Software is eating innovation: How trapped is your company?

Homogenized software can limit innovation as companies grapple with digital evolution options, while marketing continues to dominate tactical thinking.
Written by Oliver Marks, Contributor

'Software is eating the world' is a well-known and much quoted phrase by browser development enriched VC Marc Andreessen, and was part of a larger WSJ 2011 article championing software's increasing dominance over everything. A good read, here's a pertinent paragraph:

Companies in every industry need to assume that a software revolution is coming. This includes even industries that are software-based today. Great incumbent software companies like Oracle and Microsoft are increasingly threatened with irrelevance by new software offerings like Salesforce.com and Android (especially in a world where Google owns a major handset maker).

The bigger question five years later is whether IT vendors are consuming ever greater cash flow from their clients and to what extent their software/platform/ 'as a service' offerings are helping or hindering client business economic success. Are modern software company automation and standardizations of work processes eating the differentiation and profits their clients need and where can the much needed innovation inside business organizations flourish in this new homogenized 'software consumed' world?

MIT & Deloitte titled a recent pdf report 'Strategy not technology drives digital transformation', while James Manyika, Gary Pinkus and Sree Ramasamy wrote ' The Most Digital Companies Are Leaving All the Rest Behind' in the Harvard Business Review. These two macro proclamations aim to demonstrate the business efficiency 'digital native' businesses enjoy over the IT kit and culture previous generations still run on.

Speaking as a business consultant in the digital strategy area, I've experienced two fundamental branches to business technology use models: mature businesses have legacy architectures to evolve while full stack 'digital native' firms (with shiny poster children such as Tesla, Uber, Nest and AirBnB) have been conceived from the ground up as digital entities.

Most firms are stuck in the awkward place between old and new, scared of digital upstarts stealing their market share and relying heavily on their brand credibility and trust, which they reinforce with digital network marketing. Many of these 'stuck' companies are trapped in a spider's web of archaic technologies, contractual obligations and maintenance fees, not to mention historical mystery IT implementations that make a house of cards look robust.

Unfortunately for many companies 'digital' primarily means marketing and engaging through social networks as is evidenced by looking at 'digital' jobs want ads online in the bay area and elsewhere. There are lots of marketing, sales and UX 'customer journey towards purchasing our products' jobs around but apparently little thought given to the far more important holistic approach to digital evolution across all areas of a company, even in the heartland of high tech. Culture change and shifts in workflow models remain as hard to pull off as ever without clear incentives and value propositions. Without these it's hard to break the corporate mold in order to innovate, especially at larger more mature companies.

As Drucker always reminds us 'the purpose of a business is to create a (paying) customer' ...'any business enterprise has two - and only two - basic functions: marketing and innovation'... 'ACTION POINT: Find out what needs your customers want fulfilled today. Determine how well your products are meeting the needs of your customers...That is the purpose of business'.

There is some terrific work being done around digital marketing, customer engagement and feedback -- but it often gets confused with needs/innovation, which is where existential threats are likely to appear to challenge well-established, set-in-their-ways businesses.

Way back in 2003 Nicholas Carr wrote in 'IT doesn't matter'

"What makes a resource truly strategic--what gives it the capacity to be the basis for a sustained competitive advantage--is not ubiquity but scarcity. You only gain an edge over rivals by having or doing something that they can't have or do. By now, the core functions of IT--data storage, data processing, and data transport--have become available and affordable to all. Their very power and presence have begun to transform them from potentially strategic resources into commodity factors of production. They are becoming costs of doing business that must be paid by all but provide distinction to none".

Here we are looking at business strategies for 2017 and beyond, with tremendous technology resources available to differentiate available from more forward-looking tech companies, yet most firms are primarily focused on using digital communication channels for marketing and superficial user experience omnichannel skinning. It can be the digital equivalent of an annoying brick-and-mortar sales person shadowing you around their store.

From last year's useful short read by Stephen O'Grady, ' The Software Paradox':

Just as the technology industry was firmly convinced in 1981 that the money was in hardware, not software, the industry today is largely built on the assumption that the real revenue is in software. The evidence, however, suggests that software is less valuable -- in the commercial sense -- than many are aware, and becoming less so by the day. And that trend is, in all likelihood, not reversible.

Startups and corporations alike are distributing free software that would have been worth millions a few years ago to gain visibility and use case credibility, but software is an ever cheaper resource... I added '(paying)' in the Drucker quote above for a reason...

Last year I wrote a piece here praising and ruminating on Microsoft's brilliant business strategy in perpetuating document work flows to keep their 'Office' suite cash cow producing vast seat licensing riches. You can't blame Microsoft for perpetuating their paying business model, only yielding to threats by either buying them (Yammer, for example) or making their competing products free to scorch earth competitors out of existence by starving them of revenue (One Note to knock out Evernote).

What's good for Microsoft and other high-tech vendors isn't necessarily good for their customers in an era where differentiation and innovation are ever more key in order to 'create a paying customer.' As legacy enterprise software value depreciates and becomes ever more brittle and cumbersome as it ages, a great deal of thought has to go into what unique architecture will differentiate and provide competitive advantage going forward. Innovative marketing penetration of digital channels buys time but isn't core digital innovation.
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