The world is going through a digital transformation that could be as significant as the advent of the internet. Two decades ago the big change was the appearance of powerful super-computers but today the revolution is being driven by data, software and computing services, according to Christian Noll, who leads IBM's Global Technology Services business in Central and Eastern Europe.
“The world is changing and IBM is playing an active role in that change in Central and Eastern Europe (CEE),” Noll told bne IntelliNews in an exclusive interview. “Our clients have a digital transformation agenda, particularly in financial services, but it reaches right across the spectrum of companies. This transformation is driven by technology.”
CEE has become a hot bed of activity thanks to a combination of factors both positive, and on the face of it, negative. On the positive side, the high standards of education and the traditional bias towards the hard sciences have resulted in a pool of talented programmers and software engineers. But the social legacy has also resulted in fast change: as IT systems have had to be built from scratch and many countries have gone straight to state-of-the-art systems, leap-frogging over intermediate stages, often making them more competitive than their Western peers.
Finally, the small size of some of the countries in the region mean companies and governments have been forced to look at out-of-the-box cloud-based solutions as their own economies are simply not big enough to develop their own solutions to some of the thornier technological challenges.
“The problem that companies face is the speed of change is so fast and they don't always have access to the skills in the new technologies,” says Noll, adding that IBM has set up a pan-regional service to cater to the needs of customers across the region that is not limited by geographical borders and allows small companies to access big solutions by sharing the costs.
Banks are a good example where a whole sector is going online and they make up one of the most important client bases for IBM’s European business.
“Society is increasingly comfortable with doing business online and the consumer is increasingly demanding it. Children too are living a digital experience at school. And IBM R&D technology is underpinning these changes,” says Noll. “However, it’s mostly in services and software, not hardware as it was 20-30 years ago.”
CEE is in an especially strong position to adopt these new technologies, simply because they didn't exist before. Some countries were left behind by the digital revolution at the end of the Cold War and so the newly independent countries have leapt over the intermediate systems and gone for state-of-the-art systems when buying in new technology.
At the same time there is a process of consolidation in many of these markets as they build up new economies, shedding their socialist legacy in the process.
“Take Ukraine for example,” says Noll. “They are closing banks as they clean up the sector and there is a process of consolidation going on as the smaller and weaker banks leave the market. That comes with new IT demands. Players in CEE are looking at technology to leverage their advantages from Bulgaria to Romania.”
Another aspect that has changed is the borderless nature of technology. One of the problems many of the countries in CEE face is they are simply not big enough to host the large players that bring economies of scale advantages. IBM has built part of its business on this need, putting services into the cloud and offering small companies across the region best in practice services for things like data management, server facilities and security support, amongst other things.
“It doesn't matter where these services are actually located. We can offer all our customers all these things 24/7 and even the smallest can tap the same highest quality support that their biggest rivals are using,” says Noll.
There are some exceptions. The Russian government has insisted that all online business physically store the information about their customers in Russia – the Yarovaya law – so that it is subject to Russia’s laws (and the authorities have access to this data if they choose). The need to store huge amounts to data could cost the sector up to $1.5bn according to some estimates and will be a drain on the leading companies in the sector, although a final decision on the implementation of the law has yet to be reached.
Noll cites the example of DSK Bank in Bulgaria, part of Hungary’s OTP banking group, which recently put much of its service online. The systems were put into the cloud (and hosted in another country), which improved the flexibility and quality of the bank’s services while reducing its response time.
Nikolay Shalamanov, CIO of DSK Bank, wrote in his blog: "After the end of the whole migration process it turned out that the most critical applications – our electronic banking system and mobile application are working 10-15% faster. As a result of working with IBM we expect to generate up to 20% in annual savings which is one of our main goals.”
A typical deal was IBM's partnership with ActivTrades, a preferred broker for 13,000 active traders across the globe with a monthly trading volume of over $87bn on average, and one of the oldest forex brokers in the financial industry.
The company migrated its trading platforms MetaTrader 4 and 5 to the IBM Cloud as part of an IT services agreement with IBM that helps their clients to more quickly access up-to-date account information, stock quotes, community bulletin boards and online features to manage financial portfolios. As a result, today they are able to deploy new services in days rather than months and can execute transactions significantly faster than with the previous system, according to Noll.
More recently IBM teamed up with Azerbaijan’s state oil company SOCAR with a joint Caspian Innovation Center LLC for the purpose of building and operating a competitive analytics and delivery centre to provide IT, business transformation and business consulting services in Azerbaijan, the Caspian Region and other countries. The oil sector is a heavy user of cutting edge technology, which also produces spin off technologies that can be used in the rest of the economy.
Rovnag Abdullayev, president of SOCAR said: “SOCAR’s unique experience in Azerbaijan, the first country of industrial oil production, will be merged with IBM’s advanced cognitive and analytics capabilities. This synergy can potentially expand to play a role of regional hub, facilitating digital transformation across other industries. That would boost the job creation in high-skill, high-paid areas, effectively stretching our contribution to Azerbaijan’s human capital development beyond just the oil & gas industry.”
A larger and sexier project IBM has also recently undertaken is in partnership with the Russian retail banking giant Sberbank that has thrown itself at digitilisation and established a blockchain laboratory.
Sberbank organised the Russian banking industry’s first-ever pilot blockchain payment transaction on November 29 that used the IBM blockchain platform on the basis of HyperLedger Fabric. Sberbank’s partners and participants in the pilot were MegaFon, MegaLabs, Alfa-Bank, and IBM.
“The blockchain solution created by Sberbank has allowed us to make the first pilot payment transaction – using IBM Blockchain technology – in the history of the Russian banking industry,” said Sberbank CIB Managing Director Stella Kudachkina. “Above all, the advantage of using this technology when performing settlements is the high speed at which transfers are made: after the money is sent the transaction is recorded on the receiver’s account almost instantly, in real time, unlike the traditional system that is used to make transfers.”
Russia has gone a bit blockchain bonkers after Russian president Vladimir Putin latched onto the technology at last summer’s St Petersburg International Economic Forum (SPIEF). Noll expects that it will continue the revolution by throwing up new business opportunities and entirely new kinds of business.
“The shared leger is a shared truth and this is going to be as revolutionary as the advent of the internet. It will dis-intermediate a lot of people in trust positions now. You take something like the automotive industry, and the just-in-time delivery of parts to production becomes transformed thanks to the traceability of the blockchain; it makes the location of a part an absolute truth,” says Noll.
He also cites the impact on the diamond industry as each stone in effect can be given a fingerprint thanks to blockchain authority, ending the questions over so-called “blood” diamonds at a stroke. The business applications of blockchain technology are limitless as it can in theory be applied to any business that involves a transaction between two parties – which is all of them.
And CEE is a great venue to be pursuing these ventures. “There are excellent brains in CEE, perhaps because the education system was based on natural sciences. IBM has located some of its global delivery centres to CEE thanks to these skills. It's a clean canvas and that leads to great innovation,” says Noll.