Be a "tech company"
Be a “tech company”
This is a little speech I wrote for an “executive dinner” in Munich. I of course didn’t read it, it just organized my thoughts. It’s a Pivotal pitch of course (these bills don’t pay themselves!) but a general “do the software thing” quickie. Pardon the marketoid text if it offends, but I need something to send today!
https://www.flickr.com/photos/cote/48754235628/I’ve been IT for 23 years, plucked from high school as cheap labor to make an online banking system. For as long as I remember, we’ve been trying to “align” IT with the business. Make IT as useful, responsive, and business-focused as possible. It works here and there, and ended up being a lot of cost management and outsourcing at the start of my career.
In the 2000s, through ecommerce and later “tech companies” like Uber, Facebook, Google, Amazon, and Netflix. we saw a new type of business operating model emerge. It took lessons from software companies (like Microsoft, IBM, Sun, and Oracle) and applied them to traditional industries: transportation, advertising, retail, and entertainment. These companies experienced huge growth because they had low time to market and could continually innovate to refine their product.
Now, other companies are transforming to this “tech company” model. The Home Depot and Dick’s Sporting Goods have shifted to an omni-channel model: 50% of items purchased online are picked up in-store at The Home Depot. Car companies like Ford and Daimler are adding new services to their existing products with fast evolving apps that evolve their businesses. Every insurance company is responding to the need to improve customer experience by speeding up the claims process.
These companies are taking the tech company approach to business: they develop their businesses by focusing on product development and management. Software is at the center of how they operate their business, how customers interact with businesses, and most importantly, how these companies innovate. Gone are the days of multi-year strategy market analysis and initiative planning. Organizations that shift to a product approach instead use 90 day, even weekly innovation cycles to experiment with how they grow their businesses.
With this closeness to customers - “the market” - these companies have a better chance of catching “inflection points,” those shifts in business-as-usual that present opportunities to those who notice, and threats to those who don’t.
For example, John Mitchell at Duke Energy described an oncoming inflection point in the energy business: when cars switch over from gas to electric, the whole system of refueling cars will create massive changes to the power-grid. Imagine when every “gas station” is actually an electric car station…or if stations will even exist! Either way, power companies like Duke Energy need to start exploring and innovating now.
If you want to be like a tech company, you should, well, be like a tech company.
Tech companies focus on software-driven product
I’ve always worked in tech companies from being a developer, to a marketer, to strategy. The major difference between tech companies and “normal” companies is that IT is the business. Sure, there are IT systems like email and even ERP that are commodity services run out of an IT department. But, their business focus is on software development.
“Tech companies” have software development inside the businesses: there are GMs who understand how software works and how the business works. Product managers and developers know the business and the market they work in.
Organizations like Thales are shifting to this model. Instead of providing application development as a service (our outsourcing it), they’ve created a new organization that brings together people from the business, developers, designers, and product managers. Allianz has been doing the same. They’re building out all the apps you’d expect from an insurance company. In these and many other cases, the business innovates and grows because there is strong business/IT alignment.
As this shift happens, you sometimes see titles like Chief Product Officer (The Home Depot) or CTO (Kohl’s). This is a transition of looking at software as the method of programming the businesses, but also innovating - finding new opportunities.
Operations provides the platform for innovation
For IT, operationally, innovating like a tech companies means: (1.) putting a lean product methodology in place, (2.) providing a platform as a product to product teams, and, (3.) minimizing spend on commodity IT services.
A lean product methodology is akin to a jobs to be done approach, but with the ability to actually experiment and develop new business features. Software can be delivered once a week (or even daily), meaning you can try our new ideas and observe how people use it, for good and bad. A good product team will put a small batch loop in place to learn from this and, weekly, improve the product in small parts. (You see this in the Orange example, Rabobank’s mOOvement, Liberty Mutual, and others.)
The ability to move this fast and safely is provided by a platform as a product approach. This is using cloud, whether private or public, to provide a standardized, (usually) container, and microservices model of architecting applications.
First, it removes as much toil, friction, and wait time from the end-to-end release process. Daimler, for example, went from waiting 30 days to get a server to 2 days - others do it much faster, in minutes. The goal, here, is to give product teams complete, no-wait control over the infrastructure and services they need - no more tickets.
Second, a PaaS (ha!) standardizes the runtime environment and software management toolchain, for example, the build pipelines used and the backing services like databases, machine learning, and operations (“day 2”) tools.
Third, combining together this container approach with standardization, PaaS operators can provide much better stability, security, and savings.
Stability comes from less variation and the speed of releasing to production. Developers are no longer able to touch operating systems or directly need to configure networking, for example. This means configuration and errors from misunderstandings occur much less. Containerized applications are much easier and faster to deploy as well, so coupled with good data management, release practices like blue/green deploys allow for quick rollbacks. With quick rollbacks, mean time to repair (MTTR) speeds up dramatically.
Security comes from containers and standardization as well. Operations controls which operating system is used, which versions of services are used, and so on. Developers only control their own application code. So, for example, when a patch is needed for an operating system, operations can quickly rebuild all of production by forcing a rebuild of all the containers running in production - they don’t need to hunt down all the operating systems and have developers rebuild their applications. Wells Fargo follows this practice and rebuilds production 3 or 4 times a week, during business hours! This means malware and attack surfaces are blown away multiple times a week. And, of course, deploying patches speeds up. Express Scripts went from 45 days to deploy a patch to 5 days. Others do it same day.
Savings are achieved by shifting from legacy platforms like older application servers and middleware, but primarily through staff optimization, both developers and operations staff. The speed increases in infrastructure management means operations staff spend less time on manual toil and instead can be used to scale up IT as the business grows. Similarly, developers are able to spend the majority of their time developing applications instead of the scaffolding and configuration around their code. For example, at Sambasafety, their staff went from spending 70% of their time on maintenance to 50% of their time working on the actual software.
There’s still a lot of “IT” left after this. Most of these are non sources of innovation or even business value, however, but many (like email, ERP, etc.) are necessary. Separating commodity IT services from product services is key, strategic job for the CIO. And these other services must be managed well, for best cost to performance. Often, these services are migrated to SaaSes instead of run and managed in-house. (While Pivotal focuses on product development, many other groups in Dell Technologies focus on running these other IT services as efficiently as possible.)
Spending on growth, not just business as usual
All of this adds up to refocusing on growing and transforming your business. Most organizations spend about 70% of their budget to “keep the lights on” - the savings from a PaaS approach can be redeployed to growing your business instead of just keeping it up and running. We’ve seen this shift in the industry recently too: in 2014, appdev spend in most organizations was around 16% of budget, in 2018 it shifted up to 22% - 37% growth. In EMEA, it’s around 24%. It’ll just keep growing.
So, this is what transforming to a tech company looks like. IT’s structure and operating culture change. Each line of businesses changes as well to use the operating strategy and structure of “tech companies.” There are numerous other changes, especially in finance, obviously in HR, and the general day-to-day of CEOs and executives. You probably want a tech company veteren on your board, and the CIO needs to become the Chief Product Officer until you find one. Models of transformation vary, and sometimes aren’t as dramatic, but this is an “above average” model based on companies I’ve studied over the past five years.
Original programming
I was on a panel at the CF Summit last week, The New Stack’s pancake breakfast. Astute wunderkammer readers will pick up some developers and platforms themes:
Industries to arenas
The very concept of “industry” is an artificial categorization. Often the most important competition any business will face is from entrants who are not hamstrung by assumptions about what their “industry” expects of them.
Seeing Around Corners: How to Spot Inflection Points in Business Before They Happen, Rita McGrath
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“The tech-heavy chicken sandwich restaurant”. Hustling with mystic stuff. “Low-code” to be a $21.2bn market by by 2022. 85% of people surveyed say they’re “already using” serverless: ¯_(ツ)_/¯.