Does digital really mean every business is a technology company?

man pointing at technology on blackboardAt the recent Gartner Symposium in Orlando, Peter Sondergaard, senior vice president at Gartner and global head of Research, told the audience that “every company is now a technology company,” and “every business unit is a technology start-up.”

The viewpoint that the digital age is forcing every business to become a technology business is proving very popular at the moment. There are a number of variants such as “every business is a software business” and “every business is an API business” with the latter being a reference to an application programming interface, which are used to enable software applications to interact and share data using standard commands, functions and protocols.

But are these statements really true? Does every business need to become a technology, software or API business to survive in the digital age? It is certainly true to say that all three are becoming increasingly important to businesses of every size and across every industry. Digital products and services are only possible because of technology. A manufacturer of devices that could be connected to the Internet to collect data or interact with another device or an application certainly needs to understand the technology that enables such interactions. But does this make that business a technology or a software business? It could partner with a technology company to build the required software, develop the interfaces, etc. instead of developing its own capability in these areas.

The important part for the device manufacturer is to know what its customers want from their devices, how its devices can make the customer’s life easier, better, more enjoyable; it needs to work out what the customer’s next need will be and how its products can be developed to meet those needs. Understanding the customer’s needs and, more importantly, what they will need next, is not a technology issue. It is about looking at your products from the customer’s perspective and imagining how that product could do more for the customer, how it can give them more value or benefits. Having in-house knowledge of digital products and services, lifestyles and preferences of customers, and available technologies would certainly help this step, but that does not mean becoming a technology business.

The next step in the process – working out how to develop or enhance the existing product to meet the customer’s needs – may well involve technology. And where the customer’s next need is a digital one then it will only be possible using technology. But at this point, could the company in question just engage partners to help figure out how or whether the need can be fulfilled using existing technologies and then engage the same or different partners to build the required solutions?

Does every company have to become experts in social, mobile, analytics and cloud technologies to prosper in the digital age or do they just need to develop a network of partners that understand these areas? In Any business can be a digital business I described how a laundrette had internet-enabled its washing machines and dryers, enabling customers to pay for services with their smartphones. That laundrette could not be described as a technology or software company.

John Deere has added Internet- and GPS-connected sensors and display screens to its tractors and combines that feed into the MyJohnDeere.com website, through which farm managers can quickly access important field data. Jimmy Choo uses a virtual showroom that enables shoppers to tour its range of luxury shoes in a virtual high-end store, and then buy online. Neither of these companies can be considered to be a technology or a software business.

At the other end of the scale the Netflix business model is entirely dependent on technology, yet it describes itself as an entertainment business, not a technology business. Netflix has a lot of technology expertise in-house but it also works with a number of technology partners. The Netflix technology resources are focused primarily on developing the apps that its customers use to access content, and on how best to use the products and services provided by real technology businesses to meet its customers’ needs. Hence Netflix has in-house technology resources to support the core business and not because it considers itself a technology company.

The view that every business has to be a technology company in the digital age is misleading. Organisations have to focus on their core business, which for the vast majority is not technology. What is true is that, in the digital world this vast majority will find that their business models, products and services are enabled or enhanced with technology; in other words every business will be based on technology. But that does not make them a technology business per se. Having knowledge of what technology is available, what it can do and how other companies are using it will be essential but that knowledge does not make the organisation a technology business and neither does it always have to come from within the organisation.

Digital businesses do not exist in isolation; they are part of an ecosystem of related and interconnected organisations that each provide components which, when combined, can create a new offering. Successful digital players know how to create new products and services by combining functionality and data from different sources; technology may not be a core-competence of a digital business but being able to build and manage a digital ecosystem is, however, a key capability.

The “every business must become a technology company” theme is also misleading on another level: becoming a digital business involves a lot more than just investing in technology; it requires a new perspective on the organisation. It is about looking at the business from the customer’s viewpoint. It is about understanding what outcomes or benefits the business provides for the customer, and then redesigning the entire business model to meet these needs. A true digital transformation therefore involves changing the culture, leadership, governance, processes, roles, etc, of the business.

Every business has to become a digital business to ensure its continued existence in the digital age. And every digital business will be based on technology. But it does not follow that every company has to become a technology business. Organisations need to focus on their core business and on how their products and services meet customer needs now and in the future. The fact that technology is very likely to drive this future does not mean they need to be a technology company.

If your organisation wants to develop a strategy for becoming a digital business or if it wants to generate a pipeline of ideas for digital innovation within its products and services then please contact me or visit my website, axin.co.uk.

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