Building Technology Assets

In the networked today, firms are competing at various levels - different geographies (developed markets, emerging economies), various market segments, different product categories, etc. A key differentiating factor for the firms are their Digital Assets. A retailer offering a seamless customer experience through a cross channel offering - web, tablet, smartphone, in-store - is sure to get ahead of its competition. An insurance company continuously tracking its customer hospital visits and health trend is sure to come up with better benefits offering customized to the needs of its clients. Financial institutions with real time reporting on their trading practices, enforced rules and policies are sure to avoid regulatory actions and drive up their credit & performance ratings. So what exactly are these Digital Assets? How to decide which assets to build? What is the opportunity cost of missing out on the Digital journey? Read on to find out more..

Current Landscape

Smartphones are ubiquitous today. The customer is connected 24/7 and has access to information on their fingertips. This free access to information has enabled the customer to expect a similar kind of service from all his service providers - banks, insurance firms, retail companies, utility firms, investment managers, etc. Firms that cannot make their services available to the customer in real time (read mobile) tend to lose out on the customer. Its not only the user interface(mobile application) on the smartphone that matters but also the entire back-end systems that support the service.
Example 1: When a customer is looking to shop for an insurance policy on his smartphone, not only does the Insurance company have to provide an attractive user interface on mobile to display available insurance plans to the customer but also all its back end systems that calculate the premium rates based on certain rules, the plans applicable to the geographical area of the customer, etc., should be ready to provide information in real time. If the customer chooses to purchase the insurance plan, the back end systems that complete the registration and set up of benefits in the Book-of-Record should be able to complete the action in real time and provide the acknowledgement to the customer. In other words, building new assets not only includes new mobile apps but the entire gamut of enterprise applications have to be readied to respond to customer requests in real time.
Example 2: A retail banking customer will expect to access, in real time, their credit card spending trends on a smartphone. Not only does the bank be able to provide the latest spending information for the customer but also be able to categorize the spending, draw intuitive graphs to be presented to the customer. On the flip side, the bank should be able to track customer spending habits, their geographic preferences for spending and apply predictive analytics to come up with customized financial product offerings.

So how to decide which assets to build? Are these really assets?How much are they worth?

Digital Assets - Build vs. Buy

When the competition is real time, it takes few minutes to lose a customer. Firms have to respond in break neck speed to retain an existing customer and attract new customers. m-Commerce is the first area they should focus on. There are a host of mobile technologies and frameworks available that help the IT teams to build attractive user applications. Open source, java script based frameworks like Angular, Backbone provide portable, agile framework for quick development of mobile components. IBM's Bluemix provides a cloud based platform for building mobile applications without having to own any application development infrastructure in-house. Attractive user interface, ease of use (intuitive) and quick response are some of the key factors to consider while building a mobile app. Its imperative to provide a seamless experience on the web as well. IBM's WebSphere Portal provides a easy and agile method to build web components. By breaking down features on the website into independent components (called as Portlets), it provides an agile way to develop user interface components in parallel.
Mobile and web user applications are only the tip of the ice berg. The enterprise systems that support the service offerings have to be upgraded or migrated to support real time servicing. While any firm would want to build/update their back end systems with in-house IT teams for better control over the source code,in the interest of time, it makes sense to look at existing off the shelf products with scope for customization as a suitable alternative. Existing vendors with a good track record on product configuration and service typically have the experience of working with top organizations across industries. It gives them an opportunity to identify upcoming client needs, even predict new trends and come up with a product offering that can serve the purpose. Firms such as IBM play this role effectively. They not only come up with the right products for future customer needs but also, because of their large clientele, have enough experience to update the products with customer feedback. With such a feed back loop, new buyers of enterprise software from IBM stand to gain the benefit of a product that is ready to be deployed and customized to their unique needs. Request processing workflow tools such as IBM Business Process Manager (BPM), Enterprise Case Manager (ECM) and business rules tool such as Operations Decision Management (ODM) provide an optimized channel for fulfilling requests in real time. IBM's other products such as WebSphere Enterprise Service Bus (ESB), IBM Integration Bus (IIB) etc., provide the plumbing needed to integrate organization's legacy systems and Book-of-Records. These integration systems are optimized to integrate with back end systems built on different legacy technologies. Organizations opting for these proven enterprise systems gain the benefit of going quick to market with the transformation of their customer services into real time.

Are Digital Assets really Assets ?
Typically in any firm serving the needs for an end customer, the operations units are accountable for fulfilling customer requests. The goal of the operation units is to provide quick turn around for customer requests, while reducing the operating costs. $$ spent on building IT applications to support operations are looked at as operating costs and the cost of building/buying enterprise systems becomes a key deciding factor while choosing the product. But these enterprise digital applications are actually assets that should show up in the balance sheet of the organization. The costs of building digital assets should be treated as investment in future assets. Similar to a manufacturing firm treating a new plant as an asset on completion, a pharmaceutical firm treating its retail stores as assets, the enterprise digital applications should be listed on the asset side of the balance sheet of the organization. These digital assets provide a unique differentiating factor in acquiring, retaining and serving a customer. During the recent bankruptcy filing by Caesars Casino, an analytics software that tracked customer spending in its casino was a point of contention between its debtors over its asset liquidating rights. This only highlights the increasing importance of digital assets to organizations today.

Digital Asset Valuation

The Weighted Average Cost of Capital (WACC) applicable for the operating unit should be used as the hurdle rate to value these IT assets. The expected time for completion of the application development, metrics such as expected time saved in fulfilling customer requests, increase in service requests served, additional customers acquired etc., have to be calculated and converted into a $$ number. For those enterprise digital assets that contribute directly to increase in earnings, a earnings multiple can be used to value the asset. Using various valuation techniques, a specific $$ figure can be assigned to these Digital Assets.

Conclusion
Organizations should start treating enterprise digital applications as Digital Assets and allocate their budget accordingly. A good technology partner can help organizations in making the right decision to prioritize their digital asset journey. If you are interested in knowing more about building optimal digital assets that offer the bang for the buck, get in touch with the Advisory & Consulting team at Prolifics. As a premier IBM Partner, Prolifics in uniquely placed to address the client needs and be the true adviser.

Author  N.R. Vijay