Digitalization Frenzy in Board Rooms

We have been living in a market which is under extreme pressure to begin or accelerate the digitization and digitalization journey within the enterprise. Many organizations are creating new C level titles for digitalization and creating senior leadership focus committees to incubate and scout for digital technology startups. Recently, this trend has been increasing than ever.

We had a decade of “Commoditization of IT” discussion and debates by pundits, after Nicolas Carr made the declaration that “IT Doesn't Matter” in the Harvard Business Review.

So, what changed? Let us look at what happened to the market valuation of the great enterprises in the last 15 years. 15 years ago the top 5 companies in terms of market capitalization were GE, Microsoft, Exxon, Citi and Walmart. And one of the argument was that, Microsoft being the first one to democratize the PC revolution, happened to be in this list with that unique “being first” advantage. Well, 15 years later, the top 5 list is Apple, Alphabet, Microsoft, Amazon and Facebook! It is just a club of software and computer technology companies. This is indeed getting noticed by board rooms, market pundits and management consulting firms!

The rise of non-traditional companies like Uber, Lyft, Airbnb etc. which created a “Smart and technology assisted middle men strategy” without the conventional overhead and capital needs of a conventional business model is also contributing to this frenzy!

The cash rich digital leaders such as Apple, Alphabet, Microsoft, Amazon and Facebook and many other non conventional players started moon shot experiments into conventional businesses like automotive, health care, space exploration, telecom etc. to redefine the sectors with new business models.   

These dynamics in market has already became the biggest gift delivered for major management consulting companies around the world. Opportunity to help on charting the journey of becoming a digital company is the top agenda in almost all board rooms today. Everyone is desperately looking for the playbook for transformation to keep relevance in digital economy. 

Some conventional companies like GE has declared already that, it is a software company and started extreme focus on investment in building software platform called Predix as the Industrial Internet Platform for future. Companies like GM decided, IT is not a commodity anymore and increased IT department by almost 10 fold with employees instead of outsourcing! 

So what is unique and attractive about software and computer technology business? Unlike any other business, instant possibility of creating awareness of the products/services to 30% – 40% of the planet’s population through digital marketing techniques and Internet exists only in this domain.

There is no need of a multi-year country by county commercial go to market strategy unlike conventional business. Since there is no capital intensive physical engineering in software product changes, it is just easy to iteratively address features driven by emotional needs of customers without doing a lot of cost/benefit analysis. There is no better business where one can get a very effective feedback loop at scale with no cost or effort. Just think about all the work we do for free for all new software releases from Apple, Microsoft etc.! Finally, when you have a market of 3-4 billion customers, it is not hard to create a few billion in revenue. This is scale business model and not a focused business model on top 100 customers! 

Software is virtual and will never be able to replace the physical needs of the world such as cars, turbines, heavy machineries etc. It can only improve the experience and efficiency. It is simply a battle of controlling the customer experience and relationship and making producers of physical products, just subservient!   

There is a real race in future by digital companies, to become the winners by making industrial companies part of their ecosystem vendors vs the industrial companies trying to vertically integrate software and avoid losing the leadership position. Software is also becoming meaningful part of COGS (cost of goods sold) where it is important to manage and avoid margin erosion.