One could easily think that IT and digitization are somehow the same thing – or at least support one other. The corporate reality is that it is sometimes the opposite. It is often the legacy IT and the IT department that are the obstacle to new digital models. Is there any way to get traditional IT and digitization to work together or do we need total disruption to change things?
Legacy IT systems have been built to support processes and operating models that were dominant when the original systems or architectures were designed. It generally happened before truly digital companies began to emerge. By digital companies I mean companies that are built on digital data, data-oriented processes and models built on digital customer experience. We can see that companies such as Google, Uber and Amazon are examples of really digital companies.
A former bank executive said to me recently that “he hasn’t invested in bank shares for years and at the bank he felt like he was sitting on a time bomb with core legacy IT systems.” He said that everyone knows they cannot continue like that for long, but it is scary to start to replace systems where most people have their money. New systems might offer better services for lower costs but he is not brave enough to take those steps, because something might go wrong.
New regulation, for example GDPR and PSD2 in Europe, have demonstrated how hard it is to live in the digital era with legacy IT systems. For example, banks should be able to provide data to their customers, but how they do it is not very modern. An executive from another bank told me how they employ someone to manually collect data on an Excel sheet, when someone asks to get his or her data, and then email it to the client.
This is very different from the big public talks about open API banking.
In practice we have also seen that IT departments are typically very skeptical about accepting any new systems, even though top management and business leaders would like them to. Someone could say they are conservative and against change but there are also very practical reasons for this. They have a hard time managing the existing systems and typically it has been hard to get the legacy systems to talk to each other. Each new system has meant expensive system integration projects.
Generally, it is hard for incumbent companies to change and change their operating models. That’s why disruption has happened in many industries and new companies have emerged to kill the old companies. In some cases, the old companies have survived, but most of the new business has gone to the new players (for example media companies, telco carriers and bricks and mortar retailers).
But are there some ways to make the transition. There are no simple solutions, certainly no miracles, but we can suggest some things that can help:
We will see more significant digitization in most industries. It will kill many big companies and create new significant companies. We will definitely see significant changes in the models to manage and use customer data, build digital processes on that customer data and make all operations be based on that data. Management must have the courage to drive those changes, including a complete transition from legacy IT to totally new systems and models.
That said, there are some softer ways to handle the technological change, but even with those models it is fundamental to keep the focus on customer value, not on internal development.
Your focus must not be to develop IT, but your customer value and experience.