One of the single biggest barriers to an organisation’s ability to adopt a digital strategy is the impact of capital depreciation and multi-year licensing contracts from legacy IT investments.
“Nimble start-ups are using technologies like cloud, mobile, social media, the Internet of Things, and analytics to create new ways to take market share away from traditional, local-based businesses,” says James Valentine, Chief Technology Officer, Fronde.
“Traditional businesses must invest in digital transformation programs both to adapt to the threat and to capitalise on the growth opportunities these new technologies can present.
“Unfortunately for established businesses, they often rely on legacy systems that are neither easy nor cheap to replace. Compared with start-ups, who are not locked into any technology, this weakens traditional businesses.”
Valentine says standard procurement practices include multi-year software licensing agreements and capital investment.
For Valentine, these agreements cannot usually be changed if the company experiences operational or strategic business changes, locking the organisation into potentially high residual costs.
“Cloud technologies are the answer,” he adds. “They provide access to infrastructure and software on a pay-as-you-go basis, and you can scale up and down fast as needs dictate.”
Valentine believes that in New Zealand, companies who let themselves be locked in to on-premise equipment or software licensing agreements will find it difficult to accelerate digital transformation initiatives, which in turn makes it difficult to compete in the current marketplace.
“It is crucial for organisations to break the cycle of lock-in and retain freedom of choice when it comes to technology, or risk being surpassed by the new, agile start-ups,” he adds.