The word “cliff of 2025” has become a hot topic. This shows the possibility that the challenges faced by Japanese companies without their knowledge will continue to lose as much as 12 trillion yen per year after 2025. What measures are needed to avoid this 2025 cliff? We will introduce the meaning of the cliff in 2025 and its countermeasures.
The 2025 Cliff Looming
Digitalization in the Japanese industry is said to be a lot of challenges. What kind of challenges will accumulate and become a barrier called the cliff of 2025?
What is the premise of digital transformation?
The premise of the word cliff in 2025 is the challenge of digital transformation. Digital transformation, abbreviated as DX, is a transformation and set of initiatives for digitalization in a company’s economic activities.
DX is said to be the fourth industrial revolution with digital solutions including IoT, and it is an essential issue to avoid making a difference in global competitiveness.
Learn more about digital transformation (DX) in the following articles.
Digital Transformation – Digital Transformation Wave and Manufacturing | Stratus
If DX is not realized, the cliff of 2025 will stand
The word “Cliff in 2025” compiled by the Ministry of Economy, Trade and Industry “DX Report – Overcoming the IT System “Cliff of 2025″ and Full-scale Development of DX” (PDF) attracted attention.
This report points out the possibility that Japan will be left behind as the world enters this DX time. If companies do not speed up DX in all industries in Japan, they will face a big cliff in 2025.
That is the “cliff of 2025” proposed in this report, that is, the industrial crisis that Japan will be left behind in digitalization.
The aging and complexity of the system
The cause of the crisis, known as the “cliff of 2025,” is economic losses due to the lack of progress in DX. So why isn’t DX progressing in Japan?
It is said that the cause of Japanese companies is that the system adopted independently is black-boxed. Legacy systems, are becoming increasingly customized and complex, making it difficult to get a complete picture of the systems deployed in the enterprise. In addition, the system is divided by department, dividing business processes, creating a situation where it is difficult to start the overall conversion. There is concern that this black-boxing will continue to use legacy systems and reduce competitiveness.
According to estimates by the Ministry of Economy, Trade, and Industry, if these reforms are not successful, legacy systems will reach 60% of the total in 2025, and economic losses over the next 30 years will rise to 12 trillion yen. This is the true identity of the cliff in 2025.
In this way, the cliff of 2025 is not a major problem that will occur in 2025, but the emergence of a cliff that will continue to block Japan’s way for decades. In addition, the cliff deepens year by year, leading to even greater losses.
Why black boxing has progressed and the current issues
If you’re just using a legacy system, just switch to a new one and dx will go a long way. But black-boxing is holding back there. Why did black boxing go ahead?
Can’t the system be black-boxed out?
In the first place, what kind of phenomenon is black boxing that is causing the cliff in 2025?
In general, systems that are considered to be superior increase their customizability, scalability, and support for proprietary specifications as their implementation benefits. This is not wrong. However, what is treated as a legacy system is the on-premises model, not the subscription model in the cloud-like mainstream. In addition, many systems have been able to end updates or end support due to long-term use. As a result, we have advanced to the point where we can not turn back our own customizations in-house, and we are in a situation where corrections cannot be made due to the ruin of maintenance.
In addition, it remains used without being questioned about the system’s challenges while the system is running. As time goes on, it’s no longer even emerging as a challenge. One of the reasons for this is that IT engineers are concentrated in vendors and system integrators, and it is sometimes not possible for companies that use IT to accumulate know-how. There is a fixed idea that “this system is like this”, and there are not many opportunities to dig deeper into the problems of the system.
In addition, the situation where many engineers retire in an environment where personalization is progressing, the absorption and merger of the industry is intensifying and there are many transfers is also leading to a shortage of engineers on the side of use. In this way, legacy systems are black-boxed without being updated.
In addition, trying to fundamentally solve such a black-boxed system requires significant cost and time. Because it is divided between departments, there are many cases where only the disadvantages when starting to update do not conspicuously lead to execution, preventing DX.
This is the structure that many companies continue to use legacy systems and are black-boxed.
Black Boxing and Legacy Systems
In many companies, the majority of IT budgets are only spent on maintaining and continuing the work they are doing today, and there is a system that does not change. Even if there is a system update, the effect of digitalization can be expected locally because business processes are divided between departments. Since the data accumulated as a company cannot be crossed between departments, it is not effectively utilized, and the limit of its value remains low.
In addition, there are many cases where the transformation plan becomes dwarfed because it is not possible to respond flexibly to the new business model. All of this is connected, and it’s a factor that prevents DX and stands right in front of you.
Measures for the “Cliff of 2025“
What are some ways to avoid or eliminate the approaching 2025 cliffs?
Scenario for DX realization
DX needs to be realized to overcome the cliffs of 2025. To this end, the Ministry of Economy, Trade and Industry has shown a scenario for realizing DX and is requesting companies to make efforts centered on system renewal.
As its efforts, diagnosis and sorting based on the DX promotion index, planning and system development in line with the DX promotion system guidelines are shown.
We are also proposing to set up a systematic system renewal as the top priority of our management strategy. This includes disposal of unnecessary systems and utilization of microservices and presents a method to carry out while controlling the risk of system renewal.
How to calculate DX propulsion indicators
Many Japanese companies do not ignore the need for DX. Dx recognizes that it is necessary and is working to establish a digital division, but it has not yet undergone an actual change.
In response to this situation, the Ministry of Economy, Trade, and Industry (METI) have proposed a method to judge based on the DX Promotion Index and Its Guidance (PDF). This is an indicator of how well companies are working to drive DX. Each company can quantify in a self-diagnostic manner.
The diagnosis is proceeded according to these items.
(Citation: Evaluation index for digital management reform (“DX Promotion Index”) compiled| Ministry of Economy, Trade and Industry ）
The diagnostic items are divided into key questions that management should judge and sub-questions that each department, including IT, should consult and respond to. Based on this, the DX maturity level is indicated by filling out the form at the following site.
DX Promotion Index Self-diagnosis result input site | IPA Information Processing Promotion Organization
Based on this result, you can seek advice from consulting firms and IT vendors as the next action. In this way, the guidelines recommend how dx is advanced using DX promotion indicators.
The 2025 cliffs are just around the eye
We introduced the black-boxing of the cliff in 2025 and the legacy system that is causing it, and how dx is advanced to solve it.
The 2025 cliff is on the horizon, fearing it will cause huge economic losses and keep up with the global competitiveness. To avoid this 2025 cliff, it depends on the ability to break away from the black-boxed legacy system and achieve DX in a fraction of the time left. I think you need to test your system again.
