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The power of digital platforms

08 June 2017

by Ken van Ierlant

Technological developments move so quickly that you can’t keep up with the requisite investments. Companies can build a complete in-house IT environment, but if they do they run the risk that it will be outdated before it even becomes operational. Moreover, these efforts distract from the core activities and core competencies of your business. It is much easier to purchase your IT landscape in the form of services.

With their hardware and software purchased over the years, traditional systems have become much too expensive these days. In the past, these solutions were ‘the cost of doing business’. These days they are ‘the cost that drives you out of business’. It is true that it is not primarily technology that drives organizations toward platforms, but rather what you need as an organization to be able to run a business. Moreover, until recently these platforms offered unprecedented possibilities.

In analyzing the balance of large companies, one sees that they have too much money tied up in expensive IT assets, which prevents these resources from being freed up for innovation and change. Technology has become such a volatile phenomenon that the traditional economic models no longer work. The capital invested is literally sublimating – evaporating before our very eyes. Actually, you should be able to depreciate these investments more rapidly, but many companies are caught in a ‘catch 22’. Via the cloud they have access to platforms with more speed, flexibility and functionality, at a mere fraction of the costs. But for business reasons they cannot or do not want to take this step. That will prove deadly.

The problem lies at several places. From management you have two streams: on the one hand a capex, or capitalizing operational expenditures, driven by the CFO. At the same time, you see API initiatives driven by the CIO, which in fact only obscure the complexity. They encapsulate legacy in a shell, as it were. Neither approach really helps the company move forward.
When you have been investing in your own systems for thirty to forty years, and over the years have aquired other companies, as well, you generally end up with a tangled mess.

Companies want to save expenses here and position everything with a large cloud provided under IaaS – to the extent possible. This creates an extremely complex and expensive hybrid environment, because you actually have to tie everything to everything else. Companies have had to make too many compromises. Because on the one hand they were mired in their old landscape, while at the same time they wanted to be able to move quickly, in many cases they have chosen a hybrid cloud model.

In the past it was simple; IT was easily adapted to your individual business model and operational model, or vice versa. Nowadays there is an entirely different dynamic. The business models are changing so rapidly that you must have an IT platform that can keep up with these constant changes. The IT platform is thus a reflection of the business and the operations. It must be much more agile than it was in the past. Standardization is the name of the game. If 80 per cent of your IT is standard, you can build flexibility and distinctiveness around this core.

Platform players

If you examine the configuration of the technology market, you see that this really consists of six players who offer a viable proposition at the platform level: Google, Amazon, Microsoft, IBM, Oracle and SAP. Their investments run into the billions; this is a battle dominated by capital on a global scale. The advantage is that as an organization you can ride their coattails with a rather limited investment.

Today the principle ‘the best tool wins’ applies. If you thoroughly examine your own business, you can choose the optimum services for that business. The transformation path from old to new goes via the hybrid cloud, but this is just an interim solution on the way to the public cloud with IT service provision based on a catalogue of standard solutions.
In the cloud you can get everything eight times cheaper. Ninety-nine per cent of companies are governed by the discipline of the market. You see it all around you. Companies that do not take this step are sittings ducks when it comes to takeovers. Their operating model is so expensive that they can no longer adapt to change, the demands for acceleration and – for example – take-overs. All existing IT is too slow, too rigid, too expensive and too complex.

The demand for coders will soon disappear

For those who think that their particular operation is somehow just unique enough that they have not yet made the switch, I can tell you: you simply cannot keep up with developments. Companies that do this must revise their strategy sooner or later, and it will involve enormous depreciation. Moreover, I predict that the big demand for ‘coders’ will soon disappear. At the moment, these scarce people are being scooped up in droves by companies who really want to be a tech company. When these companies finally realize (to their great disillusionment) that IT is not their core market, all these people will be looking for new jobs.

I do understand the temptation to want to build your own IT, certainly when you want to be distinctive. But if you take a step back, you see that this simply cannot succeed. You create even more legacy, which means that costs explode. This also ensures additional complexity, because you are building APIs around a tangled net of applications for which these APIs are not really suited. It is nothing more than postponing your own execution.

I see around me large companies building their own massive platforms, copying Netflix, Booking, Spotify etc. These are their examples, so at the same time they take over methods such as agile, scrum, squads, devops. But those companies already had a strong platform without those people and methods! You must start at the beginning. As a bank, you can say that you are a software company, but as a software company you don’t have the money to be able to compete with IBM, Google or Amazon. Those parties use their platforms to disrupt various markets and – based on customer knowledge and needs – introduce new concepts into the market. Super interesting. IBM does this with its Watson-centered Bluemix cloud platform, for example. You can choose two approaches for this. For example, you use this as a starting point for the frontend. That is great, but it may not do justice to the real power of the solution. You can also utilize the platform as a basis for your supply chain, which you can then quickly and intelligently modify in response to changing needs and partnerships. The combined power of Watson and IBM Bluemix is the ability to optimally generate and use data. That helps companies become data-centric. Smaller technology players can never compete with such a market position, let alone can customer organizations build all this themselves.

What I advise CxO´s is to make big changes in small incremental steps; applying agile principles as you shift toward cloud platforms. This could eliminate 60 to 80 per cent of your costs. That way half of large enterprises can safeguard their position for the near future. But you must begin now. All those 2020 plans lead to nothing, simply because you are then too late.

I will give a keynote speech during the IBM Watson Summit on June 14th. Hope to see you there. The Watson Amsterdam Summit on June 14th in Amsterdam will teach CxOs in IT, security and finance to utilize IBM Watson to achieve quicker, better results. There will be workshops, demos, roundtables and presentations for professionals.

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