Data as the new gold, false prophets in an innovation theater and lipstick on a pig.
In his new book Data-Value-Creatie, how to earn money in the digital age, Ken van Ierlant smashes the IT infrastructure of organizations in the Netherlands with a huge sledgehammer blow. According to him, the majority of IT staff can go home and countless ERP and CRM applications are impeccably sent to the trash can. “We think we are transforming digitally, but in fact we are just making a rather expensive, ineffective efficiency improvement like a steam train 2.0. The Netherlands BV can only survive in one way: from application-driven to data-centric work. IT now only costs money and erodes companies.”
We made it too complicated
Advisor digital issues, Ken van Ierlant, compares the IT infrastructure of Dutch organizations with a bin full of loose Lego bricks. Each stone is an IT application and by high chance there are a few stones together; data is shared. ‘But 99 percent of all systems do not communicate with each other at all’, Van Ierlant knows from experience. ‘We make a new application for every problem (read: we take a new Lego block-ed.). But that’s what I call application-centric working.
Such a system does not work or works very poorly with other IT systems. As an indication: Philips used to work with 198 different ERP systems!’ According to Van Ierlant, the current state of affairs can also be explained. “We are dealing with false prophets in an innovation theater who have left a trail of destruction and value destruction. The IT industry and the software suppliers benefit from selling as many individual systems as possible, and hiring a lot of IT people as consultants for a time-consuming, expensive implementation. Which then often fails.’ Van Ierlant makes the comparison with a sack of potatoes. ‘The farmer gets twenty cents for that, in the supermarket that bag is sold for four euros.
That is partly margin and actual costs incurred, but a large part of the costs is in an extremely complicated operating system that we have built in an even more complex logistics process. All applications that do something, don’t work well together and need to be maintained. Look at the allowance affair. Here too, we have made it far too complicated. We just refuse to admit it. There is a lot of unstructured data hidden in legacy applications (old systems). Unleashing AI on this old crap generates a disproportionate amount of unnecessary data, causing computers to freeze and crash or draw meaningless conclusions based on data that is no longer correct.
While IT was the driver of the digital transformation in the beginning of the digitization wave, in this phase IT is the major obstacle to acceleration as companies continue to build on an old legacy. The IT issue is actually a sociological issue. CEOs do not dare to show an entire army of IT people the door. And they put the question to the CIO, CDO, CTO. And that’s not a good idea. The CIO is precisely an obstacle that builds on a legacy of systems. CIOs have an interest in continuing to purchase IT systems to defend their own role.
But in 2021 IT is a commodity that costs hardly any money and that you can get everywhere for a fraction of the cost of building it yourself. It can all be done so much smarter, easier and above all cheaper. We submit problems to IT professionals to solve them, but many organizations don’t have an IT problem at all. They have a business problem. They are not profitable enough, but they do not find the profit in applications, but in mining data. Accounting systems only record something, you don’t earn money with it. It’s dead IT. At its core, digital transformation is not about IT but about strategic choices that result in an end-to-end data-centric workflow with which you can build super agile new product market combinations that can earn you real money.
BV Netherlands will go under
In his book Van Ierlant even goes so far as to say that the Netherlands BV is working on its own demise. “All those investments in IT do not yield money, but cost money. Ultimately, we are in the process of hollowing out the balance sheets. Even the Dutch start-up scene is a confederation of cappuccino-drinking hipsters, financed by banks and municipalities. There is a lack of real entrepreneurship.’ He refers to Israel. “That country is producing so many new companies that are all going public and are very profitable. Israel has 126 Unicorns versus 23 for the entire EU. And not a dime subsidy from the government. Silicon Valley is also not financed, as is often the case in the Netherlands, by banks, municipalities or subsidies. These companies exist because they create value. The Netherlands has long been overtaken left and right by China, Israel and Silicon Valley.’ And according to Van Ierlant, there is only one road that leads to a profitable future: the road of data mining. “Data is the new gold. Compare it to oil. You have to mine it, process it and then bring it to the market. What companies need to do is put data at the center. They need to start thinking data-centric. There should only be one Lego block in the IT box: a block with data. Data that you constantly keep up with and provide with updates so that it remains usable.’ According to Van Ierlant, a complete reversal of what organizations are doing now is needed. ‘Now we make an endless number of applications, to which we often add data per application. But often that data is not accessible to another app. You have to put data centrally and all applications that are developed around it rely on that one data set. This data contains the value of your company. You can make money with that.”
“In my PWC time, the Dutch government developed a case study as an example. The outcome was that if the government starts working in a data-centric way, this will save approximately EUR 16 billion in annual costs and at the same time generate approximately EUR 28 billion in operational cash flow with a DIA of approximately EUR 24 billion. We activate this DIA on the state balance sheet and charge it to the government debt. In 20 years, the Dutch company has been released from its debts and can easily finance healthcare, construction, etc!“
Library with IT
Perhaps flattened examples, but according to Van Ierlant they tell everything. Uber and Airbnb actually own nothing. They have only created a platform (data) to which other parties can connect. They bring supply and demand together. Van Ierlant: ‘So they are not at all bothered by expensive, complex IT infrastructures. They leave that to the supply and demand parties. They make a profit with data. They are also so smart that they use so-called no-code software. Also see that as Lego blocks, which you can just buy from Google, Microsoft and Amazon. You can easily pick software from a library. The Airbnbs and Ubers of this world only have a base plate on which they click those purchased Lego bricks. And they do work together. That technology is just there. Organizations can start with it tomorrow.
They just don’t do it because they’re stuck in the sociological dilemma. They don’t dare to take the step because they are chained to the IT suppliers, systems that have been built, heavily rigged IT departments and CEOs who don’t get it. No one will throw out all IT tomorrow and switch to no-code systems. The guts are completely lacking. Prefer to link yet another ERP system to it and continue building on an old “legacy”. With new IT we may make work a little easier and solve problems. Yet it remains lipstick on a pig: a new version of an existing app.
Incremental improvements. It is a steam train 2.0 with only some efficiency advantages. True digital transition is about completely throwing your current IT landscape overboard and switching to data-centric thinking, and that doesn’t involve an endless accumulation of various non-communicating IT systems.” Who works data-centric and “in the cloud” goes to work, is also freed from another problem, Van Ierlant teaches. “These systems are all GDPR-proof. You don’t have to think about that anymore either.’ And this apart from the security that is desperately needed to keep criminals out of our core systems.
You ain’t seen nothing yet
In the new model that Van Ierlant advocates, things such as blockchain also come to the fore. Transactions are no longer recorded within a company, but in a chain. Controlled ‘in the cloud’ by computers and decentralized systems. Van Ierlant: ‘We still find that scary, but it is the future. Organizations should only do one thing: put data first. You leave the mining of it to parties such as Amazon, Microsoft and Google. They can do that much better. You ain’t seen nothing yet about those superpowers. They are only at the beginning of what they can offer. Accept it, make use of it. Spotify does that too and is extremely successful. Concentrate on what brings value to you: data. The extraction of this yields just like oil in the past. Adyen is (in terms of market value) larger than ABN and ING combined. Why?
Because the traditional banks are busy with constant IT adjustments, made by an army of internal and external IT experts. It delivers small incremental improvements. They are prophets in an innovation theatre. Adyen uses outside platforms and makes money by focusing on data as a business model. A company like Flow Traders has understood this well. I think ASML too, but mainly because a lot of smart people work there and there is a CEO who understands it. The average CEO really has no idea what it is like to operate data-centric instead of application-driven. While that is where the profits of the future lie. Deutsche Bank and HSBC have now also understood.
They have teamed up with Google and Amazon and are going to place large parts of IT outside the company. In exchange for data-centric thinking and working. That will save them thousands of IT staff and increase profitability.’ Van Ierlant characterizes eighty percent of all IT in an organization as ballast. “It also makes little sense to unleash artificial intelligence or business intelligence on data if it is scattered everywhere. It’s like fishing. You can fish, but they rarely bite and certainly not all. Value creation comes from the digital intangible assets (DIA) that you can even activate on the balance sheet.’ No lipstick on a pig, but angling in a pond full of fish.
The journey from Application-to-DATA-centric is a process that runs through the DATA of an organization. Why? Because DATA is solidified knowledge and contains a lot of silent money. If you index, classify, categorize and clean all unstructured meta DATA of an organization, you only have an average of 12% left. That data is then clean for further processing. It is remarkable that the application landscape has the same characteristics as DATA. In that cleansing process it often appears that 85% of all applications do not generate any value in the business process. All ballast is overboard and you free up capital in working capital.
By building those business processes from DATA by using, for example, no coding in combination with. SAAS and a multisided platform from the Cloud initiate a process of communicating vessels in which the transformation finances itself (i.e. cash flow neutral) and at the same time generates a lot of operational cash flow, which increases the profitability of the organization exponentially. And we haven’t even talked about DIA yet..
DATES is DIA. If you chase a lot of cash flow over DIA, we see that the DCF of an organization rises from normal between 3-6 to 15-25. That is why Google, TESLA, Apple Microsoft but also Adyen, Mollie and Flow traders are worth so much.
Johan Cruijff said: “when you realize it, you will see it”