IT is a cost and does not matter by Maarten Ectors

As made clear by this Harvard Business Review article: IT does not matter. IT is a cost. Most companies have large cost overruns whenever they do large digital transformation projects. Most such projects under-deliver on all their promises. Billions get spend on cloud migrations, mobile apps and legacy replatforming which go nowhere.

The solution is to be stricter on your IT spend. Business cases are needed for all IT spend. Offshoring and outsourcing are your friend. All technical personal should be recording their hours so they can be spend as efficient as possible. Business and finance people should drive the IT agenda and only projects with clear return on investment that solve immediate problems should be invested in.

This is the advise top management in many companies has been following for the last two decades. Strangely we are seeing that the top 10 richest people and most valued companies in the world are now dominated by technology visionaries, instead of accountants, salespeople or actuaries. Complete industries have been put into survival mode: internal combustion engines, telecommunications, advertisement, entertainment, journalism, hospitality, public transport, space transport, any retail in general, and many more. Isn’t it time to put the “IT is a cost“ and “business knows best” way of working to bed?

Lots of business leaders cannot explain why APIs are important, yet they generate 70% of Amazon’s profit. Distributed ledger and smart contracts are almost totally ignored by many boards of directors but the decentralised finance market, which is built on them, has multiplied assets under management by 1500% in the last 6 months. The Internet never grew so quickly and we know what happened to companies that ignored it. Platform businesses like Amazon, Netflix, Google, AirBnB, Uber, Facebook,... have made complete industries and their competitors ‘ pipeline businesses irrelevant. We are only going to see an acceleration of business disruption in the next decade. Exponential organisations driven by disruptive technologies are out-innovating others.

You can keep on seeing IT as a cost, put all technologists in separate delivery teams and use offshoring and outsourcing. The smarter strategy however is to do away with separating business people from technologists. Bring different specialties together into product and platform teams. Given them the remit to launch digital products but also digital businesses and other types of innovative ventures. The reason why current digital transformation projects fail is because they are building digital blockbusters. Using a mobile app to rent DVDs, AI to predict the DVDs customers like and drones to deliver DVDs, still makes you go bankrupt when you meet your Netflix. In the digital world if one company can offer a product 1,000 cheaper than its competitors then they will become a digital monopolist. Business leaders can no longer afford to ignore digital disruptive technologies.

Our current way of structuring organisations worked fine when economies of scale and efficiencies were what made market leaders. Today having a bigger call centre, sales team, branch network, ... no longer matters. A better mobile app can give you better economies of scale and more efficiencies. The two new things to optimise are market fit and speed. It was never cheaper to build and launch new products but it is the same for your competitor and they have never been so globally distributed. Making a new offering that customers love, for which they want to sleep in the street [think iPhone, Tesla,...], makes companies into the most valuable in the world.

Only though if they can deliver faster than others. Copy cats will outrun you if you do not optimise for speed. The way we organise companies with many departments that all need to be coordinated to create, launch and grow products is the worst for optimising speed. Digital giants have pizza teams, squads, cells or whatever you want to call small groups of experts with different skillsets that collaborate on the next big thing. These teams can grow & split if successful or get killed if not. Corporate Darwinism as a way of structuring your digital products, platforms and ventures is what digital leaders do.

We live in a world where products have shorter life cycles, and companies, who rely on too few, do not survive. We need many future ventures to be created to substitute a limited set of current cash-cows. Companies need to divide themselves into three parts: the intrapreneurs who create future ventures, the growers who grow ventures and the operators who run, sell and retire ventures. Unless your future ventures teams are having a pipeline that is big enough, your company might not be around in a decade. An easy way to track the viability of a company is to ask it to report its innovation index, i.e. how many percentage of profits are generated by products that did not exist 5 years ago. The higher the innovation index, the healthier. If you work for a company with a low innovation index, then you better be very close to retiring...

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Maarten Ectors is a strategic innovator who exchanged working with the who is who of high tech to apply disruptive technology and business innovation from the inside in the top UK insurance and investment management company. In less than a year they won the best claim technology solution of the year award and that is just the start...