Technology Is Moving At A Breakneck Pace — Are Companies Keeping Up?
The World Is The Main Course
In an insightful 2011 Wall Street Journal article Why Software Is Eating The World, Marc Andreessen noted that “more than 10 years after the peak of the 1990s dot-com bubble, a dozen or so new Internet companies like Facebook and Twitter are sparking controversy in Silicon Valley, due to their rapidly growing private market valuations, and even the occasional successful IPO”, but that he (and many others) believed that many of these companies have real intrinsic value. Now in 2018 we clearly see the accuracy of those observations. Today we can find many articles that talk about how technology is eating the world, where 7 of the 10 most valuable companies are technology centric companies and just six stocks contributed 98% of S&P 500 returns and 105% of NASDAQ returns through July of this year — the six companies are Amazon, Netflix, Microsoft, Apple, Alphabet and Facebook. Even back in 2015, five technology companies, along with Gilead, were responsible for over 50% of NASDAQ’s first half gains, and four of these tech companies along with Gilead and Walt Disney contributed more than half of S&P 500 gains.
The growth and success of these technology companies is by now legendary. Their true power is not just in the success of their core products and services such as online retail or social media, but also in their foundational technologies with leadership in artificial intelligence and deep learning that is being fueled by their established and ever growing data trove. Their success and increasing scale drive their ongoing ability to adopt and lead in the latest technological advancements, propelling their continued market success into the future.
But There’s Room For Improvement
Today technology is not just the realm of technology companies, it is impacting all businesses and indeed all areas of human endeavor. This is something that established companies know well, in fact 71% of respondents to last year’s Fortune 500 CEO survey said that their company is now a technology company. So one might ask — How are these companies doing in their quest to become technology companies? Well, there’s much room for improvement. There are signs that most are not keeping up with technology and innovation, causing them to fall further behind the leaders. As reported recently in the Wall Street Journal, studies show that the biggest companies are getting the bulk of the benefits from innovation, these leaders have by far the highest productivity gains. As an example, between 2001 and 2013, the top 5% of leading manufacturing firms increased productivity by 33% with the remaining 95% increasing productivity by only 5%. In an earlier article on technological disruption, I shared results from a December 2016 McKinsey Global Institute report showing that companies are failing to reap the benefits from today’s technology, most of these remaining at the starting gate of technological advancement. In the case of manufacturing, 2011 research by McKinsey had estimated technological innovation would lead to a 50% reduction in development costs, 25% reduction in operating costs and gross margin increase of 30%, five years later they find that manufacturing has only captured about 20–30% of that potential from technology. This limited success is not just a manufacturing problem, it holds true across most if not all industries. So far this year U.S. IT sector growth has added nearly 49,000 new jobs (technical and non-technical), at the same time IT employment across all sectors of the economy is down by 90,000 jobs according to CompTIA. Some of this technical job shedding may be the result of moving to new technologies and deprecating others, but it does seem as though the big leading companies are getting bigger and the rest are struggling to keep up.
Given the pace of technological innovation and the growing capabilities of the leading corporations, it’s no wonder that over 50% of 679 U.S. companies, each in business 30+ years, said in a recent PointSource survey that they feel outdated in the digital era.
Some Common Problems Getting In The Way
Having met with executives at large and mid-sized companies to discuss their data analytics efforts, I find that many of the companies struggling today with technological change have a long history of business success behind them with strong and experienced management teams. They understand that their future success in the marketplace depends on the adoption of critical new technologies but, while they may have substantial resources at their disposal, ultimate success hinges on their ability to avoid common stumbling blocks that can derail their progress. One of these is insufficient commitment to technological evolution that may arise from a lack of clarity on the end goal or what is needed, sometimes compounded by the belief that it can be put on the back burner until other more pressing (and better understood) corporate matters are handled. Intellectually the leadership may understand it is important but lack the necessary fortitude to work through the intricacies of the technological transformation. One sign of hesitancy is pressuring the teams tasked with incorporating new technologies to show “quick wins” to prove value or management cancels the work. Successful transformations often require iteration, so being able to run experiments and failing fast can be very valuable. But if failure results in the end goal being abandoned or delayed then the transformation will likely fail. Transformational success requires clarity that while difficulties will be encountered and plans may be adjusted the commitment to the company’s technological transformation is unflagging because the future depends on it. Hesitancy causes companies to fall further behind their more determined competitors eventually creating a gap that is too hard to close.
The amazing speed of technological innovation is quickly creating new winners and losers by disrupting well established enterprises, reluctance to jump on these technology trends and inability to manage through the stumbling blocks can cause companies to be left behind at the starting gate of technological advancement.
This post originally appeared on the Data Powered Future blog at datapoweredfuture.com.