Executive Summary: ISG Provider Lens™ Mainframes - Services and Solutions - U.S. Public Sector 2023
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Cost and need for digital services drive demand
The mainframe service market continues to grow as per ISG’s expectations for both conventional mainframe outsourcing and consulting services as enterprises migrate their mainframe applications to the cloud. With clients under pressure to reduce their mainframe costs, several service providers are addressing the increasing demand to free business data that resides in mainframe systems .
From a high-level perspective, all companies are moving data from on-premises infrastructure to the cloud to leverage advanced analytics, AI, ML and data lakes.
Demand for better experiences: There is growing demand for modernizing government systems within the public sector. Constituents have come to expect a certain level of digital experiences defined by the private sector and want their governments to provide a similar experience. According to a 2021 NASPO study, 89 percent of state CIOs still have mainframes as part of their IT infrastructure. This is driving the need for greater data access and improved experiences requiring more modern mainframes. The demand is particularly acute at human service agencies including education and unemployment services, which were hit particularly hard by the pandemic.
Public sector technical debt: Mainframe reliability and consistently tight government budgets have led to a significant amount of technical debt around mainframes. Many government agencies have opted not to upgrade to more modern software versions, leaving an increasing gap between current software versions and older ones still running on agency machines. This scenario makes modernizing these systems, more complicated, time-consuming and expensive.
Mainframe cost pressure: Mainframe costs continue to rise, driven by independent software vendors (ISVs). After Broadcom acquired CA Technologies in 2018, it changed the pricing strategy of mainframe software. Faced with high software maintenance fees, clients are seeking ways to replace tools from CA Technologies. Mainframe license optimization requires expert consulting that most study participants can provide.
Funding for infrastructure upgrades: Even though funding for large IT systems within state and local governments is traditionally hard to obtain, new funding sources have become available. These are attributed to the America Rescue Plan Act of 2022 and the Infrastructure Investment and Jobs Act. While agencies now have money, they remain hesitant to deploy these funds. Typically, budget-neutral projects and ones with immediate cost savings are prioritized for approval.
Low supply of qualified developers for mission-critical systems: Although mainframes are still core systems for state governments, the expertise required to maintain them is tough to find.
Mainframes seldom scale like cloud: Many clients believe their mainframes are scalable. However, most mainframes run at 90 percent CPU utilization and at more than 70 percent of disk capacity. Mainframes do not have available resources for rapid changes in demand.
Upgrading requires negotiating with IBM to release more computing power. Conversely, the public cloud offers instant scaling by replicating the applications on more virtual machines. In the cloud, scaling is automatic and infinite. The new trend is to leverage cloud-native technologies, such as containers and Kubernetes to automate and accelerate horizontal scaling even further.
In 2020 and 2021, the limits of mainframes became evident for government agencies that could not scale and respond to citizens’ demands. The increase in mainframe utilization has caused minor system disruptions in the U.S. These events also contributed to the growing interest in migrating mainframe applications to the cloud.
Smaller agencies with less complex and mission-critical mainframes are more likely to move more quickly to the cloud. Larger agencies with more critical and complex systems are more likely to take incremental steps toward modernization.
The modernization and transformation market is mature in terms of knowledge and capacity to deliver robust mainframe migrations. At the current pace, these migrations would need many years to impact mainframe hosting services. ISG expects the number and size of migration projects to grow exponentially in the next three years. In some cases, these projects are partially funded by partnership programs provided by hyperscalers to generate more demand for their services, leading to more projects.
Competing modernization methods to continue to co-exist: Although the market refers to 7Rs (rehost, refactor, reengineer, rearchitect, rewrite, replace or retire), clients use three modernization methods to run their legacy mainframe applications in the cloud – rehost, compile and rewrite. Rehost platforms emulate mainframes in the cloud without any changes to application code, with the option to migrate mainframe data to other databases. Compile methods interpret the legacy code to generate runtime code to run the application in the cloud without application logic changes. In these two methods, clients continue to develop and maintain COBOL applications. Rewriting applications involves reverse engineering to create specifications and write new applications with the same logic while incorporating new innovations. In these three methods, all processes are automated and involve several testing cycles to ensure equal functionality and performance. Some vendors mix these methods, but they all enable clients to decommission their mainframes.
Rehosting is a good fit for stable legacy applications that don’t require updates and changes. It is fast and secure and helps lower costs. Compiling can be more suitable for stable applications that can be decomposed into microservices to facilitate greater data access. In both methods, companies retain their COBOL expertise. Rewriting can fix applications that require constant bug fixes, improvement and support. Clients should evaluate the best mix of vendor technologies on a case-by-case basis.
Incremental offerings: In general, public sector agencies are slow to implement a mainframe modernization strategy. To help risk-averse clients embark on this journey, many vendors offer a continuum of services with incremental steps toward more modern solutions. Depending on risk tolerance and the critical nature of the systems to be modernized, agencies can engage with a vendor in steps. The first step is often to provide operations services that can lead to incremental modernization of infrastructure and applications, which positions these systems for eventual migration to the cloud. In some cases, providers expect cost savings in the early steps of the process to finance additional investments in modernization and additional cost savings. This approach is particularly attractive to public sector agencies that are more likely to approve budget-neutral projects.
Numerous partners for leading modernization providers: The top providers can migrate mainframes to the cloud, partner with many tool vendors and deliver consulting, planning and project management to ensure project success. They also partner with public cloud providers and can run proof of concept (PoC) projects.
Improving capability of language translation tools: Language translation tools have been around for many years, but AI growth is improving the performance of these tools. Hyperscalers such as Google, AWS and Microsoft are investing in these more advanced tools. Service providers’ abilities to access these tools, combined with internal expertise, should drive significant efficiencies in the application modernization space.
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