A recent Martin Wolf article in the Financial Times titled “The Challenges of a Disembodied Economy” discusses his book, Capitalism without Capital: The Rise of the Intangible Economy.
The book puts forward an interesting idea. It posits that in today’s economy, it’s a company’s intangible assets, such as intellectual property, ideas, and branding, that create value.
The basis of this idea is that Apple, with a market value topping $900 billion in November 2017, owns few tangible assets.
Adding weight to this idea are two of the most valuable startups in history, Uber and Airbnb. Both companies are considered to be masters of the intangible— but they run billions and billions of tangible assets.
Uber doesn’t own any of the vehicles driving passengers in hundreds of cities around the world, and the company is reportedly valued at $70 billion. It could be valued at $120 billion in a possible IPO.
Airbnb, now operating in more than 190 countries, is valued at a whopping $31 billion. They’re also on track to go public in the next few years, regardless of the fact that the company doesn’t actually own any of the thousands of properties they rent daily.
There’s a long—and growing—list of very large companies, like Netflix, Alibaba, and Spotify, that are relatively light on assets.
The practice of investing in intangible assets has grown rapidly over the last 60 years; meanwhile, the investment in tangible assets has gone into decline.
Why Consider Intangible Assets?
One of the largest categories of intangible assets is software. With increasing frequency, software is not only driving intangible investment, but also overall company valuations and competitive advantage. Additionally, the growth of value of intangible assets is accelerating.
In the United States, investment in intangible assets has been on the rise for decades; in fact, it first surpassed the tangible in 1988. Since then, intangible assets have continued to climb.
And the value of these assets, known as “intangible capital,” now make up the bulk of the U.S. economy. Modern businesses must keep this in mind if they hope to properly manage their intangibles to maximize the organization’s value.
What’s driving the value of intangibles?
There are a variety of factors that drive the value of intangibles. Technological change, embodied by big data, mobile, and the cloud, is just one of the components companies must consider.
However, the recent acceleration of the value of intangibles is being driven primarily by the sweeping change of digital transformation.
This sea change is forcing company leaders to reevaluate everything:
- Product design, production, and delivery.
- Internal operations and organization.
- Processes and infrastructure related to IT.
- More than anything, the customer relationship.
Investing in intangibles often has the advantage of dramatically lowered risk.
The very nature of intangibles makes them perfectly suited for change or redirection at a moment’s notice. In other words, if a new market opportunity appears, you can cover it with ease, thanks to your intangible resources.
Better yet, you don’t have to go all in on the investment all at once. Companies can quickly learn from the marketplace and change direction immediately if they get feedback that they’ve taken a wrong turn. You can change things up without being left with unused or abandoned (but still extremely expensive) physical assets.
Remember, the cloud speeds things up. You don’t need to purchase or deploy any physical assets to accelerate your investment—the cloud has you covered.
In this digitally transformed world, the risk profile is turned upside down. It could cost you more (in terms of lost opportunity) to do nothing for fear of error than it would to do something daring and continually tweak it to ensure it’s achieving its potential.
By increasing enterprise agility and more effectively gaining insights from data, companies can reduce risk. This is all thanks to their ability to rapidly exploit these new market opportunities.
This isn’t just for the once-in-a-lifetime techie unicorns.
Not all companies are cloud-enabled, software-led, massive-scale industry behemoths— like Uber or Airbnb.
There’s a tendency for people in other industries to discount the importance of intangibles. Instead, they see them exclusively as the domain of born-in-the-cloud, Silicon Valley giants and heavily-funded tech startups. That couldn’t be further from the truth.
Here’s the reality of today’s economy: every company depends on intangibles—especially when they’re in the form of software—not just to survive, but to prosper.
Those that don’t might run the risk of being disrupted by organizations who recognize the vital role of the intangible in their day-to-day operations.
No industry is exempt from disruption. Those disruptions are often from competitors or new players who have achieved a significant competitive edge. Today, this advantage comes in the form of software or some other highly intangible asset.
Take a look at the taxi industry. It’s maintained its current form since well before the invention of the internal combustion engine. However, its longevity didn’t protect it from the turmoil brought on by a set of companies who, for the most part, don’t even own their physical transportation assets.
Do you think you’re in an industry that doesn’t need cutting-edge IT? Well, it’s time to rethink that.
Now, more companies, even very traditional ones, depend on IT to stand out and innovate. Even brick and mortar stores are now increasingly digitally-focused, software enabled, and skilled at rapidly responding to market opportunities.
Even the more traditional companies who don’t see themselves as software companies now understand they need to model themselves on today’s software companies if they hope to separate themselves from their competitors in the place it matters most—in the minds of their customers.
With this in mind, traditional brick and mortar companies have become increasingly digitally focused, showing some surprising skill at bringing about this much-needed change. Look at the aircraft engine division of Rolls Royce; they’ve made a big transition, from a seller of engines to a provider of thrust.
Now, airlines purchase hours of reliable thrust, with Rolls Royce being responsible for the reliability, maintenance, and safety of their aircraft mounted engines. This company is deeply rooted in tradition, but they recognize the importance of taking the leap toward the intangible.
Too many leaders are taking a “head in the sand” approach to the mighty shift headed their way. These changes are approaching very quickly; in fact, some are already underway. Industries that aren’t currently experiencing disruption should look to the horizon—it will be here before they know it.
In his excellent article, “Why Digital Transformation is Now on the CEO’s Shoulders,” Thomas Siebel notes, “The evidence suggests that we are seeing a mass disruption in the corporate world…” What’s behind the disruption? Seibel continues, “In the current extinction event, the causal factor is digital transformation.”
It doesn’t matter if you produce textiles, fabricate metal, or are in the healthcare industry. When it comes to digital disruption, every business must adapt.
Now’s the time to leave the old way behind and think more like a software business.
How do you lead the charge to digital innovation?
Are you equipped to become a leader in the digital economy? Is it still possible for you to develop the necessary agility to transition from tangible to intangible? Is that the best way to ensure your continued success?
The answer to these questions is yes—but only if you’re willing and able to change your mindset.
Get prepared to take advantage of the intangible cloud world.
Digital transformation starts with one simple thing: A “cloud first” strategy.
In theory, it’s still possible for companies to digitally transform without moving to the cloud. In practice, it’s a significant challenge.
Thanks to the cloud, software development and delivery paradigms now exist, and they’re radically different (and less expensive) than their predecessors that have existed in on-premises data centers for decades.
When the DevOps movement started on-premises, it quickly transformed the way people interact with their hardware. In fact, highly effective DevOps-enabled organizations that are still operating on-premises have made significant modifications to their infrastructure; now, they’re essentially running a cloud of their very own.
In today’s environment, most start-ups and organizations undertaking new and significant digital transformation efforts depend on the cloud.
Well, the benefits of cloud-based applications are very appealing. These include no capital investment, usage driven pricing, highly reliable platforms, and powerful pre-built services, to name just handful of them.
Building out services in the cloud is so much faster and more convenient, it’s a natural place for businesses to start.
Businesses can easily implement new approaches, apply what they’ve learned from the marketplace, pivot to ensure customer satisfaction, and innovate in cycles that would be well beyond the capabilities of traditional IT.
The risk of being wrong is negligible, but the risk of being too slow and missing out on a big opportunity is incalculable.
“It is not the strongest or the most intelligent who will survive but those who can best manage change.”
- Charles Darwin
Captivate your customers with digital transformation
Businesses face previously unheard-of pressure to generate positive customer experiences and innovate faster.
Why? If they hope to stand out in the marketplace, it’s a must. In this ever-changing world, you need to search for interesting and innovative ways to engage with your customers, reshaping your business in the process.
Microsoft CEO Satya Nadella often speaks of digital transformation from a customer-centric point of view in addition to emphasizing the importance of building new processes around that approach.
While this client-oriented mindset is a vital part of your digital transformation, it’s important to remember that the customer-first mindset is the core of what drives the transformation.
Renewing your focus to concentrate on what your customer base wants will translate to an overall improvement in service. As your customer service improves, your business will fall into a virtuous cycle, closely followed by other benefits, including:
- Streamlined operations
- Agile innovation
- Improved resource management
- An uptick in profitability
- Improved ability to anticipate customer needs
- Increased engagement with customers
In some cases, focusing on your customer’s needs might result in a shift your entire industry. This could disrupt your competitors, enabling a cluster of innovative companies to dominate the industry.
It’s time to undergo a digital transformation
New entrants have disrupted industries since the beginning of commerce. (Think of the automobile overthrowing the horse and buggy, or the printing press putting scribes out of a job.)
However, the newfound focus on intangibles as the driving force behind disruption and the fact that the cloud enables digital innovation pushes disruption at a faster rate than ever before.
Even if you can’t see the disruption coming or don’t see how your particular industry could possibly be disrupted, you need to act now.
After all, digital transformation doesn’t happen instantly—it takes time. Moving to the cloud will take time. If you start moving now, hopefully you’ll be prepared to act when the time comes.
Start Your Cloud Journey Now
Digital disruption is having a profound impact on the way that business gets done.
Your organization, your tech strategy, and your DevOps culture are all affected. Today, companies must innovate faster and more efficiently if they want to stand out in the marketplace.
Analysts are revising their spend projections for digital transformation and cloud migrations upward for the year to come—in other words, if you haven’t already, it’s time to get started on your business’s cloud-based strategy.
The starting shot has fired for the race to the cloud, with more companies adopting cloud solutions than predicted as recently as two years ago.
While your move to the cloud should be an immediate priority, it doesn’t have to be hastily thrown together. Instead, leverage a proven framework for a high-level business model. Look at the financial implications with an emphasis on the value cloud brings to your business.
Using this framework, your team can agree on priorities, cloud compatibility, and phases of migration that will form the vision for an amazing cloud journey—all with the end goal of increasing business value through intangibles.
“At least 40% of all businesses will die in the next 10 years… if they don’t figure out how to change their entire company to accommodate new technologies”.
“If I am not making you sweat, I should be.”
-John Chambers, Executive Chairman, Cisco Systems, BoxWorks 2015 conference
Get Serious About Digital Transformation
What does digital transformation mean to you and to your company?
Per IDC, global spending on digital transformation will climb to a whopping $1.7 TRILLION by 2019.
It’s a vital part of the success in the intangible economy, but many companies treat it as if it’s a simple switch from old-fashioned pen and paper to electronics, from physical data centers to virtual ones in the cloud.
You shouldn’t approach it this way.
Instead, your company-wide digital transformation should incorporate the automation and digitalization of data, processes, operations, physical assets, and application development for improved performance, less risk and increased reward.
Take the time to define the digital technology you wish to deploy based on the business value it will deliver, and then take the steps required to ensure it’s properly implemented. Consider the already anticipated prospective disruptors that you or others might bring to the market—disruptors like IoT, AI, and Big Data spring to mind.
However, you need to be firmly aware that ‘unknown unknowns’ are what you’ve got to look forward to. Disruptions, from you AND your competitors, generally come out of the blue—they’re tough to predict. So, your platform as well as your organization as a whole must be nimble and flexible enough to accommodate this eventuality.
“A Digital transformation is core to the success in the intangible economy, yet many companies treat it as if it’s just a switch from paper to electronics, from physical data centers to virtual ones. This is not how you should approach it.”
Embrace the DevOps Mindset
One of the things that can halt your pursuit of leading in the intangible economy is failing to stay abreast of the current pace of change.
The rate of return on an intangible investment is negligible if you lose out on an opportunity simply because you’re dragging your feet as you change your IP and software. Moving your DevOps to the cloud will help you to avoid that potential disaster.
A DevOps mindset results in a variety of actionable and concrete changes within your organization that will result in major advantages, such as:
- Faster release cycles that help the business quickly exploit fresh market opportunities.
- Faster feedback, increasing your company’s profitability— good decisions can be quickly built upon and poor ones are uncovered sooner, allowing you to redirect your focus.
- Repeatable, flexible, version-controlled environments ensure there’s zero downtime, no-pain rollbacks, and unlimited scalability— you‘ll experience growth without the usual accompanying pains.
- Bug fixes are made faster than ever, improving customer service and gaining their trust (and retention).
- You’ll align the business more closely with the realities of the market, thanks to the telemetry from production systems that drives data-driven decisions.
DevOps accelerates innovation, which enables you to earn customer trust and retention.
In so doing, you are less likely to lose out on opportunities and you take control of your application portfolio in ways that only the cloud can provide.
You can accelerate digital transformation and time-to-market and reduce the cost of application development. An evolved application portfolio is one of your most strategic and valuable intangible assets.
“Compared to their lower performing competitors, the top third highest IT performers:
- Release 46x as often
- Have 440x faster lead time from code
- Commit to deploy
- Recover from failure 96x faster
- Are 5x less likely to have code changes fail in production.”
-2017 State of DevOps Report
Actionable steps to a cloud-enabled digital transformation
Every digital transformation is unique—yes, every one.
Digital transformation infiltrates the very core of how a business operates
There’s not one guaranteed path to success, no foolproof recipe for a project that you can follow step by step.
But there is practical guidance.
In our experience, the following steps act as core catalyzers that most companies can use if they want to improve their chances of cloud success…
Step #1: Migrate—Move to the cloud
Cloud integration is the cornerstone of business modernization.
It is the primary stepping stone that will empower the fast and efficient progress you need on all of your future digital transformation efforts.
Your move to the cloud won’t just move your data; it will shift your mindset.
Infrastructure doesn’t have to be a fixed cost. Instead, it’s a piece of code that can be modified as needed. Your migration means you have taken the first step toward a 21st century business model.
What’s the advantage to transitioning your data center to the cloud?
The demand on your infrastructure expands along with your applications. The cloud assists you in your quest to grow quickly and efficiently—without busting your budget.
You’ll only need to provision and pay for only what you need and grow as your usage increases. Gone are the days of capitalizing your infrastructure to meet your highest need potential.
Instead, you can scale to keep pace with your most recent application developments and customer usage patterns, not with what you imagine you’ll need in the distant future.
You’re now committed to streamlining your processes each day, embracing rapid innovation; the cloud will continue to bolster your ongoing efforts. Push your boundaries of processes and tools. How? By fine-tuning communication and removing wasteful rework from your delivery cycle.
Continuous improvement is exactly that—continuous. The cloud offers you the platform required to eliminate the usual time-wasting delays and roadblocks that kill collaboration.
You need to know that your work is safe from outside harm, but you don’t want to sacrifice speed for safety. A secure cloud environment offers the freedom you need to collaborate and innovate without slowing your ability to create as quickly as necessary. Let your teams move at the speed of code within a system that’s safeguarded from potential vulnerabilities.
“Your migration means you have taken the first step away from the status quo towards a modern business.”
Step #2: Automate—Ensure repeatable, scalable, reliable infrastructure and application
Modern business moves at a speed never seen before.
Today’s consumers expect more than ever, and they expect it to be not just better, but faster than before.
The answer’s simple: they know it’s possible, thanks to automation.
More than your infrastructure depends on automation. It’s critical for your application delivery, as well. When infrastructure and application delivery are in play, you will see your DevOps strategy sing.
Small changes will deploy frequently, risk will be minimal, customer responsiveness will increase, and your team will have better data the customer. If you don’t have complete confidence in your automation, you just might find your momentum grinding to a halt.
How can you innovate without the knowledge that your automated systems will be silently supporting you, briskly clicking away in the background?
Unfortunately, you can’t. So how do you ensure that your digital transformation will be a success? You need an automation solution that can completely support your future deployments.
With a fully functional automated system, you’ll find that you’re now free to create newer, better solutions and release them without fear of potential disaster.
Digital transformation requires symbiotic changes between human process and digital enablers; when the digital side can change as quickly as the human side can drive the change, true innovation is possible.
“If you don’t have 100% confidence in your automation, it can undermine your momentum. How can you innovate without the knowledge that your automated systems will be clicking along in the background, silently supporting you?”
Step #3: Innovate—Improve and expand at the speed of business
In a digital transformation, innovation is key.
Developing a culture of innovation will foster experimentation, tolerate—and even encourage—failure, and embolden exploration throughout your organization.
Innovation sparks disruption across your industry. It finds new and inventive methods of doing work that dramatically decreases the need for manual labor. It uncovers improved and more efficient ways to serve customers. It shatters speed records for work.
Innovation turns you from a threat to your competitors to disruptor in your industry.
Naturally, you must continue to make improvements on your product. Your customers demand the very best iteration of your product. You can’t assume your current version is the best version. Constant innovation is the only way to stay ahead of your competitors while simultaneously satisfying (and retaining) your customers.
That said, if you find that you can’t innovate fast enough to keep up with your customer’s needs, you’re in the weeds before you begin. How do you know your improvements are moving in tandem with (or ahead of) the marketplace?
Moving to the cloud and automating your systems provide a solid base for potential innovation. If your company’s leadership doesn’t model an attitude that’s receptive to collaboration, you’re going to find it difficult to spread that mindset to teams and individuals in your organization.
Innovation does not just start with the appointment of a Chief Innovation Officer. Rather, it begins with your team’s culture.
As soon as a culture that embraces innovation is put into place, it’s time to begin the next key component to success: data analytics.
Data can drive the decisions that nourish a culture of continuous improvement and continuous innovation. This approach is a must for any truly successful transformation.
“It’s the innovation that sparks the industry disruption — finding new ways of doing work to dramatically reduce manual effort; uncovering better ways to serve customers; shattering historical speeds on how quickly work can be done.”
It’s Time to Get Started
Wherever you go, you’re probably hearing about business disruptors—those companies who have changed the face of business forever. It’s natural to focus on the “disruption” part of the equation, but you need to pay more attention to the fact that they’ve completely modified the way that their industry does business.
And more often than not, they did it with intangible assets.
Whether you’re a brand new startup or a long-established company, it’s past time that you modernize your approach to business if you want lead in the intangible economy.
As Thomas Siebel wrote in his article, Why Digital Transformation is Now on the CEO’s Shoulders, “Perhaps the most unique aspect of this technology trend is that digital transformation is being driven from the top, personally mandated by the CEO. This is something new.”
Organizations and the people in charge who do not lead the charge to digitally transform will soon find themselves at a hefty competitive disadvantage.
Companies who won’t make this move won’t continue to thrive—and possibly won’t survive.
In fact, they may even lose valuable talent; after all, great employees prefer to work with a forward-thinking company that shares their interest in collaboration and innovation.
If you want to digitally reinvent your organization, you need a clear, focused strategy that’s suitable for a change-maker like yourself.
However, this strategy will fail if it is not reinforced by a leadership team that’s eager to promote and advance a mindset and company culture based on adaption, change, and innovation, thriving in the process.
Be that leader. Lead the charge to innovation.
Ready to take the next step to becoming a leader in the intangible economy? Accelerate your cloud journey with 10th Magnitude’s 10vū™ Cloud Economics Assessment.
The 10vū™ Assessment leverages quantitative data from data collection tools, 10vū™ Inventory Rationalization & Time to Market analysis, and qualitative workshops with Azure Architects to aid in defining your strategy for moving applications and systems to Microsoft Azure. Schedule your 10vū™ Cloud Economics Assessment today.