Should you get fired for buying IBM?

“Nobody ever got fired for buying IBM” – a business truism since the 1960s. On the one hand, an acknowledgement of the challenge of major enterprise IT projects; or less charitably an admission of corporate cowardice. As technology becomes increasingly critical to success, can enterprises continue to rely on the big tech brands? Or should software buyers interested in results take a risk with up-coming providers?

McDonald’s has recently ended its trial of an AI drive-through ordering system, developed by IBM, after a spate of highly public mishaps including $200 of chicken nuggets being added to a customer’s order and bacon being added to ice cream. Some analysts suggest the system processed just 85% of orders correctly, and 20% of orders required human intervention.

In the UK, the Post Office’s now infamous purchase of an accounting software system from corporate behemoth Fujitsu led to the false conviction of hundreds of subpostmasters for theft, fraud and false accounting, on the basis of faulty data in the system. The debacle is now being pored over in a highly publicised inquiry. A clear example of where bigger isn't always better.

Corporate history is littered with examples of major IT failures. There was Lidl’s seven-year SAP ERP implementation which cost $500m and was abandoned in 2018; Hershey’s $112m failed attempt to integrate its Siebel’s CRM with SAP; and British Airways’ 20-year IT nightmare haunted by providers such as Oracle and Service Now, to name just a few.

When it comes to enterprise infrastructure such as ERPs, EDPs and CRMs, the day-to-day running of the business is at risk and jobs are on the line. And when the stakes are high CIOs understandably reach for the old brand names of IBM, Oracle and Intuit. But it’s time to question whether this is really the best decision you can make for your business? Do these companies attract the best technical talent? Have they built platforms based on the most modern, flexible and secure architectures? Will they be able to adapt as your business grows or will they be mired in technical debt?

From our vantage point at DN Capital, a venture capital firm with a focus on backing early-stage enterprise SaaS companies, we see the huge advantages that companies can gain over their competition by selecting dynamic and disruptive new entrants over the legacy incumbents.

By definition, venture-backed companies need to disrupt the markets they enter. This means they approach customer problems with an entirely different mindset to product teams at large incumbents where innovation is often stifled by layers of bureaucracy, entrenched hierarchies and decades of technical debt.  They build products for future challenges not current crises, they release updates in weeks not years, they react quickly to their customers’ demands and don’t rely on their brands or expensive consultants to paper over the cracks.

This agility and fresh thinking has led to cases where venture-backed companies now set the standard in areas of enterprise software. Take Snowflake, the cloud data company that was launched by three former Oracle engineers in 2012 and grew with venture backing until its IPO in 2020 – the largest software IPO ever. Just over 10 years from launch, Snowflake competes with Amazon, Google and Microsoft offerings in could data warehouses and sets the standard for the sector.

Or look at UiPath, which was founded in Romania in 2005 and grew with venture backing until its IPO in 2021 and is ranked as a sector leader in RPA, beating the likes of Salesforce, SAP and Microsoft in ratings for innovation and ability to execute.

In our own portfolio we see examples of our software companies earning the trust of major corporate customers. Take Incode, which now powers the digital onboarding and identity verification for many of Latin America’s largest banks such as Banorte, CitiBanamex and NuBank. 

You won't be surprised we think this, but it's high time for CIOs and their teams to turn to proven, venture-backed disruptors when sourcing enterprise technology – or miss out on a competitive advantage.

Guy Ward Thomas is a partner at DN Capital.