by Alan Nance

Business imperatives and the tech time bomb

Oct 25, 2017
Digital TransformationIT Leadership

Many transformational programs in enterprise IT are no more than shiny objects sitting on a veneer layer that masks the unsustainable, expensive legacy they depend on.

Imagine your organization as an hourglass, where the business is the globe on the top, and the technology team is the globe that sits below.

In an hourglass, sand flows from top to bottom until empty, and when turned around, the sand flows the other way, again passing through a small neck, that neck is the only view from each sand globe to the other. Depending on your perspective sand is either rushing towards you or speeding away from you.

For many organizations, that nexus is clogged. Think of the sand as money, the flow from the business globe to the technology globe these days is slowing and in some cases drying up altogether. Why? Partially because the business for many years has only seen an outflow of sand with minimum to no return when the globes are reversed, and partly because the money to fund new initiatives is drying up overall.

The truth is that most technology programs are not helping to meet business imperatives. Often times the technology ROI is an equation that exists solely in the lower globe, it will do little to achieve a real business imperative.

Unfortunately, this is made worse when business leadership is ambivalent towards technology. The involvement business leaders have varies by company, industry, and country, but overall boards have been happy to tolerate underperforming, autonomous technology departments for years.

Dr. Ken van Ierlant, a founding father of digital platforms theory, explains why this phenomenon is coming to an end. It is not because the conversations between IT and business are finally getting better and we are on the road to a real business-IT partnerships but because new business imperatives mean that the board can no longer accept or indeed fund traditional enterprise IT. Enterprise IT has always been a thing of the past, it is not necessarily a thing of the future.

Which business imperatives are not passing through the nexus of the hourglass?

1. Addressing real disruption

The boards have seen with their own eyes how a conceptual story about digital disruption has become very real. Many enterprises have seen their market valuations under siege as Amazon, Google and a whole raft of innovative start-ups have moved into their territory. The risk of doing nothing is now more significant than the risk of doing something.

2. Combating consumerization that erodes scale advantages

As connected consumers are courted by new entrants to consume select services in new ways, many enterprises are seeing that their traditional scale systems, once the motor for success, are now under siege. In 2017, the value of an expensive proprietary global distribution network, a network of vast warehouses, or having more branches than anyone else is questionable. So, where does the actual value of your brand sit?

3. Creating market cap through Intangible Digital Assets (IDA)

Once upon a time, valuations were based on multiples of revenue. The first multiple was revenue from product sales, then a new multiple came for revenue from services, today it is mostly about a multiple attached to software, but soon, the real value drivers will be predominantly Intangible Digital Assets. Assets that are recorded as intangible on your balance sheet, yet generate income through simultaneous transactions at scale. What are your Intangible Digital Assets?

4. Slaying the 500Lb gorilla of financial imperatives

Boards have maxed out their ability to execute smart cost savings to camouflage falling profits. Offshore arbitrage and outsourcing have had their best day as an antidote to flagging ROCE and RONA and anemic growth. As Dr. Ken van Ierlant explains, ‘In a services economy, where most of us live, you can’t Capex your way out of misery.’ Capex has become CrapEx when it comes to technology. CrapEx is a somewhat crude term introduced by Andrew Flint that perfectly describes how business regards the investments in technology. You need only look at the amount of money allocated to technology-debt buckets to understand how serious this problem is in large enterprises. Since Gartner first raised this in 2011, technology debt has probably passed the $1 trillion mark globally. I personally know of a major bank with over $600 million of technology debt.

The essential question that the board and business leaders are loading into their sand globe is, what contribution is enterprise technology making to solve these four imperatives, (disruption, consumerization, IDA, financial cost/income constraints?)

When you open the kimono of most digital transformation programs, you will find they miss any fundamental impact on these imperatives. Many transformational programs in enterprise IT are no more than shiny objects sitting on a veneer layer that masks the unsustainable, expensive legacy they depend on. Even with initiatives for Agile, DevOps, and Cloud; nothing substantial has changed: 85% of IT spend is still non-differentiating for the corporation; Capex is still wasted on non-performing assets, data continues to be locked into applications, legacy is almost always a spaghetti sitting under a layer of omnichannel and APIs. That is why, the run budget always trumps the change budget, driving cost/income ratios up.