Digital Transformation Using Exponential ABCD-X Technologies (Part 2 of 2)
Link to Part 1
Why and How
Treat Technology as a Cost Center. Many companies still believe in the obsolete view that technology is a cost center. Considering cost only is a misleading, insufficient and fatal mistake. Many companies are blind-sided by this short-sighted and short-term decision.
Paper and pencil are the cheapest but the deadliest tools to run modern businesses. There are no major companies running businesses using only paper and pencil because all of them are gone – they have either upgraded their technology or gone bankrupt.
Solution. Allocate budget and resources for technology as a part of the cost of doing business, like they allocate budget for electricity and Internet.? Companies should look at both cost and potential return of investment in the long term. They should view this as an investment to survive and thrive – not as a cost. Growth will follow!
The Wall Street Journal reported that Alphabet R&D expenses was USD 31.562 billion, 12.3% of its revenues revenue and Meta spent USD 24.655 billion, 21% of its sales. However, S&P 500 companies spent an average 2.82% of revenue on R&D.
Why are they investing so much in technology? Some of the technology’s benefits: faster, easier, cheaper, safer, smarter, and healthier for all stakeholders – customers, partners, employees, investors and community. Therefore, it increases productivity, reduces cost, increases revenues and profit. The growing profit enables the companies to invest more in technologies and people. A virtuous circle! In other words, technology’s roles have changed from cost centers to leading and fueling the growth of the company.
Many people mistakenly think that these companies are spending billions of dollars because they are trillion-dollar companies by market capitalization. The opposite is true.? Amazon, Apple, Google, and Microsoft have become trillion-dollar companies because they invest tens of billions in technology which fueled soaring growth for years!? Note that these companies used to be startups with limited resources, no customers without revenues and profit. They have propelled themselves by not only aggressively leveraging but also inventing new technologies.? Their bankrupt competitors were “helping” them by doing nothing. Another classic example, how Netflix destroyed once-thriving Blockbuster Video by providing cheaper, more selection and more convenient services.
Conservatives and Skeptics. In Crossing the Chasm, 3rd Edition: Marketing and Selling Disruptive Products to Mainstream Customers which was published in January 28, 2014, Geoffrey A. Moore shows the Technology Adoption Life Cycle in five segments. It starts with innovators (2.5%) who are tech enthusiasts and moves to early adopters (13.5%) who are also tech enthusiasts, early majority (34%) who are pragmatists, late majority (34%) who are conservatives, and laggards (16%) who are skeptics. This book has sold more than one million copies since the 1st edition was published in 1991. Tom Byers, Stanford Technology Ventures Program Director, described it as "the bible for entrepreneurial marketing.".
Solution. Take initiative to innovate and reinvent and transform to a tech company by combining internal expertise, new hires and external technology partners to bring fresh ideas.
Things have changed dramatically since 1991 with the explosive growth of Internet and smartphone users especially during the pandemic: five generations – Baby boomers, Generation X, Generation Y, Generation Z and Generation Alpha – are using digital technology. Generation Y, Generation Z and Generation Alpha were born and raised as digital natives. There are so many technologists and millions of students are studying computer science.? Computers are becoming cheaper and easier to use. Billions of computers and smartphones have been sold. Technology has become mainstream as part of daily life like electricity. Thus, many companies have adopted technology at a much faster rate than a few decades ago.
Robert A. McDonald, the former The Procter & Gamble Company CEO, created a strategic direction to digitize the company from end to end and the world’s most technologically enabled company in 2012.? Independently, John Deere, founded in 1837, has reinvented itself as a tech firm. They demonstrated their autonomous tractors in the Computer Electronics Show 2022. Note that both The Procter & Gamble Company and John Deere have reinvented themselves from “pre-electricity” to “pre-computer” to “pre-Internet” to the Internet era.?
Although there is no golden ratio for how much you should invest in innovation, Bansi Nagji and Geoff Tuff shared pretty good guidelines in Managing Your Innovation Portfolio: 70% in Core, 20% in Adjacent and 10% in Transformational with the potential return 10% in Core, 20% in Adjacent and 70% in Transformational.
Failed digital transformation. Tony Saldanha, former Procter & Gamble Vice President for IT and Shared Services, shared that 70% of digital transformation failed. Many companies don’t have the skills and they didn’t know how to do it right. As a result, many companies are afraid to start due to too many digital transformations failing. Steven Zobell reported that it will cost the industry about USD 900 billion in 2018.
The technological issues are just the symptoms on the surface of more serious problems. The root cause is usually due to people's issues. Specifically, ignorance, incompetence, and most of all the fixed mindset. Gary Hoberman said bluntly, “Politics are a huge thing inside some organizations . . . don’t downplay the organisms inside of companies that are there to protect and maintain the status quo.”.? These people not only missed a golden opportunity but also risked and led the companies to eventual download spirals and bankruptcy unintentionally.?
Solution. Nurture growth mindset through continuous learning, investment and partnership.?
Stanford University psychologist Carol S. Dweck, Ph.D., discovered that there are two types of mindset: fixed mindset and growth mindset. Fixed mindset believes intelligence is static which leads to a desire to look smart and therefore a tendency to avoid challenges, get defensive or give up easily, see effort as fruitless or worse, ignore useful negative feedback, and feel threatened by the success of others. On the other hand, the growth mindset believes intelligence can be developed which leads to a desire to learn and therefore a tendency to embrace challenge, persist in the face of setbacks, see effort as the path to mastery, learn from criticism and find lessons and inspiration in the success of others.? Amazon applies the growth mindset culture by encouraging people to experiment with new ideas. A manager has to write a report if the idea is rejected.
JP Morgan Chase has invested USD 12 billion dollars in technologies with 50,000 technologists. It is not a typo: Fifty thousand! It’s about 18% of its total employees in 2021. Its Silicon Valley office is at Stanford Research Park in Silicon Valley for over 1,000 employees.?
Summary?
The exponential ABCD-X technologies have taken the world by storm recently. Many companies are inspired to adopt them due to the phenomenal success of Amazon, Apple, Google and Microsoft. In the near future, there will be two types of companies: growth companies based on ABCD-X and dead companies walking which do not use ABCD-X. Dead companies walking are running their businesses into the ground slowly.
The ABCD-X will eventually become mainstream. They will blend to be part of our daily lives like electricity.? Then, new technologies like quantum computing, metaverse and 6G will emerge. Technology continues to become more powerful and yet smaller and cheaper at a dizzying speed. The handwriting is on the wall that technology will continue as a creative destructor. Its snowball growth is unstoppable!
Companies need to keep learning, unlearning, relearning, innovating and adapting swiftly with a sense of urgency in the new environment to survive and thrive as part of the survival of the fittest in the ABCD-X era. Speed matters to seize the first-mover and fast-mover advantages!
Fortis Fortuns Adiuat - fortune favors the brave.
< Link to?Part 1
Notes
CEO at Anantarupa Studios
2 年To put it into relatable context, since the development of internet in 1969 by ARPANET, in 1989 a group of researcher in CERN created Hypertext Transfer Protocol, Hypertext Markup Language and Universal Resource Locator, forming the foundation of World Wide Web. Few years later, companies started building their businesses on web. Framework-infrastructure-platform-content. Now in the era of web3, since the blockchain was re-invented in 2008, there was the very first Blockchain application, fungible tokens(cryptocurrency). Since then, some Blockchain derivative application came out: Non-Fungible Token, Dapps, On-chain games and metaverses.? Framework-infrastructure-platform-content. Business is not always about "finding solution to some problem", this is where common VCs put their focus on. While its not entirely wrong, but IMHO its too shallow and narrow. Its all about pattern, the same pattern history repeats itself. After development of "business platform", contents will be the king.