“An object at rest will stay at rest unless acted upon by an external force.”
In physics class one of the first things we learned was Newton’s First Law of Motion - Inertia. It’s a good starting point because everyone has experienced it, both good (hammer on nail) and bad (head against wall.)
In the business world, executives know this as their everyday reality when it comes to upgrading or improving their technology position as part of a growth strategy. A recently published report shared how CFO’s are relying on technology as the key to navigating economic turmoil like the recent tariff events and long term growth.
Finance leaders see a way forward through the upheaval. They are steadfast in their commitment to technology modernization as a strategy for delivering a wide range of long-term benefits.
But then the same report calls out how:
…some companies still are waiting so long that vendors are informing them that technical support for their systems will be expiring soon, half of respondents said the cost of implementing new technology is a barrier to digital transformation, and 46% identified integration with existing systems as an obstacle.
This is tech-inertia.
Legacy software “that works” becomes obsolete because it does not accommodate new technologies like APIs, mobile access and cybersecurity tools like MFA (Multi-factor Authentication). Vertically integrated architectures and on-prem implementations “Cost too much to change,” and caretaker IT teams say, “We don’t have time for that now,” when a capital markets team asks them to add a new application because their resources are already fully allocated to building a new app-only document portal that the sales team requested nine months ago. If left unaddressed, tech-inertia can prevent business leaders from leveraging new technology to fuel adaptation and growth.
As a provider of new, leading edge digital technologies like AI prediction for enhanced risk management and workflow productivity, we hear or see examples of tech-inertia every week. “We definitely need this, but we will have to pick this up again in about six months after we stabilize some of the things we are doing now,” – COO independent financier. “IT says that they don’t have time for this right now,” – president of a bank-owned equipment finance company: “I’m not used to such resistance to change and doing things a new way,” – new IT director of an independent financier. “We already tried doing that and don’t see how you could make that work with our systems,” – IT leader after a product demonstration. These are just a few quotes, paraphrased of course, from real world conversations – examples of firsthand experience with tech-inertia.
Addressing tech-inertia starts with understanding its sources:
- A fear of failure culture that is intimidated by technology change and has become comfortable with status quo performance.
- Unclear technology governance that protects technology sunk costs and limited resources versus addressing strategic business needs head-on.
- Misplaced confidence in regulatory compliance as a barrier-to-entry for new technology-enabled competitors who are more agile, more efficient, and more effective at meeting customer needs.
Similar to Newton’s inertia, one cannot make it go away completely. Every organization, like every object, has mass. But not all inertia is bad – just ask an NFL running back coach. Consider three steps to reduce tech-inertia in the organization and make it more manageable with outside forces to be a key part of the growth strategy.
Partner for culture change
Culture flows top down. A partnership between business and technology leadership can reduce the “mass” of an organization by creating an urgency to become tech agile. Identify the right IT visionary in the organization and support them aggressively to get the right applications and functions deployed ASAP. Remove fear of failure with new technology by trying new things often with small, fast steps to learn fast. Leverage external service providers who understand the flexibility and speed of modular cloud technology to help both IT and the business make changes faster.
Avoid the weight of sunk cost analysis and the need to apply “resources we already own” when they do not have the skills needed to adapt the technology stack. Obsolete technology does not improve with age and has no value going forward – no matter how much was spent installing and maintaining it. Sunk costs are a weight no business can afford. DIY – Do It Yourself – can be a good strategy for competitive advantage through technology, but it requires an agile culture of constant experimentation and learning as found in technology startups. If this is not the nature of the organization, consider using outside technology resources to augment the domain knowledge of internal resources. Make the inertia work for the strategy.
Put technology decisions in the right hands
Business leaders are accountable to strategy so they must be empowered to make the necessary technological decisions. Functional leaders – credit, capital markets, customer service, sales - know what they need at the application and workflow levels. When new technology is identified that can meet or exceed those requirements, the investment must be made quickly and forcefully to affect the growth of the business.
This may sound overly simple, but good governance is simple and clear. Accountability is key – who is accountable for the growth strategy. Strategy is the allocation of scarce resources and governance of that allocation is critical. When the business delivers its requirements to meet growth expectations good governance assures that IT resources and timelines are defined and aligned - not resisting.
Avoid complacency by embracing change
Finance and banking, like the medical industry, has a reputation for lagging in technology adoption compared to less regulated markets like ecommerce and consumer electronics.
Conventional wisdom says regulation slows down the application of new technology, particularly digital technology, because each new workflow must be shown to maintain compliance. Established firms assume the scope and expense that they experienced building compliant systems must be repeated by each new entrant. Regulatory compliance is viewed as a barrier-to-entry for new competitors and becomes a de facto component of competitive strategy.
But the reality is that new technology, particularly software, makes every effort faster, cheaper, and more efficient over time. Consider the effort required to stand up an online store in the mid-1990’s versus today. The early days of the internet required custom HTML site developers, on premises hardware and software, and additional IT staff for maintenance. Grok.ai estimates $100,000 plus $20,000-$30,000/yr. Today, a Shopify account is $29-$399/month with consumer level complexity. If a regulation is truly a barrier to business, then someone in the technology ecosystem will create an external force to move it out of the way.
The Managing Partner of a PE firm once asked me, rhetorically, “When is the best time to change a CEO?”
His answer is simple: “As soon as you think of it!” The same is true for a technology stack. If the topic of an upgrade has come up within a leadership forum, then now is the time to engage change. The effort required to build legacy functionality is more than likely an order of magnitude less expensive today and is not a concern of startup and greenfield competitors. New competitors will start with centralized and organized data in a consolidated system-of-record, will keep their data clean from the start, and will integrate operational and management level business intelligence with AI to optimize workflow management and efficiency for each functional application. These organizations will have zero resistance to change when the next technology opportunity arises. Rather, they will leverage tech-inertia to compete harder and succeed faster.