Software’s eating the world. Are you next?

Industries are being reshaped at a frightening pace making it difficult for the established players to respond. The power is with the new entrants. They get to develop new business models without the baggage – people, premises and processes – collected over the years. They are able to innovate and then iterate rapidly. It is a scary time to be a “major player”.

Every industry is being digitized

Marc Andreesen summarized the current phenomenon with a simple phrase “Software is eating the world” which was published in a Wall Street Journal article as far back as 2011.

In that article he argued that every business in every industry would feel the disrupting force of technology and the new entrants to the market would have a lasting effect. This was more than a bubble or blip: “We believe that many of the prominent new Internet companies are building real, high-growth, high-margin, highly defensible businesses.”

In their recent book, “B4B – how technology and big are reinventing the customer-supplier relationship”  the authors take a look at how the sales cycle has changed for B2B and B2C companies. Building on Marc Andreesen’s thinking they have charted the transitions of industries as their products have moved from physical to digital and how their distribution has moved from physical to digital. It makes scary or exciting viewing depending on your view point; customer, incumbent, start-up.

Don’t think that because you have a physical product you are immune. Think of the humble light bulb. Philips and GE Lighting are reeling from start-ups offering internet connected LED bulbs. But it is not just the technology. LED bulbs last 22 years on average which is killing the established business model. The incumbents’ traditional business is falling faster than their LED business is taking off.

And even if you are in a commodity that can never (although never is a long time) be digitized – such as steel – the way that customers find you, research your product, engage with you, procure and negotiate have all changed due to the digital revolution.

Transformational forces

What is supercharging this transformation is a combination of 4 technologies; cloud, social, mobile, big data. Gartner calls it the Nexus of Forces.

“A Nexus of converging forces — social, mobile, cloud and information — is building upon and transforming user behavior while creating new business opportunities. Research over the past several years has identified the independent evolution of four powerful forces: social, mobile, cloud and information. As a result of consumerization and the ubiquity of connected smart devices, people’s behavior has caused a convergence of these forces.” Source: Gartner

Forrester calls it “Digital Disruption” The key principles behind digital disruption are that it creates new business models, changes value streams, and is faster, more disruption and more pervasive than any earlier change driver we have ever seen. Why? Because it is digital. And Forrester says that for those of you thinking that hunkering down and letting it blow past, like you did for previous trends – FORGET IT. This is not a trend. It is a permanent shift

IDC calls it the 3rd Platform for IT growth and innovation, built on mobile devices, cloud services, social technologies, and big data”. The 1st platform being mainframe and the 2nd client-server. As the 3rd Platform evolves, IDC is seeing the emergence of a first wave of Innovation Accelerators that depend on the 3rd Platform, and radically expand its capabilities and applications. They are robotics, Internet of Things (IoT), Natural Interfaces and Cognitive Systems

Even though the industry analysts cannot agree on the terminology, they are all in agreement that these different technologies are going to have a profound impact on every industry over the next 5-10 years. Some industries, as Marc Andreesen identified, are already in flux. But no industry is immune.

CEOs are scared, very scared

One good thing is that senior executives are aware of the challenge; 71% of global CEOs surveyed as far back as 2012 in IBM’s CEO Global Survey said the top external force of change is technology.  Forrester CEO George Colony warned delegates at their recent CIO Summit: “There are many people now who want to disrupt your business. It does not cost much to disrupt business.” Business leaders are becoming more IT-savvy, according to Colony: “The average age of the CEO in the top 100 companies is 59. They went to college before computers. Most of the CEOs did not use computers.  “But today, we are seeing CEOs who had Apple II home computers or IBM PCs at school.”

But recognizing the threat and doing something about it are very different. Changing the direction of a 10,000, 100,000 or 1 million employee company is not easy. As one analyst put it “the greatest challenge is staying relevant”. The numbers tell the story. Only 12% of original S&P still exist.

This means that change or agility needs to be a core competence of every company. For some companies simply being able to iterate, improve and harness technology may be sufficient. For others complete reinvention may be required. For industries with strong regulatory compliance such as food, pharma, oil & gas or banking then change is even more difficult. Compliance is a huge inhibitor. But there are proven approaches to this challenge so it can be cited as the sole reason for defending the status quo. Or to put it another way “change is not mandatory – but neither is existence”.

Startups have challenges too

But startups don’t have it easy. If your picture of a startup is 2 guys fueled by Red Bull in a college dorm hacking out an app, then this is outdated. The start-ups that are changing the way industries operate are highly innovative, well managed, lean operations that have enterprise scale technology with a compelling UX underpinning them. Nothing else will now cut it.

If we look at those new businesses that are making a difference they have a number of commons themes.

• Firstly, they are solving a real world problem and possibly coming at it from a different perspective as they are not shackled by current industry thinking. Secondly they have a vision about how technology can help them deliver a better customer outcome and still deliver profitable results.
• They then need to design a lean, highly efficient business that is Outside-In. It puts the customer at the center of the business and the processes, procedures and systems are geared around delivering an exceptional customer experience.
• Only then can the external application and internal systems be designed and built. This is a technology-enabled business play. Not cool, neat technology finding a problem to solve.
• Next, their mindset is one of innovation and agility. That enables them to interate and pivot to find the optimum approach. They recognize that the chance of building the perfect business for the get-go is impossible, particularly when they are delivering a truly innovative solution. They are probably changing customer behaviors, expectations and needs once they start interacting with new customers. Henry Ford is often quoted as saying ”If I had asked my customers what they wanted they would have said a faster horse.”
• The business probably needs to be global from day 1, but at a minimum is capable of scaling to meet rapidly increasing demand. Luckily the technology platforms are readily available and high levels of funding can be accessed easily.

There are a number of proven examples, none of which could have existed without the “nexus of forces. Uber is now the go-to case study.  Uber’s aggregation of the taxi market is fuelled by a significantly better customer experience than delivered by the established firms. Think of the standard cab company lie when you phone up to find where the taxi is: “Your car is 2 minutes away”. There are plenty of other examples. Stitch Fix is the fastest growing startup disrupting retail. Their focus is fashion rather than fiction. The online retail startup is attacking the process of traveling to stores to try on new clothes in ill-lit, fitting rooms. Upwork, a platform that helps businesses quickly find freelancers, leads the pack. It’s today’s fastest growing recruiting and career search startup, and a foundational block of the freelance economy – one that largely did not exist in 2011.  ZipCar is another fascinating example. It didn’t invent car rental, but due to a set of technologies it made car rental by the hour possible; website for sign-up and account management, mobile app for booking, onboard telematics for unlocking and monitoring the cars. Avis responded by buying ZipCar and Enterprise have launched their own offering which potentially cannibalizes their existing car rental business.

Welcome to the new world. But better to cannibalize your own sales than have someone else do it.

Think like a disruptor

Executives in established companies need form teams to start thinking like the disruptors who are out there plotting to steal their business. These team need to be multi-disciplinary; business, operational, finance, customer excellence, sales and marketing and technical. Everyone has an equal seat at the table. No longer is technical seen as the “back-room geeks”.

The team needs a very open remit with nothing that can constrain their thinking or vision. The mantra must be “obsolete yourself”. And the way to start thinking about this is to consider the customer moments of engagement. This is Outside-In thinking.

Outside-In thinking is a philosophy and management approach that considers the interests of customers ahead of the organization’s capabilities. Organizations that adopt an “outside-in” approach focus on customer experience by consistently delivering a combination of superior service experience and successful customer outcomes.

Often management teams focus almost entirely on internal processes to improve productivity or reduce cost. Decisions are made based on internal knowledge and instincts. This is “inside-out” thinking.

Outside-in thinking, on the other hand, emphasizes the need to look at everything from the customer’s perspective, and to manage performance as a service provider or business based upon customer satisfaction levels. An explicit customer-based justification is sought for every decision.

The what and how of process engagement and activity performance are driven by the why. Outside-in thinking ensures that your organization is customer-centric, not just customer-aware.

However, the team cannot indulge in completely blue sky thinking. It should be grounded in the current day business challenges. But the team does need to challenge deeply held beliefs that have developed and taken root in the company.

Once approach to unlocking the thinking is to answer the following 4 questions. This is best done in a facilitated workshop with the team. The team should exhaust each question before going onto the next with the results are captured in 4 columns with each question as the title of the column:
1. “What things would I NEVER say?” e.g. easy to do business with, on time, affordable..
2. “Why is that so?”
3. “What is the impact?”
4. “What ideas and solutions does this inspire”

Then those ideas and solutions can be prioritized to decide on quick wins and a big idea. The quick wins can help the existing business iterate and improve. The big idea is the new business opportunity. The game changer.

But what makes this so exciting is that technology solutions can be developed so rapidly and cheaply that entire business models can be prototyped and tested in the real world. And this is where the incumbents do have an advantage. They can provide internal funding, recruit internally and proved access to company resources to form and support these teams. They can easily fund the development of any technology. And they have access to real customers at scale rather than relying on focus groups or small groups of tame customers.

So the playing field could be considered relatively level. Well funded start-ups are looking at established business with excitement. But those businesses can tap into their intrapreneurs (internal entrepreneurs) and play the start-ups at their own game. It will be interesting to who the winners are in each market; reinvested incumbents vs start-ups.

The final word

But I will leave the final quote to Marc Andreesen:

“It’s basically prime-time now, and in the next five years, to think about every business, every industry and every field and say, how can we reinvent it?”