A SWOT Analysis for the Software Industrie in the Digital Transformation era
When it comes to the software industry, the digital transformation of the past years is unprecedented. From old Oracle’s or Microsoft’s on-premises complex software delivered on big boxes, going through SaaS and reaching the Internet of Things, where literally every device can be connected to the internet, gather, share information and more: learn from it.
The software industry is leading today’s most important domains of interest, such as Big Data, Automation and Artifitial Inteligence. All in all, they are pieces of code, software. Very special ones, it’s true. They are transforming society as we know it, transforming the way we do business, the way we relate with one another, the way we learn, consume, eat, and even the way we deal with crisis, as we are facing now with Covid-19.
As we can see, the software industry reaches a wide range of segments by itself, but also permeates all of the other industries as well, making the inherent digital transformation viable for them. It actually underpins every function in every industry. Software spending has grown significantly as well, reaching almost 60 percent of total corporate IT investment in 2011, against 32 percent in 1990. (1)
Strengths
Innovative software development companies are creating new revenue streams and growing their business through the five domains of digital transformation: customers, competition, data, innovation and value. There are several success cases on all five domains, but for this industry in particular, data is a special one. Why? Because now all information generated, which would have previously been discarded, receives a noble purpose through its monetization possibilities.
This phenomenon is called Exhaust data, or data exhaust. It’s the information generated without a specific purpose, a by-product of normal use of a specific software, app, game, online store, IoT devices and so forth. According to the 2016 Cisco Visual Networking Index, IoT generated 400 zettabytes (400 trillion gigabytes) of data in 2018.
Wharton University(2) says that “This is being driven by everything from wearables and smart home devices to high-end connected platforms like the Boeing 787, which generates 40 terabytes per hour of flight, or a Rio Tinto mining operation that can generate up to 2.4 terabytes of data a minute (more than 20 times what Twitter generates in a day).”
All of this data can now be stored, processed, analyzed, monetized and provide unprecedented competitive advantages, guiding decision making and investments. And the software development industry is moving rapidly to that direction. They are analyzing tons of customer’s usage, behavioral and transactional data, making this information relevant for the company itself, its clients, but as well to outside business.
Engineering software development companies are already analyzing real-time data on the use of its software, mobile apps and field collected information. This tripod (software usage, mobile app and field information) is capable of providing real data advantages, such as:
· Post-construction results from thousands of projects designed by clients using their software allows them to offer clients automated and on demand suggestions regarding the project they are working on;
· Thousands of sensors on construction sites around the world providing real-time information of all types, allowing staff to receive a report containing specific risks likely to arise;
· Smartphone and drone imagery providing data for a background analysis to automatically identify safety problems and defects in the workplace;
· Vast amounts of data and experience providing accurate estimating and budgeting specific for the location the project is being designed.
· Manufacturers in the construction industry with their 3D parts already inserted in the software, the history of use of these parts, combined with the history of successful constructions, allows offering precise indications to the designer when choosing the best part and the best supplier.
· The history of hundreds of projects, budgets and execution of works allows banks and insurers to accurately assess the risk of the enterprise, allowing them to adjust rates and interest according to the specifics of the project.
Weaknesses
As we can see, there are many opportunities in the software development industry, especially engineering software, along with the construction industry. But, without innovative thinking, so that it is possible to see real opportunities bringing real value to the entire chain, we can fall into the error of creating old solutions again, changing only their shape and appearance, but essentially the same.
This is exactly where some companies are failing: innovation. Solid business with years of existence, leading products, a team of specialists with a package of solutions that no competitor has set out to offer. But they are the definition of an old school company: too much bureaucracy, big decisions take a lifetime to be made and even small changes or improvements needs the approval of the board and may take weeks.
They urgently need to change this scenario, bringing innovation to all departments as part of the company’s core value. All employees need to be encouraged to bring innovative ideas and be rewarded for doing so. Our leaders need to ask the right questions, launch challenges and leave the team free to come up with solutions. We need to have constant experimentation, rapid learning, prototyping, tests and failures, which should never be seen as a defeat, but as part of the process.
The good news is that we have dozens of processes and types of innovation, all tested and with proven results. All they need to do is choose the best according to their challenges and specificities, implement it for all departments and ensure that innovation is an essential value.
Threats
At the end of the day, all efforts of a company come down to just one thing: creating more value for your customers and the ecosystem. This is the driving force that provides new customer acquisition, reduce churn, increases profit and benefits all stakeholders. Without value, it all falls apart.
But in a market as fast as the software industry and in an era with such impactful digital transformations, companies may lose track of what value really means to their customers, which are being bombarded with new solutions every day. There is always a new app, gadget laser or technology promising to solve problems didn’t even exists a few years ago. They have open APIs, are open source, easily interconnect and exchange information in real time. And before we know it, we have a startup solving our customer’s pain better than us, offering more value and making our offer obsolete.
Digital transformation + new technologies = hard time tracking value.
Opportunities
When a traditional company manages to carry out the digital transformation and reframes its products, services and solutions to include the entire industry ecosystem, creating a digital platform that connects them all, the perceived value increases dramatically. The company evolved from a pipeline business to a platform business, creating value not only from the main product or service, but also by facilitating exchanges between consumers, agencies and producers.
According to MIT Sloan(3), “Platforms are environments, computing or otherwise, that connect different groups and derive benefits from others participating in the platform”. And according to The Center for Global Enterprise(4) “there are four types [of platforms]: transaction platforms, innovation platforms, integrated platforms and investment platforms.”
The Center for Global Enterprise(4) describes each Platform Types:
“Transaction platforms: A transaction platform is a technology, product or service that acts as a conduit (or intermediary) facilitating exchange or transactions between different users, buyers, or suppliers.
Innovation platforms: An innovation platform is a technology, product or service that serves as a foundation on top of which other firms (loosely organized into an innovative ecosystem) develop complementary technologies, products or services.
Integrated platforms: An integrated platform is a technology, product or service that is both a transaction platform and an innovation platform. This category includes companies such as Apple, which has both matching platforms like the App Store and a large third-party developer ecosystem that supports content creation on the platform.
Investment platforms: Investment platforms consist of companies that have developed a platform portfolio strategy and act as a holding company, active platform investor or both.”
The software development industry combined with the construction industry is one of the most fertile soils for digital platform companies. A good platform ecosystem in this sector can provide an infinite amount of information and the community can be huge. The data can come from a pre-construction phase, such as engineering and architecture projects, inventory of suppliers of all types, builders, construction sites, images of each stage of the construction, planned budget and much more.
And data can also be collected from a post-construction phase: building maintenance, energy management, resource management, IoT-enabled devices and systems, connected via the 5G network and so on.
As Marshall Van Alstyne said in a presentation at the MIT in 2015 “platforms beat products”. This famous phrase affirms the importance of companies in all sectors to adapt and evolve to this strategy to continue to thrive in an increasingly fast and competitive market.
References:
(1) “Private fixed investment in equipment and software by type,” US Bureau of Economic Analysis, November 2011.
(2) https://knowledge.wharton.upenn.edu/article/turn-iot-data-exhaust-next-competitive-advantage/
(3) https://mitsloan.mit.edu/ideas-made-to-matter/platform-strategy-explained
(4) https://www.thecge.net/app/uploads/2016/01/PDF-WEB-Platform-Survey_01_12.pdf
