This era of the Fourth Industrial Revolution or Digital Transformation sees technology and how it is used becoming the competitive differentiators for companies. It is not just about making incremental progress in technology leverage, rather, defining oneself as a Technology Company solving customer challenges. More and more companies are now claiming to be Technology Companies. We heard it first from JPMorgan Chase senior executives who said, “they are a Technology Company delivering banking services than simply a financial services institution”. With an annual technology expenditure in excess of US$10 billion, more than 15% of JPMorgan’s employees are in the technology division.
Financial services companies are quite forerunners in the race of filing for intellectual property (IP) rights to digital technologies in the areas of mobile, payments, and security. Many of them even regard security as the key differentiator, important enough for them to actually acquire security companies in lieu of buying the technologies from vendors. Many leading global firms have responded well to the acquisition threat from fintech companies.
Almost all the other industries have a lot of catching up to do. The startups, however, are all starting with the premise of “digital first”. About three years ago, I was in the audience at an event in India, listening to Amuleek Bijral, founder of Chai Point (chaipoint.com). His business was all about leveraging technology to deliver the perfect cup of tea (chai as popularly referred to in India). His biggest investment is in technology to deliver a consistent customer experience of consuming the tea, whether at the office or in one of his outlets.
So what does it take to be a Technology Company today? What does it do differently?
1. It develops quite a bit of its own technology. It focuses heavily on how technology can help it play a differentiated game in the market. Technology is not about just buying plug-and-play solutions from the market and using them. When a Technology Company cannot build technologies, it partners to uniquely integrate those solutions to gain competitive advantage. Just look at companies filing patents to get a better sense of who is leading the pack.
2. It has a strong program to continuously acquire emerging companies with unique technologies and integrate them into its business. Cisco Systems has set the global benchmark in this area for over two decades now with its acquisition strategy. The Indian IT service providers, who for years generated very good financial margins, could have done better in acquiring digital companies at a more aggressive pace.
3. Its in-house technology team focuses more on developing new technologies rather than managing/maintaining existing solutions. It needs to aggressively eliminate maintenance cost and move it toward new initiatives.
4. The Technology Company’s technology teams are tightly bound to Line of Business owners rather than being horizontal standalone teams serving the entire organization. Every Line of Business should have a technology head who reports primarily to the business unit leader.
5. Its CEO has a strong understanding of technology and drives this transformation. Alternatively the CTO/CIO is elevated to be part of the company’s Growth Leadership team and accountable to the board. The Board of Directors should have at least two representatives who can contribute effectively to furthering this agenda in the company.
6. It aspires to spend about 8% to 12% of its annual technology budget on new and emerging areas, which vary from industry to industry. Major themes of concern today are Artificial Intelligence, Block Chain, Robotics, Drones, Augmented Reality, IoT, and Security. A significant portion of the new expenditure should also be aligned to industry specialization.
7. Technology should be an enabler in driving business model innovation, on which adequate conversations should be encouraged. Ideally, every Technology Company should have a business model analyst as part of the technology team.