“It’s likely that your company’s next CEO is currently a CIO,” The Wall Street Journal announced recently. In explaining why it changed the 27-year-old section name “Marketplace” to “Business & Tech” (in the print edition), the Journal declared that “every business is a technology business.” It predicted that “algorithms will increasingly guide nearly every function in the modern enterprise,” resulting in the elevation of CIOs everywhere and “valuations for Silicon Valley startups [that] march ever higher.”
This is all wrong. Here’s why:
There is nothing new about “every business is a technology business.” Most 19th century fortunes were made on the basis of new technologies harnessed to create new enterprises and entire new industries or radically change old ones. The automotive industry has flourished thanks to one key technology—the internal combustion engine—which was first mass produced in 1860. GE, a company founded in 1892 by merging two leading (i.e., holding most patents) electrical devices and power-generation companies, has been in the business of developing and selling products based on various technologies ever since.
To capture what is really new in the world of business (or any enterprise), I’ve been using for a number of years in this column and elsewhere the phrase “all businesses are digital businesses.” Digital means much more than one kind of technology—computer technology—or even Marc Andreesen’s “software is eating the world.” It means the digitization of everything, a wave of ones and zeros that had its origin with the advent of digital computer technology but that has become a “tsunami” (in the oft-used cliché) with the rapid adoption of the World Wide Web in the 1990s.
Digitization means replacing or augmenting an analog world with a digital one. This is what’s new and what has happened over the last two decades. In 1986, according to Martin Hilbert and Priscila Lopez, 99.2% of all storage capacity in the world was analog. By 2007, 94% of storage capacity was digital. This rapid digitization brought about two major changes to the business world, one external, the other internal.
The external change is the blurring or even elimination of rigid industry boundaries. A cornerstone of the analog business world, the concept of an “industry”—its unique competitive forces, experiences and skills, scale and scope—has been at the center of what’s taught at business schools and economics departments, the resumes of millions of employees and executives, government regulations and policies, and other by-products of economic activity.
Digitization has first blurred the rigid boundaries of industries producing and transmitting content: publishing, film, music, radio, TV. More recently it has been moving to alter the shape, size, scope, and singularities of other industries by adding a layer of ones and zeros to the development, manufacturing, marketing, selling, and supporting all types of products and services.
The new digital business world has no pre-defined boundaries, no industry-based rules or limitations. In this new world, Jeff Bezos starts “the everything store,” re-making the “retail industry,” and then proceeds to apply the same business insights and innovations to developing and selling products, producing movies, and providing information technology services. Collecting and mining data is the key activity that makes the previously distinct industries a common playing ground for the new digital entrepreneurs.The internal change is also about data and how it flows through previously impregnable boundaries. Since the 19th century, there hasn’t been much of a change in how businesses are structured. Following expansion and growth strategies, the business was divided and sub-divided into divisions and functions. These created “silos” of data, which throughout the 20th century, successive efforts (culminating in the 1990s “business process re-engineering” movement) have tried again and again to abolish and create a “data-centric” business. Inertia and human predilection for hierarchy have managed to subvert these good intentions. We finally got much closer to “data-driven” businesses with the rise of the companies that were born with the Web—Google, Amazon, Facebook, LinkedIn, etc.—the “digital natives” as they are often called.
In these companies, many of the traditional business functions have disappeared or have received a makeover. A prime example is the IT function. Invented by IBM in the 1950s as the data processing department, it has been for so many years just one more specialized activity serving and supporting the “real” work of the business. As information technology has become more and more crucial to the regular functioning of the business and for its success, more funds have been allocated to the department, now headed by a better-sounding Chief Information Officer. But the increasing importance has not changed the attitude toward IT as a cost center and the CIO as the Chief Infrastructure Officer.
In digital native companies, information technology is the business and the business is information technology. “IT” is a small organization that makes sure the email system and similar basic services work. The valuations for Silicon Valley startups that “march ever higher” have nothing to do with the CIOs of these companies, if they have one at all.
In some companies, CIOs are moving into larger operational or revenue-generating roles, leveraging their information technology expertise to help their companies take advantage of digitization. These executives may eventually become CEOs. But only in extremely rare cases “your company’s next CEOs is currently a CIO.” This kind of career path may happen only in a future where all businesses realize that they are digital businesses and change how they compete and how they structure their internal environment—first and foremost, what they do with their IT function.
Originally published on Forbes.com