As the essential driver of digitalization, IT has been historically seen as cost-center, not uncommonly reporting to the CFO. As a consequence, the primary focus and culture of IT revolves around cost and efficiency optimizations. Due to the digital transformation phenomenon however, this view is currently changing.
From Digitalization to Digital Transformation
Digitalization simply means the digital replication of something analog. Most CIOs and IT Managers in non-tech-native industries have been dealing with the digitalization of business processes for ages. Their primary incentive to pursue digitalization vigorously lies in the cost and efficiency benefits that come with it.
Meanwhile, digital transformation takes things a step further and entails the use of digital technologies to create new digital products or even business models. This is how BigTech such as Facebook, Google, and Amazon disrupted their respective industries. Thanks to instantly-available technologies, start-ups with little resources are able to move upmarket and outcompete large corporations by meeting future customer needs.
As C. M. Christensen describes in his book the Innovator’s Dilemma, even if optimizing existing business models seems more profitable in the short term, companies must rethink their value proposition in the face of disruptive technologies. Otherwise, others will do it for them. Software companies have proven Christensen’s theory countless times. Out of urge for survival, digital transformation is becoming a pivotal endeavor for every company and industry.
Automotive
Companies like Tesla are transforming cars from primarily hardware products to software-based products. Therefore, the automotive industry is currently expanding its tech force, not its production.
Pharma
In recent years, pharmaceutical research (e.g. for vaccines and drugs) has been dominated by computer simulations. In silico experimentation outperforms all conventional research approaches through its scalability alone.
Maintenance, Repair and Overhaul
Every minute an aircraft is on the ground counts. By using machine learning models to analyze failure patterns, maintenance events can be predicted, thus reducing turnaround times.
Real Estate
Real estate platforms disrupt by completely eliminating real estate agents from the value chain since acquiring and reselling a house becomes almost as convenient as buying or selling something on eBay.
Steel and Metals
Even in industries with purely solely products such as steel and metal, all supply and service chains are being digitally transformed. By focusing on automation, e-commerce platforms and predictive sales zero touch value creation is being approached.
Finance and Banking
Digital trading platforms introduced by fintech make investing so easy and convenient that financial services providers are being forced to rethink their value proposition. The same applies to online banking making the user experience of banking apps more essential than competent consulting and other individual services.
Retail
The retail market has long been dominated by e-commerce. This requires companies to optimize their online store experience, make supply chains transparent and reduce returns, e.g. through digital wardrobes.
Software Engineering as Core Capability
With today’s omnipresence of disruptive technology, even non-tech-native organizations can no longer solely rely on standard commercial off-the-shelf systems. They simply do not provide competitive advantages and certainly do not enable disruptive products or new business models.
Operating in digital transformation, high-quality custom software development becomes an existential capability. While it is crucial to find the right tech partners for the transformation journey, the digital value creation should not be placed in the hands of third parties. Software engineering is precisely the discipline from which future products arise and you do not want to outsource prospective business models.
Consequently, software engineering is no longer exclusively relevant to tech companies but must become integral to every organization.
“Every company is now a software company.”
Satya Nadella, Chairman and CEO of Microsoft Corporation
In order to build up software engineering as a core capability in a non-tech-native organization, IT needs to develop a software engineering strategy.