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Digital transformation isn’t only a key business strategy, it’s an inexorable force that every business in every industry must contend with. But digital transformation brings with it great advantages if the entire business rises to the challenge. However, in organizations today, there is a significant misalignment between business priorities and IT investments, hindering digital transformation initiatives and directly putting revenue at risk. Released today, MuleSoft’s second annual Connectivity Benchmark Report reveals this growing issue and the role of APIs in enabling digital transformation.

According to the 2016 Connectivity Benchmark Report, 66 percent of IT decision makers (ITDMs) said their company’s revenue would be negatively impacted within six months due to major challenges facing IT. The top challenges cited include business and IT misalignment (45 percent), time constraints (43 percent) and legacy infrastructure and systems (39 percent). As a result, many are turning to APIs to create reusable assets, such as applications, data and digital resources, in order to speed up the pace of business and beat out competition.

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Key highlights from the report include:

APIs are driving a cultural shift within businesses

APIs aren’t just changing how technologies work; they’re also changing the way businesses operate and behave, igniting a cultural shift away from centralized IT towards an agile and collaborative environment for lines-of-business (LOBs). In response to the added pressure to deliver IT projects more quickly, 91 percent of ITDMs have implemented an API strategy or plan to do so by the end of 2016, and 52 percent said a top driver for leveraging APIs is to increase business agility and enable LOBs to self-serve IT. This verifies that success today is no longer about implementing technology; it’s about figuring out how to scale technology across the entire organization to accelerate projects for LOBs. APIs are leading this cultural shift, which is key for any business looking to match the speed and agility required of today’s digital enterprise.

Advice for CIOs: Drive an API strategy that is focused on enabling more of your business apps developers to self-serve. Your IT department can avoid being a blocker to business projects while retaining governance over the data.

Retail IT budgets are rising faster than any other industry

For traditional retailers to survive in the age of Amazon, which is driven by data and powered by software, they need to digitally transform to deliver a seamless customer experience across channels. The heated competition has led 2016 retail IT budgets to rise faster than any other industry (86 percent), with top IT priorities including business intelligence and analytics (84 percent), mobile (75 percent) and modernizing legacy systems (60 percent). Retail ITDMs also led all industries in companies that currently have an API strategy (73 percent) in place to expedite digital transformation. With 55 percent saying IT challenges will have a direct and immediate impact on revenue numbers, traditional retailers recognize they will face extinction if they can’t learn to compete in the digital age through agile innovation and exceptional customer experience.

Advice for CIOs in retail: Stop thinking about digital channels as separate initiatives and start looking at digital as an ongoing journey. This requires an IT operating model shift away from just delivering projects on a treadmill to start building up reusable digital services as you deliver each project. This operating model requires direct sponsorship and management by the CIO to meet the evolving demands of consumer shopping experiences.

The financial services industry is modernizing at a rapid pace

With the rise of nimble fintech firms, the pressure for traditional banks to digitally transform is exceptionally high. 94 percent of respondents said they are executing on digital transformation initiatives, and 76 percent said they are implementing an API strategy to integrate new software with existing systems and applications. As traditional banks are pressured into developing new types of technology, such as mobile apps, fingerprint touch ID and chat bots, it’s unsurprising that 67 percent of financial services IT budgets have increased in 2016. In fact, half have budgeted more than 10 million for IT spending in 2016, with 10 percent planning to spend more than 50 million. It’s clear traditional banks are recognizing the need to embrace new technologies and innovate quicker to stay afloat in the digital sea.

Advice for CIOs in financial services: Don’t fear fintech startups; work with them, not against them. Turn your product platforms, like lending services, into a set of APIs and promote yourself into the many value chains being created by innovative startups.

Legacy technologies are placing a burden on IT’s ability to fulfill business priorities

The need for speed and agility has become a universal enterprise requirement, putting added pressure on IT to deliver initiatives quicker for new LOBs. However, 81 percent of ITDMs are maintaining or increasing their investments in legacy systems, such as Oracle and SAP, indicating that IT teams are continuing business as usual instead of reinventing themselves for the digital age. The burden of legacy technologies is hampering IT’s ability to deliver on transformative initiatives. This disconnect between business priorities and IT investments is a growing concern for ITDMs, with only 18 percent reporting they are very confident in meeting this year’s digital transformation goals.

Advice for CIOs: The way in which companies now compete is by how well they can leverage technology to drive innovation and differentiation. Partner with your CEO and the LOBs to make sure you’re in sync with priorities for the year.

There are misconceptions around digital transformation

Many organizations have an antiquated notion of what digital transformation really means, despite the fact that 66 percent said they are currently going through the journey. For instance, 82 percent of ITDMs associate digital transformation with “going paperless,” a term synonymous with IT in the early 2000s. This indicates that IT teams are executing on tactical projects and incremental business process improvements, rather than focusing more on transformative initiatives that deliver business value, such as driving new revenue. In addition, 42 percent of ITDMs do not believe a cultural transformation – or a shift in the way IT and the business interact – plays a role in digital transformation, pointing to the need for more education and guidance around what digital transformation truly means and how a business can get started.

Advice for CIOs: Educate your IT team on what digital transformation is and align your IT strategy with the business goals. It’s not about going paperless; it’s about the IT team enabling the whole business through a new operating model to enable speed and agility. Every company is using technology at every corner of its business. You need to become good at change as the pace of competition increases from both startups and traditional competition.

In order to thrive in today’s economy, digital businesses need to focus on more than just technology and tactical implementations like going paperless; they also need to focus on a cultural transformation that shifts IT’s role from a centralized support function to a business enabler responsible for driving innovation and business outcomes. The key ingredient is the operating model between IT and the business. Companies can embrace this by leveraging APIs to deliver reusable assets and improve the way they operate and scale. And focus heavily on driving awareness and use of those APIs internally and externally. Until a company is ready to effectively change its operating model to fit into this new cultural movement fueled by APIs, it isn’t truly ready to digitally transform.  

See the full MuleSoft 2016 Connectivity Benchmark Report here.