Digital Transformation Examples

Ray Wang, principal and founder of Constellation Research, has pointed out some startling statistics. 52% of the Fortune 500 have been merged, acquired, gone bankrupt, or fallen off the list since 2000.

Richard Foster did an interesting study looking at the average age of an S&P 500 company. It was 60 years at the beginning of the S&P 500; we are now down to somewhere around 12. If you look at anything from market share anywhere from the top 3 vendors, top three competitors, typically are taking anywhere from 50 to 77.1% of the market share and 47 to 69.8% of the profits in every industry. We are seeing a high-end business take all the markets at the top and we are actually seeing a lot of commodity players on the bottom.

We are now in a post-sale, on-demand attention economy. This means everything after the sale is as valuable and, in some cases, even more valuable than the initial sale because it provides additional customer context and data. Installations, connections, the ability to continue service, subscriptions – all this provides the building blocks for deep and rich customer relationships. And as customers are accessing products and services in smaller and smaller slices – think about reading an article online rather than buying a whole newspaper – they need to get to those services much more quickly. If businesses aren’t saving customers’ time or grabbing their attention, they will go out of business.

Enterprise disruption has been happening for a long time, but this particular moment represents a tipping point that makes disruption easier and more widespread than ever. There are five reasons for this:

1. The barriers to entry for both local and global markets have reduced dramatically as the rapid adoption of the cloud, particularly infrastructure as a service, has made access to IT capacity inexpensive and massively scalable.
2. The global adoption of mobile broadband, combined with social media and ubiquitous messaging has redefined customer, reach, engagement, distribution and customer service.
3. The integration of connected endpoints with highly scalable compute resources offer the promise to streamline a multitude of industrial and consumer processes.
4. Capital, particularly in developing markets, is readily available as investors reward innovation and growth.
5. Globalization requires companies to both innovate with new products to achieve and become low-cost operators to sustain market position.

This means that every company can and will sustain competition on price, customer satisfaction, availability of new products and services, and more; and that competition can come from any source, whether established companies, new startups, or companies eager to enter new markets. For example, GM has to fend off competition not only from Ford and Nissan, but from Tesla, and also from Google.

There are three historical models that help us understand the changing nature of business. Version 1 was vertical integration. The Ford Motor Company is the classic example of this, where Ford owned the rubber farms to make the tires for Model Ts. Early on, businesses really had to control everything. They had to control their supply chain; they had to manage everything that they were doing because you just didn't have this big global set of suppliers that you could work with.

Version 2.0 is the notion of leveraging the power of suppliers, of power of people that do it better than I do. Companies referred to this "core versus context." Focus on what the company does at the core, and let somebody else do the things that are context for you. If we stay with the automobile industry for our example, other companies ship them their transmission systems and their glass, and in fact, all of their electronics come often from outside their companies. Even seating systems get provided, and the car companies themselves become assemblers of the materials. They're marketers, designers, and assemblers. Apple is another example of a business using this model. Along comes the internet and web and e-commerce, and companies now were able to connect with their customers via the web and their suppliers via the web, and the efficiency of what they did, it got better. Businesses actually didn't fundamentally change; they went from distributed to distributed using web interfaces. That was a big change. It was fundamental, it saved us tremendous amounts of money, it made companies much more efficient, but it wasn't something that was completely transformative. This could be called version 2.1.

Now we are moving to version 3, and the name we're calling it is the composable enterprise. We're in a situation now where your company, your organization is now moving to being composed of pieces or reusable parts. You leverage the pieces of your own organization, and leveraging things from other people: whether it's other companies, other SaaS companies, or developers outside your organization. It's how you stitch all these components together that's really going to make you win or lose in the market.

This is how Airbnb can have hundreds of thousands of listings and not own a single one, or Uber can have the world’s largest taxi fleet without owning a car. You used to build your own server farms and data centers. Now you're leveraging AWS for a lot of that. Salesforce is running big parts of sales organizations or marketing groups. The end state of the composable enterprise is to tap into your legacy systems, to leverage all of the power of the Cloud, and to connect all of this together. The result is that when you need to make a change to your business, you can do it quickly, easily, and without pain because everything is coupled with APIs. You are now nimble. You've leveraged this API economy to make it happen. That's where we see it going. Composability will completely transform how businesses run.

Digital transformation affects every business in every industry, no matter how big, old, or established it is. But digital transformation also has the ability to provide opportunities for increased growth, agility and revenue. Take a look at our case studies of how businesses of every type have successfully implemented digital transformation to help their companies.