Macro-control in corporate IT: It doesn’t work without a management board, controlling body and policy!

Internal and external factors influence the digital success of a company

The realignment of their business to a digital business model and the management of the associated digital transformation in the groups must be accompanied by the Supervisory Board and Management Board. However, the conditions for a competitive environment are not only determined by internal success factors, but also by external factors that are determined by politics. This article identifies and describes a selection of structural weaknesses in the macro-control of digitalization and the associated false control impulses in companies, which need to be solved by management and politics.

Digitalization as a competitive factor: German key players in international comparison

The shortcomings in the competitiveness of German industry due to the failures in digitization over the last 20 years in Germany and Europe are obvious. While digital champions have been able to establish themselves in both the Anglo-Saxon and Asian regions since the mid-1990s, we have not been able to do so in Germany or Europe. Companies such as Amazon, Apple and Google on the one hand and Alibaba and Tencent on the other show us the economic power that companies can develop with the help of digitalization. Apple’s market capitalization of EUR 2,601.44 billion (as at 3 October 2023) is greater than that of all DAX40 companies combined (EUR 1,406.28 billion). In the automotive industry, the three major flagships of German industry (BMW, Mercedes, Volkswagen) account for just 20.13% of Tesla’s market capitalization.

Apple’s market capitalization is approximately 85% larger than the sum of all DAX40 companies.

BAMAC Group, as at: 03.10.2023

The economic pressure on companies in Germany is high. The aim is to harness the benefits of digitalization quickly and sustainably. The advantages achieved by the competition in terms of new products and process optimization are considerable. The time to try things out is dwindling, as competitors already have ready-made solutions or have been able to prove their market maturity for years. In addition, the consequences of the Ukraine war are coming on top of the burdens from the coronavirus crisis. Increased inflation, higher energy prices and the rise in interest rates are adding to the cost pressure. In addition, the excessive bureaucracy now offers more disadvantages than advantages. Challenging times to implement the necessary transformation in German companies in this environment.

The focus on value contribution directs the focus on business success

To survive in this phase, companies need the ability to make the right decisions. To do this, decision-makers need answers to their questions. These are: To what extent do the measures support our digital strategy? What benefit (value contribution) do the measures generate? What revenues and profits are generated with them? What do the measures cost? Are the costs reasonable? How do the total costs (life cycle costs) develop? Is the delivered quality appropriate in relation to the costs?

The results in the companies speak for themselves – the answers given so far are insufficient in many cases.
In the following, we have identified a selection of structural obstacles that hinder the development of companies. We distinguish between factors within the company (endogenous factors) and those that influence the company’s success outside the company (exogenous factors).

Endogenous factors in macro-control: Ask the right questions and set the right impulses to sustainably increase productivity in your company!

1. there is a preponderance of micro-control in companies.

In recent years, we at the BAMAC Group have observed an increasing shift in control from the Supervisory Board and Management Board to the operating units. As a result, we attest to a shift to the “small-small” of micro-control. The “big picture” of IT, which is made up of both the effect on profit (EBITDA) and productivity compared to the competition (macro control), is lost sight of and takes a back seat when decisions are made. We believe that the period of low interest rates has accelerated this development. We are observing a harmful susceptibility of decision-makers to act tactically at the expense of fact-based decisions.

2. the calculation of IT costs and IT performance cannot be compared.

The shift of decision-making to micro-management is accompanied by a further weakening of control. With the increasing abandonment of standardized key figures in the survey of effort and productivity, any number of statements can be derived. In our view, this is the only way to explain the public statements that we are the world leader in digitization in Germany after the USA. This contradicts our knowledge and data basis. We have been measuring a decline in productivity in IT projects since 2004.
A further indication: demand for benchmarking has also declined in the low-interest phase. Instead of a fact-based focus on efficiency in terms of prices and costs, we are also seeing an increasing feel-good culture coupled with tactical decisions in companies.

3. we have no suitable financial instruments for financing large IT projects.

The financing of large investments is very restrained due to the financing culture. Shortcomings in the accuracy of estimates (see 2), lack of credit opportunities for large measures (e.g. the potential credit volume of institutions is in the mid double-digit million range in good market conditions, while in the USA, for example, measures in the 3-digit million range are common) prevent the development of cost-intensive projects and their control and create an additional competitive disadvantage.

4. there is a lack of alignment with the IT value proposition.

The interaction between investments in IT and their impact on the company’s success (EBITDA) are not analyzed according to the cause-and-effect principle. The lack of focus on IT value added prevents an efficient earnings culture from developing. In many cases, IT is still treated as a cost center. The productivity gains generated by IT are not evaluated holistically.

5. there are considerable gaps and redundancies in the structure and further development of business and IT architecture.

The mode of operation of business processes and IT systems is managed via interfaces. All too often, technical distortions are prioritized downwards. As a result, the costs for operation (OpEx or Run) increase drastically without any added value. At the same time, the costs for investments (CapEx or change) are stagnating with “capped” budgets.
The result: a lot of money for little added value!

Exogenous factors in macro-control: Help strengthen competitiveness in Germany and Europe!

1. we do not have our own platform for communication and marketing either in Germany or in Europe.

In the past, we have failed to establish a platform, both in Germany and in Europe, on which we can organize the meeting of market participants in accordance with our basic democratic order. Where solutions are developed, the solution approach falls far short. Instead, we are being driven by the Anglo-Saxon region (e.g. Amazon, Meta) and the Asian region (Alibaba, Tencent). We believe it is essential for the location that we protect our market via a separate platform in order to remain competitive in the future. Cooperation between industry and the state is essential here.

2. we have no suitable financial instruments for financing large IT projects.

What applies to the company above also applies to all market participants. This results in a competitive disadvantage for Germany as a business location, as capital-intensive projects (such as a platform) cannot be financed by the inventor. This argument is particularly important in the following point.

3. both the tax balance sheet and the commercial balance sheet are designed for the manufacturing industry and not for a digital world.

Both the tax balance sheet and the commercial balance sheet are based on a linear economy. In a non-linear world – which is a key feature of digitalization – this is a locational disadvantage. Financing and investments in software are recognized as expenses in the balance sheet. They thus form a value that is made up of the work involved and the associated hourly rate. The value of a solution for the market is not taken into account. The valuation of Waymo in the USA, which was able to raise the necessary funds early on thanks to its market capitalization, is completely different. There is an urgent need for action to expand our instruments.

The endogenous and exogenous factors listed above are not exhaustive and can be expanded. I invite you to share your perspective with me and exchange learning experiences. I will keep you up to date in this column.

Further information can be found at:

IT portfolio management – an instrument for more corporate growth and sustainable planning