibility, governance, and policy control elements. Security and governance practices and policies must extend across all cloud options to ensure consistent service delivery and data control regardless of the range of infrastructure and platform resources supporting any specific application. The IT team must also develop and continuously refine best practices for cloud portfolio management, including robust service evaluation, partner selection, governance, and performance-monitoring practices. At that point, the IT team itself will be in a strong position to serve as the cloud services broker, enabling digital transformation for its line-of-business colleagues. 2016 IDC #US41688116 7

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