The Future of Branch Offices Starts with Transformation

There was a time, not too long ago, when business leaders began questioning the wisdom of continuing to invest in branch offices. Amazon had disrupted age-old business models and helped to precipitate the downfall of brand-name giants such as Borders and Tower Records. Netflix was credited with similarly felling Blockbuster. Banks were not only becoming more reluctant to invest in branch offices; they were closing existing branches in droves to push customers to online and mobile services. 

Well, guess what? The death of the branch office has been greatly exaggerated.

In banking, branch offices remain the dominant channel for account openings, according to Deloitte Insights, and customer satisfaction with branches remains a stronger influence on overall customer experience than online or mobile channels. 

In retail, brick-and-mortar stores still comprise nearly 90% of overall sales in the U.S., and even Amazon is investing heavily in expanding its physical footprint, according to Business Insider. 

These positive signs, however, don’t mean that it’s business as usual. Far from it. Today’s reality is that branch offices must transform dramatically and digitally to meet the demands of a more connected customer base. 

In many cases, transformation requires rethinking what branch offices deliver to customers. And with new business models, IT and security leaders must quickly adapt the underlying technologies that empower branch offices, particularly in relation to cloud computing, networking, and cybersecurity. 

The branches of yesterday cannot be the branches of tomorrow. They have to be unique and take advantage of the local, physical interaction with customers in conjunction with the digital services they provide. The experience for the customer in the branch office must be better than what they can expect online. Otherwise, why would anyone come through the door?

From a technology standpoint, IT teams must be able to deliver greater performance, speed, reliability and intelligence to branch offices. They must also equip branch offices with secure access to the Internet and to the myriad cloud services and applications that have become predominant across nearly every industry. 

Traditionally, branch offices had on-premises hardware for compute, storage and local-area networking. They would send their data to a central data center at headquarters, usually through an MPLS line from a telecommunications carrier. The cybersecurity stack was located in the central data center, and then the data would migrate back to the branch or, more recently, to the cloud.

This was never a great model to begin with. It required investments in capital equipment at the branches, and it stretched the personnel resources of already thin IT departments that had to manage, maintain and migrate that equipment. In addition, the bandwidth costs of doing all of that backhauling were high. And, because data was constantly moving back and forth, sometimes across broad geographic areas, performance often was not up to par. 

However, as cloud computing has become more ubiquitous, this model is outdated and inefficient. Organizations are increasingly turning to cloud-based software-as-a-service (SaaS) applications for business activities. According to the 2019 Annual SaaS Trends Report, the average company spent $343,000 on SaaS in 2019, a 78% increase from the previous year. The average employee uses at least eight apps, across all company sizes.

With this abundance of business applications delivered in the cloud, the more relevant connectivity concern now is between branch offices and the cloud. IT wants the benefits of having data and applications closer to their users and branch offices—without having to make a significant investment in hardware and software in these locations, often referred to as edge computing.

This shift to the cloud for business applications is one of the reasons we are seeing the strong growth of new connectivity solutions, particularly SD-WAN, or software-defined wide-area networks. With SD-WAN, IT teams can improve the customer experience by making it much simpler and faster to connect directly to the cloud. In addition, businesses save significant money because they eliminate the bandwidth costs of backhauling traffic between the data center and the branch offices.

Of course, there is a matter of security. As you would expect, the digital transformation of branch offices can also open up additional cybersecurity risks if not handled properly. You run the risk of branches bypassing IT by connecting directly to the Internet; or using devices that are unprotected and unapproved; or operating out of IT control and using unsupported applications. Suffice to say, in transforming your branch offices, you also have to transform your approach to cybersecurity.

The good news is that you can use this as an opportunity to improve your cybersecurity posture moving forward. You can integrate cybersecurity with your networking model, particularly SD-WAN, and you can centrally manage both connectivity and cybersecurity at the same time, from the same platform.

You’ll want to pay attention to the architecture of SD-WAN, which can impact both the user experience, management complexity and security. Here are a couple of points to consider:

  • Focus on the end-to-end experience with SD-WAN. This includes performance going out to the SaaS vendors, performance back into other branch offices and the cloud, and performance back to the data center. Often, middle-mile issues with SD-WAN can cause dissatisfaction with your SD-WAN implementation.
  • Understand the management challenges. Typically, a hub-and-spoke architecture is preferred for SD-WAN, but this can increase complexity and security concerns of having to manage multiple hub sites and ensuring consistent security at each hub location. An option to consider would be a cloud provider that enables the hub-spoke architecture while taking on the burden of operational complexity.

Digital branch office transformation has become as inevitable as digital business transformation. IDC recently noted that digital transformation is at a tipping point, with more than 50% of global GDP to be accounted for by digitally transformed enterprises by 2023. Tellingly, IDC predicts that more than half of new enterprise infrastructure will be deployed at the edge, and by 2024 the number of applications at the edge will increase by 800%.

No business can afford to ignore these opportunities. You want to make sure you have the right technology in place to ensure a smooth and seamless transition, without sacrificing performance, user experience, or cybersecurity in your office branches or, for that matter, anywhere else in your organization. The time to begin digital branch transformation is now. 

Naveen Zutshi is the Chief Information Officer at Palo Alto Networks.

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