From application-centric to data-centric
What is nowadays called digitization is in fact nothing more or less than the automation of non-automated processes in the front end. We often do this to push existing products and services into the market via an online channel. Due to the exponential development in technology, the clock speed of society has increased enormously, whereby the technology push and its adaptation by the individual has become detached from the absorption capacity of organizations. There are now thousands of newly built apps that are plugged into old ‘legacy’ systems: lipstick on a pig. How can it be better?
The consequences are huge!
Where digitization was once a one-dimensional issue, it has now become a multidisciplinary and holistic issue, with administrators wondering how do I solve this now and where do I start? In addition, most directors have no affinity with these kinds of issues, believe that it is an IT issue and then submit it to process managers with the title CIO/CDO or CTO.
The latter target group are cost center staff officers who often report to financial directors or controllers, have a poor understanding of the business and prefer a technocratic approach. After all, even in times of change, we like to keep doing what we’ve always done. We solve technological issues technologically.
However, the issue has become existential, with the competitiveness, flexibility and adaptive capacity of organizations lagging far behind international developments. Not only at a national but also an international level, we see organizations in heavy weather because they are looking for technological solutions that are counterproductive in today’s fast and dynamic society. After all, the apps are willing and able, but the underlying unwieldy systems and inflexible capacity continue to hold back organizations. Delayed time to market, loss of commercial momentum is the order of the day.
Business problem is relegated to IT problem
Many organizations fail to realize that a paradigm shift is taking place that is disrupting all the conventions that executives have felt so comfortable with. Due to a lack of affinity with technological innovation, due to ‘wrong’ insights and old-fashioned management styles, people are unable to regain control. By tackling the issue of innovation and organizational growth iteratively and one-dimensionally and turning the business problem into an IT problem, and then turning it into a purchasing problem, the director and her organization remain hopelessly behind the times. It is hoped that the special effect of an IT aspirin in the toilet bowl will solve the blockage of the sewage system.
What is nowadays called digitization is in fact nothing more or less than the automation of non-automated processes in the front end to push existing products and services into the market via an online channel. in other words building thousands of apps that plug into old legacy systems. Or “lipstick on a pig”.
Armies of consultants and IT suppliers have joined forces with the CIO/CDO/CTO technocrats within organizations to realize digitization 1.0 or the steam train 2.0. Astronomical amounts are taken out of working capital to pour old wine into new bottles in seas of time. Drivers are misled or misled by great hosanna stories or are led astray by ignorance. In terms of quality, we see that the legacy systems and thus the overlying operating model of organizations are becoming more complex and static. The way in which IT officials, driven by the technology push of the market, approach the problem only makes the problem worse because they continue to look for the solution in technological feats that do not solve the core problem.
Legacy is not the right foundation
Empirical research has shown that approximately 80% of all IT budgets are spent on the maintenance of old legacy systems, which means that there is no longer any money for innovation. It has also been shown that in almost all cases the extra investments in IT lead to more apps and therefore a negative Return On Capital Emplyed. in other words loss financing that leads to value destruction instead of value creation.
In addition, all those legacy systems are built application centrically. 85% of all applications and 88% of all data do not contribute to the value development of the organization. These applications are in fact ballast financing. By freeing up even more working capital and continuing to build this edifice, from a technocratic perspective, organizations will never get out of this vicious circle of capital destruction. Look at many Dutch listed companies and see what is left of their stock market value. Look at the mounting failures and destruction of capital by the government in digitization projects where it seems as if no project is yet successfully delivered.
Muddling won’t help you
Covid-19 has put fantastic pressure on companies’ balance sheets and profit & loss accounts. Suddenly there is no money and no time to muddle along in a slow iterative way with the digitization 1.0. Companies like Gartner predict a great rat race for digitization in the next 10 years. Anyone who does not invest in digitization will not make it to the end of the decade. Businesses are going bankrupt and governments are making brutal austerity measures to scrape money from everywhere because of the bankrupt policies. The bill will eventually be deposited with the citizen. The purchasing power of the citizen will decrease substantially as a result. This race to the bottom will lead to a general lowering of our prosperity and social unrest.
For companies, the severity of the disruption of Covid19 is also sensitive because companies are locked in the covenants of banks and can no longer issue shares due to poor Ebitda results. Certainly not if there is no future perspective on increasing operational cash flow, higher Ebitda and value development of balance sheets. Quite apart from the fact that the large tech platforms with their DATA-centric multi-sided platforms will compete against entire markets because their cost to serve for the same services and products is approximately a factor of 4 to 8 lower than the existing parties in the market.
As Ollie B. Bommel said: Tom Poes make up a ruse!
Dutch society is sitting on a gold mine, but is blind to the possibilities of making decades of invested capital that is tied up in an endless amount of processes and data liquid again. Data is the new source of economic growth and prosperity.
Like oil, which has created unprecedented prosperity and well-being in our society since 1850, data will have to be explored before it can be exploited. The mountain of data is growing exponentially by the day and that is more of a threat than an opportunity. If we don’t change course now, all the invested capital of the last 40 years will sublimate and the chance of new economic growth will evaporate.
Businesses must become data-centric to survive
Digitization 4.0 says it all; it concerns a metamorphosis in which data and the enrichment of data offer the opportunity to use all emerging technologies for great social prosperity. It is important to recognize that organizations must first become data-centric before the enormous mountains of fragmented data can be converted into equity. This is not an IT project but a business project in which organizations have to ask themselves, who and what do we want to be in 5 years’ time despite competition, legislation & regulations, leadership and the much needed financial re-engineering of the balance sheet? So multidisciplinary!
If an organization and its leadership have ambition and dare to set challenging but achievable goals that go beyond economic growth, then there is room! Space to investigate whether it is possible to make the stored value in data liquid through a multidisciplinary business transformation. Empirical research has once again shown that 90% of all organizations are built application-centrically, with the data being fragmented over many, sometimes thousands, of databases and data models.
This makes it almost impossible to set up an efficient and adaptive business operating model. By accelerating the transition from an application-centric to a data-centric operating model, it is possible to remove 88% of all unstructured metadata, resulting in 85% of all useless applications being removed. The resulting clearance guarantees a dramatic reduction in an inefficient wage bill and numerous non-IT related costs. Practice shows that such a transformation can be financed in cash flow neutrally and can increase an organization’s operational cash flow exponentially. By accelerating this transformation and linking it to a cloud-related operating model, the transformation becomes a business transformation and not a ‘kidnapped’ IT project.
Leadership and perseverance: who dares?
It takes leadership and perseverance to overcome all the opposing forces in an organization and the resistance from the market because such an approach will often cost the role of IT and IT-related organizations. By saying goodbye to large complex IT systems and IT organizations and focusing on data and data centrism, an organization can switch from a follower to a market leader with astonishing financial ratios in record time. The bonus is not only materially beneficial in the sense of much better financial ratios and an exponential increase in the balance sheet value of the organization, but also in the morale and decisiveness of the people in the organization. Smart people who see that by enriching the data the organization becomes more efficient and effective, become much more motivated and can therefore significantly increase their market value.
Because organizations use a data-centric operating model, they are much better able to generate much more cash flow, so that the underlying value of the balance sheet will increase exponentially. We know from experience that data as intangible assets in combination with substantial cash flow leads to a DCF (Discounted Cash Flow) valuation of between 15 and 25 instead of a DCF of 3 to 6 in traditional application-centric organizations…!
In other words: by working data-centrically, an organization can make a big difference because, on the one hand, it can throw off its historical ballast and at the same time, as if it were a process of communicating vessels, it can create value that guarantees the continuity of the organization. The money is on the street. But you have to bend down to pick it up. And as Johan Cruijff said: “You will only see it when you realize it.”