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Why IT debt is mounting

Why IT debt is mounting

Global companies were sitting on $7 trillion in cash and equivalents at the end of 2013, more than twice the level of a decade ago

This vendor-written tech primer has been edited by Network World to eliminate product promotion, but readers should note it will likely favor the submitter's approach.

Global companies were sitting on $7 trillion in cash and equivalents at the end of 2013, according to Thomson Reuters data, an eye-popping figure more than twice the level of a decade ago. But while businesses continue to stockpile cash, they are quietly assuming an unspoken debt IT debt.

The term IT Debt has been in circulation for years, but the phrase is often misunderstood and misused. Promoted by Gartner as far back as 2010, IT debt is perhaps best described as, "applying a quantifiable measurement to the backlog of incomplete or yet-to-be-stated IT change projects."

IT debt poses challenges across the organization, but the pain point is most acute for CIOs charged with not only setting technical direction for the company, but who are also responsible for IT projects that can if managed and budgeted poorly lead to substantial IT debt. The issue is not lost on CIOs. A 2014 Vanson Bourne survey of 590 CIOs and IT directors estimates an average of $11 million in mainframe application IT debt, an increase of nearly 29% from 2012 levels.

The notion that a company has a backlog of IT projects is not hard to grasp. IT maintains a list of work items, prioritizes these items, and works through this list in the same way any functional area of an organization might.

The root causes of IT backlogs unearthed by research and also suggested by customers, partners and commentators are wide and varied. They include:

* Historical IT investments. The IT world is highly complex; supporting this complexity is an onerous task and previous IT investment decisions may have been a good idea at the time but are now a high burden to keep running.

* Current IT prioritization. With 70% of all IT spend typically directed to keeping the lights on,' clearing the backlog isn't perceived as being a revenue-generating activity, and thus it may go under the radar in favor of more customer or revenue-centric initiatives. A strategy that sensibly and appropriately invests in what is a housekeeping exercise is not easy to justify.

* Human Resources. The lack of appropriate skills is another potential issue, because identifying the solution is one thing but getting staff to resolve it can be quite another. Building a solution to a requirement the basis of which requires very specific know-how might be seen as too difficult or costly to resource.

* Unplanned Backlog. Pre-ordained, planned work on the backlog is one thing, but IT priority is seldom isolated from the business in this way. Organizations are at the mercy of shareholders, corporate events, regulatory bodies and even the judiciary. Compliance projects and M&A activities typically find their way to the top of the list unannounced, pushing other backlog activities further down the list.

* New Technology/Innovation. Many CIOs and IT Managers will point to the external pressures such as the disruptive technologies companies must work with to maintain market share that are causing them to delay other tasks.

* Improvement Process. With no rigor for monitoring and controlling the application portfolio, it is often harder to plan and prioritize application backlog activities systemically. Gartner suggested this in 2010, and more recent research concludes that only half of organizations have an appropriate process for managing the portfolio this way.

* Vendor Relationships. Filtering the must-do from the nice-to-have and ensuring the right technical and 3rd party strategy is in place is an important IT task. Not adding to the longer-term backlog as a result of procurement decisions remains an important and ongoing challenge for the organization's senior architects and decision makers.

Understanding potential root causes of IT debt leads to a greater likelihood that CIOs can address it in a meaningful and sustainable way. Strategies that can assist CIOs in reducing IT debt include:

* Don't rush to rip and replace' existing systems. CIOs who feel trapped in a cycle of tackling maintenance tasks and firefighting are tempted to schedule a future overhaul/rewrite of technological assets. But rewriting or re-engineering working systems costs time, money, is fraught with risk and, ultimately, will not alleviate IT debt. At the same time, ripping out perfectly good business applications and replacing them with new code that may or may not do exactly the same job doesn't seem wise either.

Instead, CIOs must gain a deeper understanding of the scope of the problem and employ a pragmatic approach to fixing processes without jeopardizing existing services or adding to the backlog. An optimal starting point is focusing on the backlog at a systemic level. Isolating and planning backlog busting projects is facilitated by new incarnations of application knowledge technology, and smarter tools for making application changes.

* Laser in on IT debt culprits. The Vanson Bourne survey reaffirms the mainframe is likely to hold the majority of the out-of-date software in an organization and that organizations have let their mainframe applications get even more out of date suggesting that many are not maintaining their mainframe applications, let alone overhauling them.

This would not be an issue if reliance on mainframes was expected to decrease, but survey respondents expect their organizations to continue relying on mainframe applications for another ten years, with almost a third (32%) believing it to be longer than this.

However, despite the perceived longevity of mainframe applications and mounting IT debt, the majority (81%) finds it difficult justifying the expense of maintaining core applications and only 10% confirmed they are always successful in their justification. As a result, roughly half (51%) of CIOs admit their business is exposed to compliance and risk issues.

That said, it doesn't follow that mainframe owners, or those running legacy applications, are grappling with IT backlogs more than anyone else. Indeed, frequently the opposite is true. While average estimates for IT Debt grow with company size, this trend applies to the entire portfolio. Taking the mainframe portion alone, the largest companies actually witnessed a drop, making its percentage contribution towards IT Debt much lower than the smaller companies.Correlating any link between the choice of platform and the consequent presence of IT Debt is misleading, and instead CIOs should laser in on IT debt culprits specific to their organization, rather than some broader trend hypothesis.

* Recognize potential of IT as innovative department. Core mainframe applications are often the lifeblood of the organization, yet the burden of IT debt is on the increase. A major factor in this is that many non-IT people assume IT innovation only means brand new technology, rather than improving existing critical applications. The IT leadership challenge is to find smart ways to blend innovation projects with protecting and evolving their critical systems.

When it comes to spending on keeping the lights on' versus innovation,' the Vanson Bourne survey signals some change is underway. While 41% of respondents' IT budgets are spent on innovation today, CIOs predict this share to rise to 47% of budgets in three years time. Translation: the IT department is becoming less focused on support and maintenance and more focused on being innovative.

The survey indicates that perspective within and outside of the IT department goes a long way in determining how CIOs might direct the time and resources of IT personnel. Some 61% of IT thinks they are integral to business delivering innovation, support and maintenance (50% outside of IT department); 30% of IT thinks IT is a support organization (36% outside of the IT department); and only 28% of respondents associate IT innovation with updating legacy applications, as opposed to addressing mobile access, user experience and quick development/deployment.

This means that de-prioritizing legacy application modernization can impede the ability of CIOs to reduce IT debt. To fight this perception, CIOs must rethink what it means to innovate.

* Skills gap can exacerbate IT debt. Six out of seven (84%) IT decision makers surveyed by Vanson Bourne confirm it is difficult to find staff or new recruits with mainframe application skills, and predict that an average of 14% of staff members currently responsible for maintaining mainframe applications will retire in the next five years. Businesses must work with academia and government to rebuild a pipeline of programmers and IT professionals who understand mainframe applications and critical languages for application modernization, such as COBOL.

IT backlogs are not mainframe-specific, and correlating any link between the choice of platform and the consequent presence of IT debt is misleading. Taking a more balanced view of tackling the factors contributing the backlog avoids unnecessary risk in a long-term strategy for operational improvement. Embracing change by seeking to enhance existing, valuable IT assets using smarter processes and technology enables backlog to be managed effectively, and without introducing unnecessary risks to the business.

Micro Focus provides innovative software that allows companies to dramatically improve the business value of their enterprise applications

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