In case you missed it, software ate the world.
Marc Andreessen predicted software becoming a transformational driving force back in 2011, and he was right. It doesn’t matter if your industry is agriculture, manufacturing, medicine, food distribution, etc.; software is such a big part of regular business operation that now you are, for all intents and purposes, a software company. Great. Now what?
Transitioning to a software company has many implications on the technology, people, and culture of the company. After all, IT doesn’t just support the business any more—IT is the business.
The best way to embrace your new software identity is to understand the trends behind this change, analyze companies that have pioneered their digital transformation, and identify best practices to adopt (and pitfall to avoid) at your organization.
Why is EVERY Enterprise a Software Company?
The five largest companies in the world (by market cap) are now traditional software companies.
According to statistics cited by Tech Crunch, in 2016, the top 5 publicly-traded companies (by market cap), were Apple ($582B), Alphabet ($556B), Microsoft ($452B), Amazon ($364B), and Facebook ($359B). According to the same chart, in 2011, the top 5 were Exxon ($406B), Apple ($376B), PetroChina ($277B), Shell ($237B), and ICBC ($228B).
In five short years, Apple’s value grew by more than 200 billion dollars, and all of the petroleum giants had fallen out of the top 5 list—replaced by software companies. Why is that?
The modern economy is an information economy, and technology that facilitates the accumulation, organization, and dissemination of information keeps businesses ahead of the curve when it comes to creating value and improving efficiency.
Many products, even those that existed decades before the concept of software even existed, are now differentiated by software. Software-defined products—often referred to with the prefix “smart”—litter our “smart homes,” like televisions, phones, refrigerators, vacuums, coffee makers, thermostats, and light switches. But software isn’t just enhancing consumer products, it’s disrupting entire industries.
Software is Disrupting Entire Industries
You don’t need to look further than the taxi industry to see the power of software. Make no mistake, Uber and Lyft powered their disruption through software.
Software makes ride sharing services easily accessible and convenient for both drivers and and riders. Connecting the buyer and seller, facilitating payment, providing routes to destinations, and regulating/managing supply and demand are all functions provided by software—functions that traditional cab services did not have.
Uber and Lyft’s software offered a far better experience for all parties involved. Drivers are able to dictate their own hours, get paid quickly, use their own vehicles, and can avoid paying costly leases and maintenance fees that are prevalent in the taxi industry. Riders get a consistent, responsive, safe, and affordable experience that makes their commutes simple and seamless.
Uber has even taken things a step further with their self-driving cars and UberEATS food delivery service—giving Uber users access to convenient food delivery from businesses that don’t normally deliver.
Software powers the elegant mobile apps used by riders and drivers. Software powers robust backend systems. And software provides analytics and deep insights into the data that are used to constantly improve the experience for the users. These creative uses of software gives Uber and Lyft enormous competitive advantages over older, less tech-savvy taxi companies.
Embrace Software Or Face Disruption
Many companies did not want to experience the same fate as taxicab companies, so they began to reinvent themselves. Examples aren’t hard to come by.
Netflix: From DVD Rental to Omnipresent Video Entertainment
When Netflix started out, it was basically an online DVD rental service in competition with Blockbuster Entertainment, which was the king of the movie rental hill at the time. Netflix dethroned Blockbuster in the rental market. Then the company set its sights on the next targets for disruption—cable companies and Hollywood.
To take on the cable industry and Hollywood, Netflix needed to be more accessible than cable. The service needed to live in every home, on every TV, and across every mobile device. In 2007, nearly 10 years after it was originally founded, Netflix announced video streaming.
Netlfix’s high quality video streaming service is powered by an incredibly robust software platform and elastic cloud infrastructure. Today, Netflix is considered the gold standard for content streaming and is one of the leading reasons for people to cut the cable cord.
In 2013, Netflix sweetened the deal even further by releasing exclusive content through their own studio. Series include House of Cards, Orange is the New Black, and Stranger Things. Rather than drip-feeding a binge-happy public one episode a week, Netflix decided to put entire seasons of their shows on the service at a time—satisfying a demand that TV broadcasts never could.
It’s easy to think of Netflix as a content or media company, but it is software at the core of Netflix’s business. Software transformed Netflix into a ubiquitous service for their customers—no matter where you go, if you have Internet access, you can get your entertainment fix with Netflix.
Amazon: Productizing the Backend
Amazon.com has been around a lot longer than you may think. The company founded in 1994—4 years before even Google was founded. Amazon.com grew to prominence as the world’s largest bookstore, as this was the online shopping site’s specialization. In 1998, Amazon announced that it would expand beyond books, which marked the company’s transition into the eCommerce giant that it is today. Being the world’s largest e-tailer was always part of the plan, but becoming the world’s largest cloud services providers was more happenstance.
Amazon had a scale problem. Buyers and sellers alike were turning to the site in droves. Providing a reliable, quality experience was a major technical effort. The company had no choice but to pioneer new ways to manage compute, storage, and data. Amazon became so effective at building the backend system for eCommerce sites that in 2001 they began to host the online operations and fulfillment for other major retailers, including Toys R Us, Borders, and Target. Amazon had become a services company.
In 2006, Amazon Web Services was officially launched with S3 (storage) with EC2 (compute) coming just months later. Amazon’s cloud services are now one of the most critical branches of the business. Companies across the globe rely heavily on Amazon’s Infrastructure-as-a-Service (IaaS) offering. To achieve Amazon’s original goal of being the world’s largest retailer required significant investments in software and technology. Amazon’s underlying technology was so effective at delivering IT resources, that the company was able to externalize it to the rest of the world. Today, Amazon is the world’s largest cloud provider which powers businesses of all sizes across every industry.
How to Think and Act a Software Company
The examples listed above show how focusing on software has helped businesses adapt and gain a competitive advantage in their industry, but there’s more to it than just jumping on the nearest software bandwagon and riding it into the sunset.
Being successful as a software enterprise means thinking and acting like a software company. How can you ensure that your enterprise is thinking and acting like a software company?
Ask Yourself Hard Questions
The Harvard Business Review has an in-depth article about how businesses can think like software companies—even when they’re in other industries. In the HBR article, the first step to thinking like a software company is asking yourself a few “basic strategy questions,” including:
- What do you do uniquely well and what do you know how to do that your competitors do not?
- What barriers do customers face in realizing value from your current offerings?
- Will your value proposition continue to be compelling in the future?
- What role could software play in that equation?
The examples of Netflix and Amazon cited earlier show how answering these questions can help a company.
For example, Netflix was able to look at the barriers customers had in getting value from their video platform (limited selection, inability to access content “on the go,” and lack of truly unique services) and created new software solutions that removed those barriers—the Netflix phone app and their Netflix Originals content. By removing these barriers, Netflix became the video streaming company that did things better than anybody else, creating a value proposition that would remain compelling for customers in the future.
Invest in People
Becoming a software company is as much about software as it is about people.
There’s a process called design thinking that exemplifies this school of thought to a T. How does design thinking emphasize people? One of the definitions of design thinking, as presented by Tim Brown of IDEO, a global design company that focuses on “human-centered” design, is “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.”
Note that one of the focuses in that definition is “the needs of people.” What separates great software companies from the competition is the way that they focus on the needs of many to create value for customers—much like the way that Apple focuses on creating a simple end-user experience to make their products convenient for the majority of users, or how Amazon applies their A-to-Z guarantee to third-party transactions on their store to help buyers feel protected during transactions.
While there have been short-term costs to these elements, working them into the business model has made things better for the people who use their products and services. This was an investment in people that ultimately paid off for Amazon and Apple.
By making sure the design of a product or service is centered on how it helps people, enterprises can create value for their customers.
Other forms of investing in people within an organization can help:
- Develop the Skills of an Enterprise’s Workforce. Employee training in different skills, such as design thinking, can help workers be more effective and efficient on the job.
- Improve Employee Retention. Finding qualified workers is time-consuming and expensive. Investing in people helps show workers that they have a future career with the company and opportunities for advancement. This reduces turnover so your enterprise’s best and brightest are more likely to stay with you rather than defect to a competitor.
- Make Customers Happier. Being human-centric in how you design business processes (and not just products) helps create a more satisfactory experience for customers, resulting in happier, more loyal customers.
Becoming a software company doesn’t mean just hiring more software engineers. This transformation requires adopting a software-centric culture where your software teams can thrive. Simply having the right bodies in the building doesn’t make you an effective software company.
Invest in Process
Continuing on the thought of creating a software-centric culture, your organization needs to invest in processes and methodologies to drive transformation. For example, agile software development methodologies (e.g. SCRUM) create processes to ensure efficiency and ultimately success. People managers have likely heard the phrase, “Don’t blame the people, blame the process.” This maxim is incredibly applicable to software companies in the midst of transformation.
It’s important to note that investing in processes is as strategic as it is tactical. Beyond adopting software development methodologies, as referenced above, it is critical to understanding the evolution of software and application lifecycles. In the past, the process has been fairly structured—planning, procurement, deployment, production, maintenance. Now IT organizations are instilling continuous integration and continuous development (CI/CD) processes to give their teams speed and flexibility. CI/CD can remove the rigidity from traditional software lifecycles and remove the maintenance step entirely.
Invest in Technology
Perhaps unsurprisingly, transforming into a software company relies heavily on strategic investments in technology. Technology powers the aggregation and deciphering of crucial business data and needed to make improvements, as well as to delivers services to customers in a safe, convenient, and efficient manner.
Smart investments in technology reinforce the core business model and work to answer customer demands. Amazon, as referenced earlier, invested in technology to deliver a better online experience. This investment paid back dividends for the eCommerce site and created a multi-billion dollar business unit, Amazon Web Services (AWS).
Companies that are migrating from their data centers to a public cloud (like AWS), are also investing in technology. They know that delighting their customers doesn’t mean building more IT—it means consuming more IT. Infrastructure-as-a-Service offerings give IT organizations turnkey compute and storage. Similarly, Platform-as-a-Service and Software-as-a-Service enable IT teams to give internal business units and external customers better experiences that are more affordable and deliver value in less time.
Words of Warning About Being a Software Company
Some investments in technology, such as computing resources and software, are an inevitable part of business. However, enterprises should also beware of investing in new technology blindly.
When making investments in technology or reworking business processes to be more modern, it’s vital for enterprises to keep one thing in mind: “how does this deliver value to our customers and improve time to value?”
Adopting a new technology or solution blindly, without considering the opportunity costs or its impact on customers, is a quick way to lose focus on what’s important and can actually hurt the business rather than save it. Just because you’re a software company doesn’t mean you need to invest in the technology that other software companies are using.
For example, consider cloud computing. Cloud-based infrastructure boasts elasticity and better pricing, but diving head first can be dangerous. Many applications are optimized for on-premises data centers. The tools used and learning curves associated for each cloud are different. Very few applications can undergo a “lift and shift” from the data center to the cloud. These challenges can be extremely costly without careful consideration.
Another example is the use of commercial-off-the-shelf or shrink wrap software. Until now, this type of software may have been sufficient; however, with a business's unique requirements on the rise and a full staff of software developers in-house, it makes sense to explore building in-house solutions. Buying the latest license from a legacy software vendor may limit the outcomes you’re trying to achieve. Make no assumptions. Explore your options carefully. Buy when you need to buy, and build when you need to build.
Other considerations include:
- What applications need to run in the cloud and which need to stay on-premises?
- What is your migration and portability strategy?
- How do you avoid lock-in?
- What is your multi-cloud strategy and composition?
- Do you have the right level of abstraction to truly deploy multi-cloud applications?
- Is there a disaster recovery plan in place?
- How do you provide resilience across cloud providers?
- What are the Service Level Agreements (SLAs) for uptime, recovery, etc.?
- How are SLAs enforced?
All of these concerns should be linked back to how solutions provide value for customers and the people in your organization. If a technology solution doesn’t add value or make things more efficient, then it isn’t worth the investment.
Long story short—don’t invest in technology for technology’s sake. Instead, focus on finding solutions that actually provide value for your business and customers.
Just because every enterprise is now a software business in some way doesn’t mean you should blindly jump on every new technology bandwagon. Learn what to look for and how you can apply IT services and technology to your business to be a better, stronger, more competitive enterprise!
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