Why Every Company is a Software Company
by Rod Collins, Innovation Sherpa at Salt Flats
In February 2001, seventeen software developers gathered in Snowbird, Utah to handle a conundrum that was increasingly thwarting their work. Despite following the proven protocols for building quality software applications, many of their efforts were missing the mark.
These protocols were based on the ‘assembly line’ model that had been the gold standard for building things for well over a century. The assembly line is a fixed plan system that assumes that everything we need to know about how to build something can be known before beginning work and it was the universal guide for how everything was built — whether cars, buildings, or software — throughout the twentieth century. But the pace of change ignited by the emergence of the digital revolution at the start of the 21st century challenged the fundamental assumption that was the foundation of the ‘waterfall’ methodology, as the fixed plan system was known in the software world.
The Snowbird software developers recognized that the assembly line model was no longer working for them because accelerating change was introducing an increasingly level of uncertainty to the task of building software. It was no longer possible to know everything that needed to be done at the start of a software project because customer expectations — or user expectations, in the parlance of software specialists — were also rapidly changing. What users thought they wanted at the start of a project was often very different from what they expected by the end.
The Snowbird assembly was convinced there had to be a better way to do their work that would allow them to meet the new normal of continually evolving user expectations. The result of their efforts was the crafting of the one-page Agile Manifesto, which would not only change how we build software, but more importantly, would ultimately change how we build businesses because as the world becomes increasingly digitized, every company is becoming a software company.
A New Paradigm
The Agile movement spawned a new paradigm for building software applications that delivered far more reliable results. Rather than working in functional units handing off work in progress according to a predetermined plan, Agile methodologies call for doing work in self-organized, cross-functional teams. These teams generally work in iterative phases lasting from two to four weeks, with clear deliverables at the end of each phase. The interim deliverables are assessed to make sure work is meeting customer expectations and to incorporate any changes that may have emerged during the phase.
By working in this way, Agile recognizes that change and uncertainty are now ever present elements in the production process, and that, unless these elements are embraced, it will be difficult, if not impossible, to deliver reliable results.
For its first decade, Agile was considered an esoteric discipline that was idiosyncratic to the software community. While software may have been managed in a new way, the rest of the business continued to follow the long-established ways of top-down hierarchical management. However, beginning with the second decade of our new century, business leaders began to recognize that circumstances were radically shifting as the steady cadence of digital transformation — the fundamental architectural shift in the way the world works from centralized top-down hierarchies to distributed peer-to-peer networks — was reshaping the business landscape. This phenomenon was succinctly captured by the technology guru Marc Andreesen when he opined that “software is eating the world.”
From Products to Platforms
When computers were first invented in the mid-twentieth century, it was the hardware that captured our attention. The computational capabilities of these massive machines astounded us with their speed and accuracy. The software instructions that were used to run the programs were analogous to the fuel we put in our cars. While the fuel is necessary to make the car run, it is the magnificence of the machine that captures the attention of car buffs. And so it was with the first computers.
However, as digital technology continues to transform the basic contours of our day-to-day lives, it’s software and not the hardware that is the crucial transformative dynamic. That’s because the essence of digitization is the ability to convert atoms to bits. And that is what the work of software is all about today. A prime example is the evolution of music. We no longer buy songs in the form of the atoms that are the building blocks of tapes or CD’s. Today music is consumed in digital bits. In other words, music is software.
When the foundation of a business shifts from atoms to bits, the basic orientation of the work of the commercial enterprise shifts from products to platforms. That’s because platforms have replaced products as the foundation for building a sustainable competitive advantage.
Platforms are Software
In the twentieth century, product models could last as long as 40 years, which explains why a highly efficient product assembly line and a steady stream of five-year business plans could guarantee decades of profitability. Today, product life cycles are often less than five years and render five-year business plans useless. Leading edge businesses focus on building digital platforms and let the platforms define a continuous stream of products to meet evolving customer demands. These platforms are essentially software applications that create innovative ways to accelerate commerce. Über, Airbnb, and Expedia are examples of businesses built on software. They own no hard assets and yet each of these examples accounts for a significant, if not the majority, amount of activity in their industries.
As more and more industries become digitized, the fundamental work of companies will be transformed as they evolve into software companies. For example, in the housing industry, businesses have been construction companies that built homes. When the industry is fully digitized, these businesses are likely to be digital companies that build substantial data platforms in the form of homes where the data may be more valuable than the building itself.
Thus, digital transformation leads to a metamorphosis in the relationship between business and software. According to Jeff Gothelf and Josh Seiden, the co-authors of Sense and Respond, “Where we once managed software in the same way we ran our businesses, now we need to manage our businesses in the same way we manage our software.
As every company becomes a software company, its leaders will need to let go of their preference for certainty before action and abandon longstanding business practices based upon the execution of fixed plans. Instead, they need to embrace the lessons learned and the management discipline created by those seventeen Agile innovators who discovered a better way to move forward in the face of the uncertainty that is a natural byproduct of rapid change.
This article and image was originally published in management-issues.com.
For more from Innovation Sherpa Rod Collins, see his white paper on The Great Promise of Digital Transformation here.