The new choice in digital transformation: become a platform or disappear

Digital technologies have been used to modernize existing processes, but real innovation comes from a more disruptive approach to an industry's reinvention.

For decades, technology has been the first lever of transformation for modern companies willing to improve their effectiveness, optimize processes or automate heavy and repetitive tasks. This phenomenon has been accelerating in the last 10 years as 'data' became so key in value creation in so many elements of the value chain in every single industry. Data platforms are key in economic growth, and more and more purely digital companies have joined the top ten of worldwide market cap: today 7 out of 10 are in the tech industry.

The success of the startup ecosystem in several countries has constantly demonstrated how new ways of approaching the market can significantly shift the profit distribution of an industry. By looking at customers' needs with the eyes of a newcomer, and by leveraging digital assets, a small team can create a value that overperforms larger organizations' capitalization in just a few years : this is true in every industry. Uber, Airbnb, Netflix or Amazon are just a few very visible examples of this digital acceleration in the last decade.

As technology becomes more and more disruptive with Artificial Intelligence, Mixed reality or the Internet of Things, every company should rethink dramatically its approach to #innovation. Until a few years back "#digital transformation" has been applied to the optimization of single processes, trying to enrich, modify, fine tune, the human activities involved in it, with an objective of effectiveness, but often without changing the scope of these activities. For sure there has been an acceleration of this momentum over the years as the average appetite of organizations around the world for technology has been increasing. But with the speed of tech evolution, this model will soon be outdated.

A very significant portion of the GDP in every country is created by companies that were born last century. These companies usually operate with a very traditional and linear approach to the "value chain" and in general they optimize around two or three main processes by having all the other teams supporting these "core" activities. Michael Porter's models are still leading the approach on organizational strategy. In a traditional consumer goods company, for example, the focus would be on Product Design, Manufacturing, Marketing/Advertising and Retail. All the other functions would be considered less important and would support the core processes. Most of the time even among the "core" processes some are considered more noble than others, and receive more resources: those functions are clearly perceived as “the place to be”. Hierarchy in these companies is relatively high. Decision making processes are structured but slow and constraining. The general mentality of the structure is based on "command and control" activities, often bureaucracy outshine individual leadership. The attention to the physical world largely exceeds the attention to the digital one. All employees are generally proud of the "product" more than everything else in the company, without really perceiving the end to end experience of their clients with their product and their company. 

In terms of execution, the highest attention is given to the sales process, and in general, when the performance is weaker, all the innovation focus would be into restructuring the sales teams in order to increase efficiency. E-commerce is generally an addendum to traditional sales/retail channels, and when the two are well synchronized it's already considered a success. Most of the time the mission of the company has been the same for decades. Also, in a vast majority of situations, nobody payed attention to the "culture" in the organization, letting the history of the company prevail on the current needs of the structure.

Now if we look at how companies born in the last couple of decades work (let's think about Google, Amazon, Airbnb, Uber among many others) one would see a radically different approach. The company's #mission is very clear and fresh in the mind of every employee. This #culture is clearly defined and shapes behaviors. Even more importantly, all employees have the feeling they contribute to shaping it every day. Hierarchy is less important and all the building blocks of the company have an equally important status. Decision making processes are simple and effective. They encompass a larger level of empowerment, and people feel more accountable for tasks and for the outcome of their work.

The primary focus is the experience for the clients, even more than the product itself. Digital and physical are both relevant, but digital comes first, while the physical world becomes a nice way to materialize the experience. The driver for every decision and every optimization is "data". The digital platform is at the very center of the operation, and technology is core, not a supporting function.

Traditional companies have an incredible number of assets they can leverage to invent new products and services, and they can definitely adapt to an "experience driven" and "phygital first” world. In order to do that, they need to evolve their concept of transformation, become more humble and feel a higher sense of urgency for a deeper transformation. We have often observed large corporations invent dramatic shifts only after an epic fail, like it happened to Kodak or Nokia for example. The reality is that, with the innovation pace, the number of failures of incumbent companies will only increase if they are not capable of disrupting their own business models.

The method they can use is two-fold: on the one side they should think about the market they serve with the eyes of a newcomer, using technology as an asset to create new experiences; on the other side they should observe their existing assets coupled with existing and future available data, and figure out if these cumulated assets can serve new markets. Behaving like a startup can free up energy and can make employees imagine new amazing business models. In order to do this, companies need to re-think their #strategy and operate a cultural shift : they need to adopt a digital-first mentality, and need to empower their teams on innovation with a "growth mindset" approach based on risk taking, learning, collaboration and value creation.

From 1950 to 2015, only one out of ten companies of Fortune 500 have been capable of maintaining their status in the top ranked market capitalization of this index. This is what I would call the “Darwinian outcome of market competition”, and for sure the speed of transformation is higher today with the AI industrial revolution than it was in the last century with automation and the first wave of information technologies. Therefore, in the next decades the one to ten ratios will happen for sure much faster, and this should be a very strong call to action for all CEOs. Companies willing to sustain their success and create new value should rethink the way they operate and really start taking full advantage of new technologies.

As Satya Nadella, our CEO, said: “The whole world is now a computer”. Therefore, every company will be a software company. Every company will be a platform. This paradigm will only accelerate in the future with quantum computing, and only bold and disruptive managers and entrepreneurs will be able to see the opportunity and drive this change. It starts today.

I’ll be more than happy to talk about it with you. Microsoft Experiences’18 will be a perfect moment to share ideas. Do not hesitate to come and join us on November, 6 and 7, in Paris!