Executive Summary: ISG Provider Lens™ Mainframes – Services and Solutions - U.S. Public Sector 2024
18 Apr 2024
by Peter Crocker, Manoj M, Heiko Henkes, Jan Erik Aase
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Decades of deferring investments in mainframes within the U.S. state and local governments has led to challenges that can no longer be ignored. Constituents are demanding experiences that are comparable to what they have become accustomed to in the private sector. However, significant barriers exist to meeting this requirement. The experts who have been maintaining mainframes in state and local agencies are aging and exiting the workforce quickly, leaving a limited number of workers with mainframe skills to replace them. The public sector is also 10-20 years behind the public sector in its upgrade cycles, leaving agencies with seemingly unsurmountable technical debt.
This dilemma is leading to mainframe failures. In 2022, multiple West Virginia state agencies were affected by a mainframe outage that took ten days to fully repair. Similarly, in 2020, Vermont’s unemployment system had an outage.
While the shortage of experts is a problem, the tight budgets in the public sector make it difficult to compensate experts at a rate similar to that seen in the private sector. Rising licensing costs also pressurize agencies to adopt a more sustainable path. Lessons learned from the pandemic have highlighted the need to scale to meet spiking demand from constituents.
Upgrading mainframes is risky and full of unknowns, but the danger of doing nothing is growing rapidly. IT organizations that have traditionally hesitated to greenlight big projects such as mainframe modernization
can no longer wait. This factor is driving unprecedented demand for mainframe services in the U.S. Public Sector.
Providers delivering mainframe services to U.S. state and local governments are seeing growth rates of 10-20 percent, much higher than the 2-5 percent in the private sector. This growth is not translating to the federal market as more regulatory and security obstacles exist in this sector, compared with the state and local governments. Mainframe service providers are noticing the growing demand and organizing GTM strategies to address this unique marketplace.
Response of the Agencies
A once-mature marketplace is seeing renewed interest and evolving rapidly. To modernize their mainframes, public sector agencies are looking for flexible solutions within their budgets. The solutions must also support modern experiences for constituents successfully. Providers delivering services to SLED must also provide low-risk, scope for planning and predictability of the solutions they are offering.
To meet these requirements, many providers are taking a more consultative and flexible approach to mainframe services. Many agencies are no longer looking for point solutions to strictly move all their workloads off the mainframe or optimize current systems. A calculated hybrid strategy to move some workloads to the cloud while maintaining some on the mainframes is becoming increasingly common.
This approach, in many cases, includes embracing the value of the mainframe as a part of a larger IT estate. The stability of the mainframes and the challenges of moving all applications from these systems are leading organizations to embrace the idea that the mainframe is here to stay and can be a key component of their future architecture. A hybrid mainframe strategy integrating mainframe data with the cloud is becoming highly relevant. While larger, more complex agencies are taking a more nuanced approach, agencies with smaller mainframe footprints are willing to opt for a more straightforward lift and shift approach to the cloud strategies.
Investments in Tools and AI
Mainframe service providers continue investing in tools and platforms to streamline the delivery of mainframe modernization. AI is increasingly becoming a key component of these tools, enabling service providers to
manage complex systems.
AI applications in mainframe application documentation and analysis are particularly gaining momentum. AI’s ability to recognize patterns enables the mapping and documentation of application functionalities and determine where dependencies exist.
These capabilities are particularly valuable in the public sector, where technical debt is rarely addressed and new software is built on years of legacy applications.
Code transformation and business rules extraction are also applications where AI is being implemented. We see providers continuing to invest in AI to automate processes and reduce the complexity of mainframe systems.
Increase in DevOps and DevSecOps
Service providers are increasingly implementing DevOps and DevSecOps strategies in their mainframe modernization and optimization strategies. As agencies approach modernization as a more nuanced solution requiring high flexibility to integrate with modern cloud applications, the ability to collaborate with DevOps becomes much more important. Service providers are also building their capabilities in DevOps to help
attract younger talent accustomed to these development patterns.
Reign of Data
Access to mainframe data is becoming increasingly important for the use of AI and in data-driven decision-making. As organizations embrace the permanence of the mainframe as a part of their IT strategy, they are prioritizing data accessibility. Service providers must be able to deliver APIs and integrate mainframe data with their hybrid cloud strategy.
Software Vendors Entering the Mainframe Modernization Arena
At the end of 2023 and in early 2024, the market saw several acquisitions in the mainframe software space. Enterprise software providers acquired mainframe application software modernization providers to gain access to this market. For instance, Rocket Software acquired Micro Focus from Opentext, and Amdocs purchased Astadia. IBM also has plans to strengthen its application modernization capabilities, kickstarted by the acquisition of Advanced’s application modernization business in January 2024.
Commoditization of the MFaaS Market
The economics in the MFaaS market are getting increasingly challenging. Due to licensing costs, it is becoming difficult for service providers to pass on savings to customers through as-a-service models.
We are seeing a few different approaches to respond to this challenge. Many large Global Systems Integrators are choosing to resell MFaaS offerings from specialized vendors that are better positioned to drive efficiency and negotiate licenses. Others are choosing to package MFaaS offerings with higher-value
application modernization services.
We expect the mainframe modernization and services market for the public sector to grow. The large technical debt in this space and the promise of AI to simplify these systems will continue to drive demand. The age of these systems also allows high RoI enabled by significant efficiency created by AI and evolving
modernization strategies, which will lead to an increasing number of opportunities to self-fund long-term modernization projects, helping to drive additional market growth.
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