The definitions for digital strategy are numerous. Some are helpful and illustrative, some significantly less so. Google search isn’t super helpful here either. The first result response to the search “what is a digital strategy?” shows first page results from Wikipedia, discussions about blind men and elephants, and a series of advertisements from companies offering to consult on the matter. Fascinating but not very useful for technologists navigating the future of their business.

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To address this, I’ll cover the following topics:

  • Trends for B2B businesses
  • How businesses are taking advantage of these trends in unique ways
  • How value pools are transferring and shrinking
  • What the data tell us about how the technology industry is adapting
  • How TSIA can help

Digital Trends For B2B Businesses

The undeniable trend towards digitization of B2B business is fueled by expanding internet access, enabling more people in more places globally to connect to the internet from their device of choice. The growing connectivity fuels the addition of more than 1 million new users each day, and now internet users make up 57% of the global population. That also translates to about 4.4 billion people, which is a 9% growth from 2018. (source: internetworldstats.com). All these consumer and business users are producing even more data. According to IDC (International Data Corporation), the world's data will grow from about 29 zettabytes (ZB) in 2018 to 175 ZB by 2025, a growth rate of 66% per year! Recognizing that these stats were valid before the COVID-19 pandemic surged the demand to digitize.

This pandemic has...

  • Skyrocketed the demand for real-time information about the health of the global population
  • Forced 9 out of every 10 children in the world out of schools and to on-line classrooms and curriculums for those with internet access and proactive school leaders
  • Moved the global white collar workforce to work from home
  • Shifted a large percentage of routine face-to-face doctor visits to phone and video visits
  • Surged the use of drone technology for reminding citizens of shelter in place ordinances (China), moving critical medical supplies at speed and for deliveries to mitigate human-to-human contact
  • Pushed more robotics to be deployed for a variety of tasks including to streamline order fulfillment

Combining the connectivity that onboards users, robots and businesses, who then generate the data along with the plummeting cost of compute power, results in the perfect mutually reinforcing trifecta that continuously accelerates the pace and scale of near instantaneous insights anywhere at any time. The COVID-19 pandemic is the added fuel to an already accelerating phenomenon.

How Can Businesses Leverage These Trends for Unique Advantage?

The recipe for innovation is also changing, mainly in response to these trends. Historically, new innovations were singular and potentially siloed with a handful of useful applications. For example, radar uses radio waves to determine the range, angle, or velocity of objects, detect aircraft, ships, spacecraft, guided missiles, motor vehicles, weather formations, and terrain. 

GPS is used to map forests, help farmers harvest their fields, and navigate airplanes on the ground or in the air, used by military applications, and by emergency crews to locate people in need of assistance.

Today, innovations can combine the massive digital trends and historically siloed inventions with singular use cases into unprecedented ways of transforming our world. A great example of this is the advent of autonomous vehicles, an invention which has been built upon the combined innovations of the past 20 years and fueled by harnessing digitization, artificial intelligence, and machine learning. 

Specifically (because it’s so fascinating) self-driving cars combine a variety of sensors to perceive their surroundings, such as radar, lidar, sonar and GPS. They apply odometry, adaptive cruise control, AL/ML, security and inertial measurement units. Advanced control systems interpret sensory information to identify appropriate navigation paths, as well as obstacles and relevant signage. Compute power, storage, and data are the underpinnings of enabling the resulting artificial intelligence of these vehicles and equip them with the ability to continuously learn and improve.

Changing Value Pools

Value is created when new products come to market from which customers derive the value. In the pre-internet days, the value may have shifted from a vendor to a competitor who solved the same customer problem in a more elegant way. One such example includes the photography industry – cameras got physically smaller and evolved from black and white to color while the quality of the produced print photos improved over time. During these evolutions, the camera manufacturers like Canon, Minolta, Kodak, etc. competed back and forth with incremental innovations.

In the post-internet days, the value is more likely to shift, not just to a direct competitor but to an entire new industry. Again, in the case of the photography industry, the disruption accelerated to digital as soon as the internet was introduced (Kodak estimated the peak of film-based photos produced at 80 billion in 1997).

Another much quoted example is the auto industry. Instead of buying cars from a car manufacturer, many are choosing to shun car ownership altogether (starting with the young and the urban) and opt for hailing a ride in the moment and paying just the cost of that immediately delivered service. The business models of both class of suppliers couldn’t be more different. This places severe stress on the capabilities of the incumbent suppliers to survive long enough to transform into viable service-oriented businesses.

Value pools are not only shifting to new industries, they tend to be shrinking as they shift. As more and more features/functionality become embedded in existing infrastructure it just becomes expected for the same cost as before when those features weren’t simply ‘included’. This can be classified as a form of commoditization. Only the very serious enthusiast buys a camera now. Instead, most use the camera embeddedjavascript:void(0) in their mobile phones. Though I’ve had the need, I have never bought a spirit-level, opting to use the free one on my phone. Why buy a separate pedometer when you always carry your mobile phone when out walking? The list goes on. There was a time when these products separately captured value for the supplier and commanded a fair price, but that value has not only shifted to another industry, but the value capture has shrunk dramatically in the process.

Another example here is AWS’ integrations services across cloud and on-prem. These API integration services are offered at below market prices in order to attract customers to the AWS platform. Companies that provided these types of API enabled integrations (Computer Associates or Mulesoft for example, prior to their acquisitions in 2019), saw the value of these offerings shift to a different class of vendor and shrink in the process. In November 2019, Kiplinger detailed 43 companies that Amazon could destroy by acquiring and/or shrinking their value.

How is the Technology Industry Adapting?

This tumultuous change indicates that business Darwinism is alive and well. Case in point, since TSIA began tracking the Technology & Service 50 Index over 10 years ago, there are just 33 companies that are still in the index since that time. These include companies like VMWare, IBM, Cisco, SAP, all of who are aggressively pursuing new strategies for the digital age along with business model shifts to as-a-service.

The seventeen companies not in the index any longer either decided their odds of survival were better as part of another organization in the face of profitability pressures, pulled back and stopped reporting their service revenues, or were purchased by private equity. These include Computer Associates (acquired by Broadcom), Tibco (taken private by PE firm Vista Equity), Alcatel-Lucent (acquired by Nokia) and Hitachi (deteriorating public data quality).

How Can TSIA Help?

Many companies are on a path to digitize their business. That’s super critical, however many of their actions may not be enough to stem the tide of disruption to the very core of the company’s value proposition. Calculated bets and bold moves are needed as the world evolves to new behavioral norms in a post COVID-19 pandemic world.

Do you have a digital strategy or a strategy to excel in the digital age? There’s a difference, but what is that difference? Is M&A the fastest path to acquire new offerings, new skills, or learning new business models? How fast is the hockey puck moving to services in your industry? Can teams that have been doing business the same way for decades change fast enough? These are some of the questions and related topics we’ll discuss in the XaaS Product Management research track at TSW LIVE! This free virtual event is taking place May 5-6, 2020. We’ll explore the data on portfolio investment and lifecycle management practices of TSIA member companies, explore portfolio strategies and the speed at which businesses are pursuing them to survive and thrive in the digital age accelerated by the COVID-19 pandemic.

TSIA is Here for You

We understand that our member companies, the technology industry, and the world at large have been impacted by COVID-19. Now, more than ever, we need to work together to get through these challenging times. TSIA is committed to providing visibility as quickly as possible into the changing industry trends and practices that come as a result of COVID-19. Visit our Rapid Research Response Initiative resource page for more information.

If you have any questions related to how COVID-19 is impacting your organization, we’re here to help.

 
 
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Laura Fay

About Author Laura Fay

Laura Fay is the vice president and managing director of offers research and advisory for TSIA. She also serves as TSIA’s vice president of XaaS product management research. Laura is a technology industry veteran with over 30 years' experience driving business growth in the enterprise technology industry via leadership roles in product management, general management, product development, and customer success.