8 Theses on Digital Transformation — and the Effects on System Integrators 🖥

Photo by Patrick Tomasso on Unsplash

I work for Computacenter, a European based systems integrator. We design, plan, implement and operate IT infrastructures for our customers, but above all we sell hardware. Just whatever is important for the customer. In 2011, Marc Andreessen of a16z (founder of Netscape and a venture capitalist) published an article entitled “Why Software Is Eating the World?”

Well, software is not typically the hobbyhorse of a system integrator. Terrible! With Amazon’s CloudFormation, I can pull up and down tons of data centers all over the world with just a simple configuration file (e.g. in JSON format). Of course it takes a lot of skill and experience to design, plan and implement this infrastructure. But not much can be sold anymore.

Computacenter has generated over £4 billion in revenue in 2018, a good 70% of which came from the sale of hardware and software according to their Financial Results.

Digital companies are changing the expectations of services for customers

With the rise of companies such as Amazon, Google, Uber and Airbnb, a completely new industry emerged. Many of our industries in Europe are massively influenced or affected. Today, we are talking about the need for our traditional companies to transform digitally — the corporations as well as the German Mittelstand with its many “small” hidden champions. More and more companies are succeeding in massively simplifying very complex services for their customers.

Subscribe to my service for free and receive the following services in return. Subscribe to the premium service and receive the following additional services in return.

This kind of service and product thinking has also been around for some time in the B2B business but what does that mean for a system integrator like Computacenter?

It would surprise us very much if our customers came up with the completely absurd idea of demanding such a “subscribable” service from us?

I don’t want to buy a computer anymore, I want to buy a service that brings a computer.

=> This is actually happening!

Well, what does Digital Transformation mean?

Here is my interpretation: Digital Transformation means that I’m switching my current business model to a digital business model which means I offer my services to a much broader target group, fine-tune it, design a complex service based on a simple pricing model through significant standardization, offer my service online and perhaps even via an API so that a third party can easily integrate this service into their own services.

MyTaxi (now FREE NOW), for example, thought it must be easier to order a taxi and it must be possible to enhance the customer experience. For 10 years now I have been able to order a taxi via an app and at the same time follow how long the taxi driver will need to get to me and where he is at the moment. Wow! Today I don’t have to find out where the nearest taxi station is or what the local telephone number of the taxi company is. I can pay the taxi bill from my mobile phone and then receive the receipt by e-mail. The whole process becomes faster and safer and the experience as a customer is extremely pleasant. Personally, I never want to go back.

It would go one step further if I could book my complete trip with my travel provider and via the integration of FREE NOW services, my personal taxi is already ready for departure; I no longer have to order it separately.

With the help of a digital business model, it is usually also possible to completely automate process steps or it is simply necessary for reducing complexity or process cycle times. Imagine a person on the phone with the taxi driver all the time, asking him where he is and entering the result on a map so that the customer can see it on his mobile phone. That would be silly. Since every taxi driver can only be part of the FREE NOW community with the help of a smartphone, he can also automatically transmit his location via the app and the customer enjoys this added value without any further effort.

In addition, we gain another advantage through digitalization: We know much more about our customers. We can observe their behavior when using our services much better and gain consequences for the further development of our products. In the digital world, I may have to ask the customer whether he agrees to the use of cookies or the privacy agreement, but the rest I get automatically. With a little skill, I can find out in detail what my customers appreciate about my services. This is an enormous advantage compared to the old world, where it is incredibly difficult to get feedback from customers, collect and consolidate feedback from many customers and then draw conclusions for further development.

And what does that have to do with a system integrator?

As services, process automation, a better understanding of our customers and the ability to adapt quickly play an increasingly important role today, the need for simplification and automation in infrastructure is also greater, otherwise the infrastructure will quickly become a bottleneck of agility and innovation.

But that’s only possible with the cloud.

I would like to further intensify the situation and write the following “8 Theses on Digital Transformation”.

(1) Digital transformation is real

Everyone talks about it, but not everyone really understands what it means. But it’s part of the good tone to say, “We’re doing a digital transformation right now.”

(2) Digital business models are best run in the cloud

No on-premise infrastructure will be able to respond to change as flexibly and quickly as the cloud does and as the digital business models need it.

Although there are already very flexible IT infrastructures today that can be operated efficiently and flexibly on-premise (using technologies such as containers and Kubernetes), flexibility is limited by possible scaling. In the cloud, I can scale up quickly when I notice that my services are appreciated by customers, but I only pay for what I actually use in whatever phase my business is.

(3) Start-ups run exclusively on cloud infrastructures

Start-ups focus on their product. They have no desire to worry about infrastructure. The cloud relieves them of many of the challenges and is incredibly flexible and fast.

In the past, I could only bring my product to the customer once I had procured, delivered, installed and set up my own hardware. Months could pass before my customers could see anything. Nowadays, I can get my idea to the customer within a few hours and therefore receive a first feedback much faster than before. This is essential for a start-up. Investors also feel much more comfortable if their investments do not go into capital costs (e.g. hardware), but into the development and marketing of the product idea. A market validation thus succeeds much faster and the risk for further investments is reduced.

(4) Today’s Start-ups will be tomorrow’s stock market top companies (like in the DAX30)

Wirecard kicked Commerzbank out of the DAX a few months ago. It will continue like this. Either we will see Start-ups that grow so strongly that they replace a DAX company, or a DAX company will buy a Start-up and align its business model with the company it buys. Daimler and BMW are currently going through the latter transformation. They started a joint venture where they combine their efforts in terms of their digital subsidiaries (SHARE NOW, FREE NOW, REACH NOW). These will soon be representing the new Daimler and BMW and they will of course exclusively rely on Daimler’s and BMW’s vehicles.

So the NOW companies will eventually be the new Daimler and the new BMW and as such will also survive in the DAX. Volkswagen is trying to do the same with its WE brand.

(5) DAX30 companies will soon run only in the cloud

This is the result of the last two theses.

(6) DAX30 companies no longer want anything to do with infrastructure

Another result is that the big players are now only focusing on products and services as well. Infrastructure is becoming a simple commodity. I buy infrastructure as a service, not as hardware or software.

(7) Infrastructure companies that can offer their products on a subscription base will be the winners

If hardware and software no longer play a role, the winner will be the one who offers a complete service, i.e. hardware that is fully configured and for which maintenance and operation are included. No more price per ticket, just a fixed monthly subscription for the complete component. This way CAPEX costs are reduced for customers — they are converted into OPEX.

(8) Digital business models bring more knowledge about the customer and help to increase competitive advantage

Those who offer their products as services gain much more insight into their customers than ever before. Those who know how to utilize this knowledge and continuously improve their services and products will win.

How do you feel about that?

How do you think the need for your own infrastructure will develop over the next few years? How do you think system integrators will have to change to remain relevant? How do you think IT departments in companies have to change?

I am very curious about your opinion. Just leave a comment, I will definitely respond to it.