About ten years later, the situation started to change dramatically, in every region of the world.
For the past few years, we’ve witnessed accelerated disruptions in many areas of economy, and big traditional companies have been challenged on their own core business. Digital-born players have taken significant market shares in the traditional industries:
While the first decade of 2000 saw digital / e-commerce especially booming in the USA then in Europe, the past few years have seen an impressive growth everywhere in the world and especially in Asia. Since 2014, e-commerce in the APAC region (Asia Pacific, Australia & China) has thus surpassed e-commerce in the USA.
At an ever more accelerating pace, new digital-born players are emerging, posing a growing threat to traditional companies which appear to be more like big ship tankers, taking years to react and adapt in front of these agile competitors. Digital transformation in big traditional companies has thus become a major concern and issue for the C-Suite, wondering how they can operate such a transformation challenge. Most still struggle to find their way, with a few notable exceptions such as General Electrics, which has managed to remarkably adapt continously and keep in pace with disruptions like 3DPrintings or IoT (Internet of Things).
Before giving some insights on this transformation challenge, it is interesting to think about the advantages new players have over traditional companies.
1- Scalability: new players can start to build their first product with unprecedented low initial investment thanks to technologies acceleration. Cloud solutions enable startups to lower the investments needed in software and hardware, and pay progressively as business grows. On the contrary, established companies have legacy systems that once served them well, but based on older infrastructures that take much more time to adapt to business variations. Often, companies will therefore size their infrastructure to the load peak, so most of the time the infrastructure will be over-sized and therefore at a higher cost than a new cloud based solution. In that case, you’d say, why don’t these companies just move their legacy systems to the cloud? Apart from the subject of data privacy, shifting to a cloud solution for legacy systems is far from being an easy task as legacy applications (scripting, configuration…) are generally too specific to be easily migrated on cloud solutions. In manufacturing also, the advent of technologies such as 3D printing enables startups to experiment at much lower cost than before their products and models.
2- Continuous delivery: opensource robust tools enable to build software that can be continuously delivered from the start in production with low investment. Puppet for automatic server deployment and configuration, Jenkins for continuous integration, Git for source code management… such tools, combined with practices such as automation of functional and performance testing, automatic deployment, automatic supervision represent what is called DevOps (Development to Operations), which enable to optimize efforts and time from development of a feature to its availability in production.
Starting small without legacy systems and with state-of-the-art technologies makes it easier for these startups to have this DevOps approach right from the start and push very frequently each small change from development to production, hence a terrific time to market. And the “killer” advantage is that, if they’ve built their digital products with a rather clean DevOps approach right from the start (and also with good skills in software architecture), they will maintain this advantage as their products gets more complex. This is a decisive advantage compared to legacy systems that are ten, twenty or thirty years old which were not designed that way and did not benefit of these technologies and approaches at the time.
3- Engineering leads, marketing follows. A particular characteristic of many successful digital players is that the founders are often techies who initiated the product by themselves, with a business vision. As the company grows up, engineering and technological excellence is still what leads the company, the product evolving under the dynamic of tech teams. Meaning that, contrary to traditional companies, the relationships are reversed: it is not marketing / business people who think and have ideas, then ask engineers whether it’s possible to realize them or not, but engineers who master the development of the product that also have a sense of business and have ideas about possible evolutions. This is a very different mindset in how a company works, and it brings much gain in terms of time to market: instead of having marketing teams spending weeks or months figuring what brilliant ideas that will finally be very expensive to implement, engineers with both a business vision and a sense of feasibility can bring ideas to live production much faster with the support of marketing teams.
4- Agile from day 1. Starting small, with technologies enabling continuous delivery, new entrants can adopt approach such as lean startup management (as described by Eric Ries in “lean startup”), keep investments as low as possible to create a MVP (Minimum Viable Product) to be tested on the market, learn and measure, then adapt the product in a short iterative way… or to pivot their business according to the results. They can thus adapt continuously and rapidly to the market. As the company grows, this kind of mindset and approach will stay in the DNA of the company, and the organization will scale and adapt to stay consistent with this mindset (look at Spotify for example). That explains why digital giants such as Google, Amazon, etc… are still able to push daily changes in production in spite of the complexity of their systems.
Now, imagine that you’re leading a traditional company with 1000, 10 000, 100 000 employees… or more facing these pure digital UFOs that keep disrupting your market, taking shares where you didn’t expect them. And they keep pushing out innovations on the market whereas your time to market is in years or in months at best. So you think, you’ve got to make a digital transformation within your company to compete equally with them. Then you may decide to appoint a Chief Digital Officer to be more aware of digital issues, decide to tell the IT guys at your company to turn into agile, invest money with a lot of experts in agile coaching… But it won’t work in many cases. Not because these actions are not necessary. As we say in mathematics, these are necessary conditions but not sufficient. Because this issue should be addressed with a much broader vision.
Digital transformation for traditional companies is indeed a journey with multiple challenges to address… a sort of “Journey to the West” like the famous Chinese saga from the 16th century, with many trials and sufferings… but the reward worth it!