Inside the Machine

0:00Welcome to Digital Stratosphere, the podcast that helps organizations throughout the world with their digital transformation journeys. Here, you will find independent and technology agnostic advice with no software vendor sales being to help you make the best decisions for your organization. Whether you are in the process of selecting technology, in the midst of your transformation, or trying to get your initiative back on track, Digital Stratosphere provides expertise and best practices to help. The band Pink Floyd once said, welcome to the machine. If you're part of any technology implementation, or if you're part of the tech community, you are part of the machine. I'm going to explain what I mean by that here today. My name is Eric. Here in Berlin, I'm the CEO of their stage consulting. We're an independent and tech agnostic consulting firm that helps clients throughout the world with their digital transformation journeys. And one of the reasons that I love the topic we're about to talk about here today is because on the surface, we always talk about how projects fail. We look at the failure rate being extremely high at 80% plus in most cases.

1:03A number that hasn't changed in the decades that I've been doing this. And it's easy to blame people here. It's easy to blame a software vendor. It's easy to blame the system integrator, the consultants. It's easy to blame yourself. It's easy to blame the client that's implementing technology. But the reality is there's a systemic breakdown and systemic problem in the technology space that is designed to sell software, but it's putting the odds against you, the end customer. And that's what I want to talk about here today is I want to unpack the machine and talk about what it means and how the conflicts of interest and the discrepancies in the machine are creating problems for end customers. And why ultimately it's causing digital transformations to fail at an alarming rate. Now before I dive in, if you'd like to learn more about some of the lessons we have from having helped so many digital transformation project teams throughout the world, be sure to read our ebook called Lessons from 1000 Digital Transformations. You can find that by scanning the QR code right here or you can go the links below. So when I talk about being inside the machine of technology, what exactly is it?

2:06Well, there's three dimensions of the machine that I'm going to talk about and unpack one by one here today. So these are the three major components of the tech machine. You have the client, the end company that's going through the digital transformation. These are the ones that are buying new technology. These are the ones trying to improve their business. Then you have the software vendors, the technologists, the people that provide the technology backbone of digital transformation. And then you have consultants and system integrators. And as we go through this here today, I'm going to explain to you how these three pieces of the machine all come together to create somewhat of a flywheel. But it's not a flywheel in a good way. And the way Jim Collins talks about it in good, great. This is good to worse, I would say, or bad to worse, in terms of how this flywheel works. It's a flywheel that doesn't bode well for the client. But it does bode very well for the vendor and consultants. And that's why I'm not unpacked here throughout the rest of today's video.

3:06So let's start with the client. So this is the end customer organization going through the digital transformation. What are their priorities? Let's start there because this is important in theory. This piece should be the center of the machine, but unfortunately it's not. And that's by definition and by design. So if I could redesign the machine, I'd put the client in the middle, but they're not. But having said that, let's talk about what the client with the end customer wants. They want to modernize. They want to reduce tech debt. So they want to get rid of that old crappy system. They want to get rid of all the complicated customization. They want to be in a more modern cloud-based platform. They want to take advantage of AI. There's all these different things that a client wants out of technology. It all sounds good so far. No problems yet. We'll get to the problems later, but this is what the client wants so far. They also want to simplify operations and technology. So part of their job is to simplify. They want business value. And they want an ROI. The end of the day, more than anything, organizations want an ROI.

4:06They want to know that there's a cost-adjustified return on what they're about to spend money on. And in addition, they also want long-term flexibility. So they don't want to be locked in. They don't want to be in a situation they can't get out of. They don't want to be in a situation that are going to escalate and cost. They don't want to be in a situation that's hard to change later. So these are all things that the clients want. Sounds basic enough. Sounds good so far. But what we're going to talk about today is whether or not these are valid, because these are very valid reasons why customers go through digital transformations. But instead, what I want to do is talk about why these other two pieces of the machine completely override and overpower these concerns and priorities that the client has. Now, we've talked about what the client wants, what their priorities are. Let's talk about the vendor. Of course, they want revenue. We all want revenue. But more specifically, they want annual recurring revenue. ARR. This is a really important number. You don't have to be a finance person to know what this means.

5:07Every person in the tech space should understand this, even if you're not a software vendor. Annual recurring revenue is basically when you have cloud subscriptions. You're not just making a sale as a vendor that's worth a fixed amount of money. You're making a sale that's recurring every year. And investors love this. Investors love companies, software vendors in particular that can maximize their annual recurring revenue, which is why the cloud movement is so powerful right now. There's so much money tracing the adoption of the cloud. And most of that money, by the way, is not coming from clients. It's coming from investors. So the more vendors can convince clients to increase the vendor's ARR, the better off this vendor is going to be, regardless of the fact that more often than not, the vendor's priority here conflicts with some of these priorities over here. And I'm going to come back to that point here in a moment. But first and foremost, software vendors want revenue. And more specifically, they want annual recurring revenue. They also want to lock you in as a customer. And the term vendor lock generally has a negative connotation. But in terms of the vendor, it's actually a positive thing.

6:08If a vendor can get you, the customer locked into a long term contract. And if it's a situation where it becomes very difficult to get out of that contract, either because the contractual terms are prohibitive or because what's even more likely is because moving from a cloud platform to another in the future is going to be extremely difficult. And we haven't even started to feel that pain yet because we're still in the first wave of cloud adoption here in the mid-2020s. So vendor lock is a dream for vendors. And it also fuels this predictable ARR that investors are looking for. Software vendors that are focused on the cloud, which most of them are cloud and SaaS solutions, they want vanilla adoption. Not because it's best for your business, but because they can't scale their cloud solutions if everyone's out there deploying the software in a different way and doing all this customization. They need you, the end customer, to fall into line into their generic vanilla off-the-shelf software so that they can scale. So they can sell their same software that they sell into you.

7:08They can sell it to thousands or tens of thousands of other customers without breaking the model, without breaking the system, and while also maximizing their profit. The more customization and variation that exists out there, the harder it is for them to do that. And then the final thing I'll say is that the vendor wants you to start now. They want you to implement today, not next month, not next year, now. Reason for that is because the meter starts running. Your annual recurring revenue that you're paying the vendor starts ticking in today. And now they can maximize the revenue, even while you're still trying to figure out how you're going to use the software. They're already making their money before you've received an ounce of business value. They're already making significant money on you through these annual subscriptions. So this is what a vendor wants. Next, I'm going to talk about what consultants want, the system integrator, the technical emblemators. And then I'll talk about how this whole machine is designed to benefit these two parties and why that's in conflict with what the end customers want. If you are trying to achieve digital transformation success, turn to third stage consulting group.

8:16Third stages independent and technology agnostic consulting team helps clients define their digital strategies. Select the right software and manage their implementations. With offices in the US, Europe and Australia, our team helps the world's most forward thinking organizations through their transformation pitfalls and risks, whether you are embarking on an ERP, HCM, CRM, Supply Chain Management, or any other digital transformation. Contact third stage consulting to see how we can help you reach the third stage of transformation success. So let's talk about what the technical consultants or the system integrator want. What they want, just like the software vendor, they want to start now. Their services companies, they make money by staffing a small army of people on your project. So they want you to start tomorrow. They don't want you to take time to plan. They don't want you to get ready.

9:18They don't want you to mobilize your own team. They want you to start now because they can start building one, two, ten, twenty, fifty, maybe even a hundred or more different people on your project and that's significant revenue for them. So they want to start now whether you're ready or not. Not only do they want to start now, they want to ramp up fast. They don't want to just have the project lead showing up tomorrow or just the process leads. They want their entire army of consultants showing up as quickly as possible. So they want to start now and they want to ramp up their team very quickly. They also want control in ownership. And this is a really dangerous one. And this is especially true for the larger system integrators, the big four consulting firms, and even some of the larger tier two system integrators and consulting firms. Technologists as a stereotype tend to be purists. They tend to be believers that drink the Kool-Aid. They think their software can do no wrong. And anything that disrupts their model and their view of the world is a threat to them. And so I would say consultants as system integrators more than anyone have change management issues and resistance to change issues because they don't like the idea of a client having too much say

10:20an outside third party consultant having too much say they want control over the project. Part of this is also self-serving because the more control and ownership they have, the more budget they're going to consume. If you're spending $10 million on a project and let's just say three to four million of that is going to the vendor, they want to consume that remaining five or six million as much as possible in their wheelhouse here. Even though the reality is there's so much more money and time that should be spent on other things outside the realm of what the tech consultants do that are even more important to the success of the project. So they want to control an ownership of the project for those reasons. They also have a myopic tech focus. So their job in their minds at least is to deliver technology that works from a technical perspective. It may or may not work from a user adoption and a business value and an operational perspective, but they in their statements of work are really good at writing contracts that ensure that all they really have to do is deliver technology that works. You're typically the one responsible for training. They'll train your trainers, but typically you're going to have to go train the people out in mass.

11:23You're the one that's going to have to figure out how to change your business to fit the technology and God forbid you can't do that. You're going to have to try and figure out how to change their technology to fit your business, which that creates a whole other set of problems. You're the one that's going to have to figure out how to move your data out of those old legacy systems. You're the one that's going to figure out how to decommission the technologies that you have today. You're the one that's going to have to upskill your team to be able to survive and operate in this new environment. So there's a lot of responsibility that fall on you, the end customer, that is not their responsibility and their responsibilities on technology. Now, you could argue that's not the way it should be, but that is the way it is in the industry as of right now. And then I want to talk about one other thing that is on the minds of most consultants and system integrators. And I'll talk about it from the perspective of what they're not and what their focus is not. Their focus is not on business outcomes. And that's worth calling out, even though I've alluded to it already, that's worth calling out as a separate point here, because you can deliver all these things that the vendor and consultants promise.

12:24But if you're not getting business value and you've spent a lot of money on that technology without any value to show for it, that's a problem and that's a broken part of this machine. And speaking of broken parts of the machine, let's shift gears now to talk about the conflicts of interest here and why this machine works so well for vendors and system integrators, but not so well for the end customers. Now, I believe I've alluded to this already, but it's worth calling out more explicitly the conflicts in this machine. You would hope and think that the client would be the beneficiary of this machine. They are not. If you look at this picture right here, you have to ask yourself, who are the two of the three parties that are going to succeed and are going to come out ahead with this project, with the least amount of risk compared to the third? And that answer is clearly the vendors and system integrators. Regardless of how well this project goes or doesn't go, they will be okay. They will make their money in their long-term subscription contract. They've made their services money, whether you like the value you got out of or not.

13:26You are the one that took on all the risk. You're the one with the cost. You're the one with the business value. The Bayer may not materialize. And ultimately, if heads start rolling or there's pressure or blame to go around, yet they might get some of it, but chances are pretty high. It's going to reside here. So clients are in an unfortunate situation because not only are they taking on a huge amount of risk with all the upside going over here, all the guaranteed upside that is. But also, you look at the way this machine is rigged against client interest. Beyond that, not just because they take on all the risk, but the risk itself is materializing here because their self-interest at the vendor level is to lock you in, get you paying as much money as possible for their recurring revenue and that recurring cost never goes away and never decreases. It only increases. So again, they have all the upside. You have the downside because that cost is going to increase. They want you to conform your business to their software so they can scale their business and make more profit. But that ends up disrupting your business in some way. Even if it works out okay in the long-term, it's still going to disrupt your business.

14:28And the fact that they want you to start now, start paying now for software that isn't delivering value yet is another way that it's rigged against you. Same with system integrators. They want to start now. They want control. They want you to focus on technology. They don't want to focus on business outcomes. That is in complete direct conflict with what your goals as an end customer are. You want to modernize, you want to reduce tech debt, all the stuff we talked about. So this is the unfortunate reality of the machine. I would love to say that we are going to change this and follow these five steps and we will dismantle this machine and destroy it. That's not true, but we will talk about in the next section is what you can do to navigate this machine more effectively and make sure that you don't get consumed by it. I open this video by talking about the song, Welcome to the Machine by Pink Floyd. And there's a quote in that song where they say, What did you dream? It's all right. We told you what to dream. So it's a sort of draconian, dystopian view of the world that song. And I think that song actually does apply to the technology industry

15:30because they watch you to follow their rules. They want you to conform to their way of doing business what's in their best interest and it really doesn't matter if it's in your best interest or not. So that's the bad news. That's the way the machine is built. No one of us here watching this video are going to be able to change this. But what we can do is manage this machine and get it under control. That's what I want to talk about next. So what can you do? Well, there's a few things you can do here. One is you just need to understand that the machine exists and then it's rigged against you. And be okay with that. I'm not saying this to alarm you or to make you freak out or tell you that you shouldn't move forward with a modernization or a digital transformation project. But just knowing how the machine is wired is super important and most people don't really think about that when they enter these projects. So understand the machine is number one. Number two is to do a phase zero planning project before you ever start implementing. This is a way for you to take control and to mitigate these risks over here in many ways. You don't want to start the project now.

16:30I would say don't do this now. They want you to don't do it. Don't give control and ownership to the SI. Get rid of that. Take control. Get your PMO in place. Have someone, even if you don't have them internally, have someone that represents your interest and manages your PMO so that they are in control, not just the vendors. The tech focus is fine. You can still have a tech focus but not the myopic focus that vendors have. You definitely don't want this one. You want your phase zero to focus on how can we get business outcomes. And then over here, this one you can't get away from. That's just the way it is. You're going to end up paying money. Probably more money than you want. It's longer than you like but tech today is more expensive than it's ever been. But if you do a phase zero and you plan this carefully, you can avoid vendor lock. And you can avoid this problem here which is just conform your business to fit the software. There are ways around that. Phase zero will help you figure out where this technology fits your business and where it doesn't. And where you might look for custom developed solutions or third party bolt-ons, whatever the case may be. But having a deliberate strategy and a clear strategy as part of a phase zero

17:33is one of the most important things you can do. And along those same lines is to have a clear strategy and plan. And again, this is not a tech strategy. I'm not talking about the vendor strategy that they've given you or the system integrator strategy. I'm talking about your business strategy. What is your transformation strategy? It will include pieces from the vendor and the system integrator up here. But that's just one piece of it. You have all these other pieces like change management, internal alignment, data migration, architecture integration, multiple technology work streams, all these different things you're trying to manage. You want to have a clear strategy and plan to help you get there. The other thing that will help is to have a non-vendor PMO. The last person you want to put in charge of your overall project is your vendor and system integrator. It may sound crazy, but it's not. And here's why your system integrator and your vendor are providing you one work stream within a broader program. You need someone to manage the overall program. All the other stuff besides technology, besides this one technology. So you need someone that can look at the bigger picture, represent your best interest, and not having the fox guarding the hen house in terms of the vendor, the system integrator doing that for you.

18:38And then finally, look for independent help. Look for people that you trust, people that can help you manage this machine, and someone that can help give you some firepower and ammunition and knowledge to be able to manage this machine. It's a big, gnarly machine. It can get out of control quickly. This machine is why so many projects fail. But by having that outside third party help like our team at third stage consulting, that's one way that you can all navigate this whole thing. I'd love to hear from you, though. Have you seen this machine in action? What have the consequences been? Do you have a different perspective from what I'm saying here? I'd love to hear your feedback. Leave your comments in the notes below. And if you'd like to learn more about digital transformation success versus failure, be sure to check out our e-book called Lessons from 1000 Digital Transformations. You can find that by scanning QR code right here or go to the links below. So I'll be found this information useful and I'll be of a great day. Learn more about us and download independent reports, videos, and other best practices at thirdstage-consulting.com.