Ask_Alex

Ask Alex Part 6: Software Eats the World

Alex Jauch is a Group Product Manager for VMware Cloud on AWS. In this six-part series, he answers your burning questions about enterprise public cloud.

In part six, he’ll answer the question: “My company isn’t really interested in moving faster or digital transformation, is that a problem?”

Yes.

If there is one thing that we know for sure about cloud it’s that this paradigm shift is all encompassing and permanent. Businesses today are extremely likely to be disrupted by software companies and this disruption should be viewed as an existential threat, no matter what business you are in. I cannot overstate how critical this is to your company.

While you may not like the term “digital transformation” or the other buzzwords running around the industry, you should be aware of the facts.

As Mary Meeker pointed out in 2017, at least 65% of the US GDP is under threat of major disruption from software (housing, transportation and food). This is the LOW END of the scope here. It is easy to find ways that most of the rest of GDP is being targeted.

more recent report by McKinsey posted on HBR draws an even more dire conclusion:

Technological innovations have radically transformed the business landscape in many ways over the last two centuries, from the introduction of steam power to the market conquest of radial-ply tires. Research by McKinsey & Company and the McKinsey Global Institute shows that digitization is having the same radical impact. In particular, our research shows how digitization can significantly hurt incumbent firms in many industries — depleting as much as half the revenue growth and one-third of earnings before interest and taxes (EBIT) growth of companies that neglect to embrace digital innovations.

To repeat, your future revenue growth is curtailed by 50% by failing to make this change. More alarmingly, they go on to point out that only 20% of the 1,650 firms they surveyed currently have a digital transformation strategy. Taken together, these statements are quite alarming. In short, most of you are going to suffer significant financial penalties because you don’t have a strategy around digital transformation. In our terms, this means that one of the things you probably don’t have is a focus on “velocity-driven IT” which is a big contributor to these types of digital transformation strategy.

Many people assume that we are talking about little guys taking on big guys, and that is definitely happening (AirBnB vs. the hotel industry for example) but we are also seeing entrenched incumbents taking these lessons to heart and driving innovations within their own customer base. See Walmart experimenting with self checkout for example. While some of these initiatives will fail, the point is that innovation from known competitors will increase in velocity if your competitors take this path. Even if you are not directly under threat from a software company, your direct competitor can take strategies from the software business and act like one. If they can delight their customers by innovating with software, you could be in trouble.

In the end, the question is this: As an IT organization, what are you doing to contribute to your firm’s long-term competitive prospects?

If you don’t know the answer to this question, you may want to reach out to your business leaders to figure out how you can transform your IT organization. I would argue that this is the single most important thing that IT leadership can do today.

I will leave you with food for thought: When Marc Andreessen said “Software is Eating the World.” He wasn’t talking about hardware companies or high tech companies. He was talking about bookstores and video rental companies.

Most likely, he will be talking about your business in the near future.

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