CFOs should be working with their ICT teams when it comes to OEM

Pax Mataitsane says CFOs and ICT teams should work together as they move onto more agile OEM providers.

It was 2008 when a financial crisis massively affected the global economy. This event made us look back at our governance and risk model, with boards tasked not only with looking at the future of companies, but also actively looking at the business risk associated with that.

Fast forward to 2020 and the Covid-19 national shutdown hit most industries. The first 21 days in South Africa catapulted the country to a complete standstill. That left board members and executives trying to evaluate the impact and risk of an unprecedented situation. Not even all the MBA’s that Harvard executive schools hand out could prepare us for this.

One area of interest was original equipment manufacturers (OEMs) within ICT who kicked into gear and planned well to prepare for the new tide. Their job was to bring new solutions and demonstrate their adaptation to the new normal. The world knew that now was the time to accelerate the digital transformation projects or fourth industrial revolution.

Technology became the answer to adjusting to the change, which confirmed that everything was going to be different forever. Zoom, Teams and Google Meet became our new normal.

Before the pandemic struck, there had never been a flood of requests for the reduction of OEM maintenance and support costs from customers – everyone wanted to save. Every customer looked at their operational costs and interrogated what had to be done and where changes could be made to reduce costs. Most customers asked OEMs if they could assist in any way to reduce the costs, and most answered with a resolute no. The question is why they couldn’t, when it is known that they make more than 95 percent margin on maintenance and support.

To make matters worse, some OEMs used this time to default to their contracts to try and find areas of opportunity for themselves. This meant that they could now use their licence audit clauses to try and see if there was any chance of new purchases for non-compliance.

This is a valid legal contractual sales strategy to balance the sales when you cannot create a need or add value to a business. But what compounded the problem is that – given the digital disruption we have seen – a lot of new cloud players entered the market, with more agile, innovative and flexible offerings.

The new risk of licence audits not only presents the possibility to affect ICT budgets in a company to stop new innovations (now needed more than ever) but also threatens to cripple a company to bankruptcy. Executives are now having to manage the risk to the business and for the first time, this needs to be reported on at a board level because of the effect this can have on the full business strategy.

With King IV also recognising that any risk may in fact lead to opportunity, this then allows for companies to seek advice from independent companies to advise them on their positions for two reasons: firstly, checking for compliance before negative effects, and secondly, exploring opportunities for savings. These savings are the passageway to hidden treasures.

Every CFO, CEO and board member should be asking their ICT team to apprise them of the position of the company on compliance and also risk mitigation.