See ICT as a revenue model, not as a cost item

The financial impact of digital technologies is grossly underestimated, according to Ken van Ierlant, digital thought leader and director at FutureXL. “We don’t seem to accept a new reality easily.”

Take data seriously

Van Ierlant also saw this at the beginning of the corona crisis. “With beaches that were packed and thousands of people on the boulevards at the same time. Apparently, with our limited human brain, we are not easily able to accept another reality. This is also reflected in the mutating virus and the fact that we as humans are increasingly close to animals. This makes it easier for such a virus to jump, but does that lead us to the conclusion that we should leave the habitats of wild animals alone? I’m afraid not.” Van Ierlant also wonders whether the rise of digital technologies is being taken seriously enough by financials. “Those technologies change finance in itself, but also the way in which operating models are created.”

Really understand each other

On the other hand, the CIO. Van Iersel has been CIO himself. “Often CIOs are techies and they have no understanding of economic and business models. Give them a budget and they’ll get to work. That is why it is even more important that ICT and Finance really understand each other. The applicability of new, often capital-intensive technologies in new business models sometimes leaves something to be desired. Knowledge about technology is scarce because everyone wants to attract that expertise. In addition, the life cycle of technologies has decreased to five to ten years. Where old economic models could have been based on a much longer business case, this is no longer possible with digital business cases. You have a shorter time to recoup your investment. Are you going to get your return on capital employed? Finance plays a crucial role in making that sum.”

Can’t keep up anymore

Another effect is that old ICT systems cost so much to maintain that it is no longer sustainable. Van Ierlant: “I encountered this in London at the banks where I worked. There were no longer any technicians available for those systems and, layer by layer, more and more maintenance budgets were added. To the point that eighty percent of the bank’s budget was spent on running the bank. Then there is no money left to renew.”

It’s not really innovating

Van Ierlant notes that this is not just a problem for British banks. “Rabobank, ING, Van Lanschot, BinckBank… It contains too little news. Not a new business model that generates money. ING has digitized its processes and made good progress under CEO Ralph Hamers, but they have not really innovate. Many banks think they have become a kind of Spotify, but they are not an IT company. They use IT. That is not an end in itself, but a means. The only thing that has resulted in the urge to innovate is Tikkie. Handy in itself, but that app won’t save a bank. In addition, they have thousands of different data models that have been tied together in the past. Make-do. No one within the bank knows how those old systems are interlinked. That makes compliance with laws and regulations very difficult.”

Working data-centric

What Van Ierlant is trying to say is that digitization is not the same as building a business model from scratch. “Many parties see a technology that can constitute a breakthrough and conclude from this that they have to follow the pace of the peoples. “We need to become data-driven,” you hear. Without wondering why. You will first and always have to determine your business strategy. Who and what do you want to be in one, three and five years? Where are the intrinsic opportunities to create value for a customer? This determination has everything to do with data-centric working. Until now, enterprises have been inclined to build applications for certain problems they see. If you build an application for everything, you see that you have a lot of data, but that this data is, as it were, locked up in many different applications. This ultimately results in an enormous ballast of ICT that you have to finance every year. I recently advised a company that had no fewer than 76 ERP systems. Thirty years have been invested in this. The difficult part is that I had to convince 76 directors to switch to one operating model. You can only do that in an autocratic way.”

No cost item

The question is whether Boards of Directors want to draw that card. “I often see such a problem being put on the CIO’s board. Solve it. But they can never compete with those 76 directors.” Van Ierlant estimates that 85 percent of ICT in companies is not distinctive enough to keep it afloat. “Bad IT that doesn’t make you money compared to the competition.” If the CFO is responsible for ICT, he often falls into a trap. “He sees ICT as facilitating and supportive. For him or her it is therefore a cost item, instead of a revenue model. While I would like financials to think along to make IT pay off. In such a way that we as organizations earn money with it. I also hope they help cut down on bad ICT. That is a more logical approach than making trendy apps on top of systems that in fact have to be written off.”

First an analysis

Working data-centric means that an analysis is performed first, Van Ierlant finally explains. “Who is your customer and what needs does he or she have? How does he or she behave? So where are the opportunities? Ace & Tate, supplier of trendy glasses at a fixed price, is a good example of this. They are cheaper than the average in the market, are very hip and have a short time to market. They only open stores where they see that there is a demand online. If you want to move to a business model in which you work in such a data-centric way, you will have to throw the old systems overboard. That, in turn, requires an enormous sense of urgency in the Executive Board, with the CFO in the lead. We go from application to data. I see Boards of Directors struggling with that development. For example, they start a small digital startup within the company and call it corporate venturing. But that still doesn’t turn the oil tanker that you should actually be turning.”

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