Five years ago, when web pioneer Marc Andreessen wrote in the Wall Street Journal that “software is eating the world,” it was a highly provocative idea. Today it’s a given. Digitization, or digital transformation, is sweeping through all kinds of businesses, changing how they operate internally and, more importantly, how they interact with customers.
From the Internet of Things in the factory to self-serve online stores, connected digital technology is a new means of production, alongside energy, labor, and other traditional inputs. Our digital systems and apps are the new enablers of growth. But for companies that have not started the transformation, software-enabled business models are blamed for disrupting their business and limiting their growth.
We are about to see this illustrated once again, when traditional retailers go up against their increasingly dominant online rivals this holiday season. Last year, Cyber Monday online sales matched Black Friday in-store sales. While Walmart ended the year with 12% revenue growth, Amazon sales jumped 20%. Whatever happens this November, traditional retailers are doubling down on the software and technology to offer an omni-channel shopping experience, which allows customers to shop whenever and wherever they are—from desktop, to smartphone, to brick-and-mortar store. The largest chains are investing as much as $2 billion in technology to keep up with new and expensive operations, according to Bain & Co. Walmart has already taken an expensive shortcut, buying Jet.com for $3.3 billion.
Why are so many retailers and other large companies still on the wrong side of digital transformation? It’s not for lack of understanding or desire. My company just released research with 1,700 top executives and chief information officers (CIOs) that found that more than 80% of companies have embraced digitization and have defined a vision for using information technology to transform their businesses. However, according to Forrester Research, only 16% of large companies believe they have the right people to get the job done and only 13% say they have the right processes. Less than a quarter believe they have the culture to succeed with digital strategies.
As a result, companies are paralyzed. Despite having world-class information systems and talent, they doubt that they can jump into the world of online, real-time, digitized business models. How can they compete with digitally native disruptors? How can their IT departments create the software and systems needed for growth today?
First, CEOs need to get over the perception of the IT department as costly overhead. The biggest corporations actually have advantages in the world of software-driven business models precisely because their IT departments have resource and size advantages over competitors. Enterprise IT professionals have deep expertise in designing bulletproof, mission-critical applications that are reliable and secure. They know how to manage complex systems, measure performance, and make improvements over time.
I can tell you from personal experience that IT has evolved and, in many companies, is undergoing its own digital transformation. As a young engineer, the software code I labored over was all about marginal improvement. Our programs were designed to optimize core functions like human resources, finance, and supply-chain management. We contributed to the business’s success, but we weren’t expected to lift the top line.
Today, programmers are spending time on software that directly drives sales. The IT leaders I know are eager to take their talents to the frontline battles. They are hiring business-savvy developers with capabilities in critical areas such as big data analytics. They are using new tools that allow them to turn around applications in days and weeks, not months and years. They work directly with business units to write applications to reach customers who want their online interactions to be personalized, friction-free, reliable, and secure. As developers build these capabilities and gain experience, the IT department is morphing from a job shop into a strategic partner with business leaders.
Next, top corporate leaders should forge a true partnership with tech leaders. This goes beyond having the CIO report directly to the CEO—half of large corporations already do that. CEOs need to truly empower their IT departments and work hand-in-hand with tech leaders to craft strategy.
It’s really a matter of pragmatism. IT is an expensive resource that companies can use to maximize growth and defend against new kinds of threats. Not to take full advantage of your IT capabilities in the world of digitalized business is to show up at the proverbial gunfight with a knife.
For example, large corporations have access to vast amounts of data. Now, they are starting to use it to their advantage by pairing it with new analytics tools, which can help them shape, refine, and personalize how their customers experience their brand. Additionally, in doing so, they are also establishing more iterative ways of working, focusing on continuous improvement instead of the traditional or “waterfall” process, which treats each development project as a discrete, one-off activity. This process is being ported over to their IT shops, creating cross-team collaboration, more frequent software updates, and quicker responses to customer feedback.
In a world increasingly being eaten by software, companies have a choice to be diners or the entree. What large incumbents underestimate is how much they can bring to the game. Yes, many have legacy systems—and legacy business models—that need to be reviewed. But the ability to develop strategy and execute consistently, which helped these companies grow large and manage myriad challenges in the first place, will serve them well during their digital transformations. Focusing on their software development capabilities will put some teeth into their business.
Michael P. Gregoire is the CEO of CA Technologies. He is not an investor of the companies mentioned in this article.
