The term digital transformation, or DX, is said to have been first used by Swedish university professor Eric Stoltermann in a 2004 paper. What was proposed was that “the penetration of IT will change people’s lives for the better in all aspects.” It seems that they were looking not only at corporate activities but also at a wide range of human society. In that sense, I feel that the idea is close to Society 5.0, which aims to achieve both economic development and the resolution of social issues. Over time, research firms such as IDC and Gartner have individually defined DX.
Here, I would like to refer not to the definition of a research company, but to the definition of the Ministry of Economy, Trade and Industry of Japan. “To establish a competitive advantage by enabling companies to respond to drastic changes in the business environment, to utilize data and digital technologies to transform products, services, and business models based on the needs of customers and society, as well as to transform the operations themselves, organizations, processes, corporate culture.” Since it is the Ministry of Economy, Trade and Industry, the definition emphasizes corporate entities.
With about 40 years of experience in the IT industry, I am reminded of Business Process Reengineering (BPR), which became a hot topic in the 1990s. It was proposed in the 1993 book The Reengineering Revolution by MIT professor Michael Hammer and consultant James Champy. BPR is mainly focused on reforming a company’s business processes, and although DX differs in the sense that it aims to reform the business model of a company, I feel that it is similar in the sense that it reinvents on the premise of utilizing the latest technology. So, was BPR that preceded it successful in Japan?
If you recall the situation at the time, I think two things happened. One is the widespread adoption of business package software. In particular, the adoption of packaged software made overseas by large Japanese companies was remarkable. Until then, the adoption of packaged software for core business operations was not common in Japan, and each company had to develop systems individually, so it was a big change. However, there were many cases where by customizing to a larger range than necessary or by developing surrounding systems on a large scale, a new black box was created instead of the black box of the existing core system.
Second, BPR was used as a tool to reduce costs. Against the backdrop of the economic situation after the bubble, there were many cases where cost reduction of business and IT departments became a proposition. In fact, even if you introduce a business package under the banner of BPR and aim for overall optimization, in individual business processing, it is not a tailored suit, but a ready-made suit. There are also cases where more processing man-hours are required for users than before. However, the number of personnel is reduced on the premise that it is possible to reduce resources through optimization. In addition, by introducing the business package, the cost of the IT department turned to the maintenance cost of the package and the maintenance cost of the customized part outside the company, and it was not necessarily a budget to secure IT personnel in the company.
Although it seems that all negative things have happened when described in this way, in fact, there are companies that have succeeded in BPR with business packages and realized an environment that greatly eliminates the black box situation of old core systems and allows management to refer to management data of the entire company in a timely manner. However, it cannot be said that BPR has been successful for many companies.
As digital transformation (DX) progresses in Japan, this experience with BPR is thought-provoking. First of all, even if you execute the project externally, the results will not be permanent. In fact, the relationship between vendors and user companies is quite different between other countries and Japan. In Japan, there are overwhelmingly many IT engineers on the vendor and SI side, and fewer on the user company side. In other countries, on the other hand, the number of IT engineers who belong to user companies is higher. For this reason, in Japan, the know-how acquired through the execution of IT projects will remain in large numbers on the vendor and SI side. It makes it easier for them to horizontally deploy know-how to different users or to take on additional projects from the same user.
Next is the relationship to the existing system. It is not possible to replace an entire existing line-of-business system at once. Integration with existing systems and data sharing will inevitably occur for a certain period of time. In addition, in some cases, it may be necessary to coexist with existing systems or analog mechanisms. At that time, it is necessary to coordinate with the user department and existing system development vendors. Management needs to be strong and support the core sector in breaking down the black box and building the infrastructure structure of digital transformation.
The Ministry of Economy, Trade and Industry is talking about the cliff in 2025. In other words, if we do not focus on system innovation by 2025, we will fall behind the global digital competition and suffer huge losses after 2025. By 2025, 60% of core systems will be more than 21 years old. In addition, IT personnel who know old programming languages will not be available. The shortage of IT human resources, including cutting-edge IT personnel, is expected to expand to 430,000 people. All the indicators that are quite scary are shared, but these are the actual figures released by the Ministry of Economy, Trade and Industry.
As a non-stop infrastructure provider, Japan Stratus Technology is bringing to market products that support customers’ digital transformation, especially at the edge. By all means, I hope it will help us to overcome the cliff in 2025.
