Issuing IDC’s top 10 predictions for 2016, chief analyst Frank Gens advised enterprises to transform or die, noting that the overarching theme for 2016 is “digital transformation scales up.” Scale is the “critical ingredient in the unfolding battle for digital success,” said Gens, warning that while for some enterprises, “scale wins,” for others “scale kills.”
Digital transformation (DX) will drive “everything that matters in IT” over the next several years. Succeeding in what IDC calls the DX economy means using technologies such as mobile, cloud, big data analytics, IoT, AI and robotics to “create competitive advantage through new offerings, new business models, and new customer, supplier, and distributor relationships.”
Here’s my edited version of IDC’s 2016 predictions, based on the IT Industry, Digital Transformation, and CIO Agenda webcasts.
Digital transformation will reach massive scale
Over the next three to five years enterprises will commit to digital transformation on a massive scale, leading to the emergence of the DX Economy. Acknowledging the seemingly paradoxical nature of the term “customer intimacy at scale,” IDC predicts it will be the biggest, most complex enterprise-wide DX initiative that organizations will have to face, requiring a fundamental cultural and operational transformation. In addition, enterprises will pursue a rapid expansion of their customer base and they will have to deliver dramatically more personalized customer service.
As the DX economy is depressing pricing, scaling customers is a must, says IDC, prompting enterprises to “serve the global 50 million.” Scaling up your customer population and how you interact with them will be mandatory for increasing revenue and sustaining market share.
“IT spending will be driven by doing entirely new things rather than using new technologies to do old things,” said Gens on the IDC webcast.
Every company will be a software company
The DX economy – operating at scale – will be “driven primarily by code.” Enterprises’ ability to grow and compete will increasingly depend on their digital “innovation capacity”—the size and talent of their software development teams. In the DX economy, “code plus data equal innovation.”
This will make “software developer” the sexiest job of the 21st century. Enterprises will compete to hire for these essential jobs and software developers will be key for the creation of the new, revenue-generating, productivity-enhancing applications, tapping into the potential of new technologies (e.g., IoT) and embedding data analytics.
The roles and activities of CxOs will be re-defined
In many companies, CEOs will be directly involved in digital transformation initiatives, ensuring it is a primary component of the company’s overall strategy. CEOs will actively participate in the recruitment of the best software developers and “must understand that being a technology company takes more than bold statements.” Line-of-Business (LOB) executives will manage software developers and will have to become adept at technology governance.
CIOs will have to adapt to an increasingly market-facing role for them and their organizations and also work on developing and maintaining internal relationships, partnering with business executives and reaching out to the software developers working in the business units.
A new executive position, that of the Chief Digital Officer (CDO), is needed, but it could be filled by business-savvy CIOs. The CIO must have a plan for transforming IT from being the custodian of the infrastructure to more of a service provider. While digital transformation marginalizes IT, it (and the CIO) could be “a true change agent” and a “transformation engine.”
The Cloud will be the new IT
“Cloud First” will become the new mantra for enterprise IT as the “cloud is the new core of enterprise IT,” said IDC’s Gens. The most “functionally-rich IT offerings” will be found in the cloud.
Enterprises with advanced DX initiatives will create and/or partner with industry cloud platforms to scale up their digital supply and distribution networks. While there will be major consolidation in the public cloud market (down to six “mega-platforms”), there will be rapid proliferation of industry cloud platforms. With industry cloud platforms, GE and others are building epicenters of growth, creating innovation communities, and re-inventing their industries and how to source and distribute innovation at massive scale.
Big data becomes bigger and richer (and enriching)
Success in the DX economy will depend on the ability to build robust “data pipelines” that flow both in and out of the enterprise. Data analytics (Cognitive Services) will be embedded in new apps, and the top new Investment areas over the next couple of years will be Contextual Understanding and Automated Next Best Action capabilities. Companies will look to monetize their own data, participating in a “data race” to fuel innovation.
Mastering “cognitive” is a must, says IDC, recommending making machine learning a top priority for 2016—“lots of startups in your industry are already using it to disrupt you.”
The IoT will be a key driver of the DX Economy
IoT devices and solutions have the potential to redefine competitive advantage in virtually every industry. IDC predicts that the most active IoT development will cluster around the manufacturing, transportation, retail, and healthcare industries.
The coming IT Industry shakeout
A significant portion of today’s IT suppliers will be acquired, merged, downsized, or significantly repositioned. In this environment, enterprises will have to constantly monitor and assess the solutions offered by their suppliers and partners and be prepared to realign these relationships as needed. Possibly more than in any other economic sector, the players in the IT industry need to transform or die.
In the face of the increased volatility of the IT industry, IDC advises IT buyers to increase investments in vendor/partner management, pursue open and multi-source strategies, and find ways to share risks and rewards.
As Gens reminded listeners to this year’s webcast, IDC predicted last year that “by 2018, one third of the top 20 in every industry will be disrupted by digitally transformed competitors.” Gens advised then companies in all industries to “Amazon” themselves, but also predicted that the best job of “Amazoning” will be done by Amazon itself.
Indeed, Amazon and other Web-born companies (also called “digital natives”) such as Google and Facebook, are not “digitally transformed,” they define “digital.” This begs the question: is the “DX Economy” going to be dominated by relatively young companies that have been in the business of digitally transforming everything in their path and regarding “IT” as their business, not as a “function” or a ”service”?
IDC predicts digital transformation to be a key strategy for 67% of the Global 2000 by 2018 and that by 2017, over 50% of the IT budget will be spent on new technologies. This implies an unprecedented rapid transformation in the current allocation of IT dollars, according to CIO surveys. As just one example, Deloitte has found out in a recent survey of more than 1,200 senior technology executives working for mostly large companies worldwide that only 15% of CIOs are investing in emerging technologies and only 16% of the IT budget is spent on “business innovation.” That’s a stark contrast to Gens’ declaration that over the next few years “IT spending will be driven by doing entirely new things.”
There is also almost no reference in IDC’s predictions to possible challenges and roadblocks to the progression to a full-blown DX Economy. The only factors that were mentioned that could possibly slow down the predicted rapid transformation (and they were not mentioned as speed bumps) were a privacy backlash and security (and the latter only in the context of IoT).
But that’s the nature of the business. Soothsayers are not expected to equivocate, to talk about possible scenarios, or why their forecasts could be wrong or unrealistic. They are expected to provide quantitative certainties and warn us that if we don’t follow the one and only path to the future, we will be “disrupted.” Still, I believe that what they tell us is very valuable as a great summary of contemporary conventional wisdom and what has happened over the previous few years which could serve as a solid foundation for discussion and debate.
IDC sees the DX Economy in its crystal ball, Gartner conjures the Programmable Economy (“a massive technology-enabled transformation of traditional concepts of value exchange, empowering individuals and smart machines to both define value and determine how it is exchanged”).
Industry analyst firms such as IDC and Gartner are expected to tell us what the future will look like and they provide the goods. Inventors such as Tim Berners-Lee and ambitious entrepreneurs such as the people that founded Amazon, Google, and Facebook, create the future. And most of the time, it is an unexpected future that no one has predicted.
Originally published on Forbes.com