It’s been almost 10 years since Marc Andreesen published his article Software is eating the world. Essentially, this was a warning to all entrepreneurs around the world that computer technology and software would fundamentally disrupt every industry in the future.

And I have this nagging feeling that too many managers of European companies haven’t taken this warning seriously enough. Even engineering-driven conglomerates, like the German automotive companies or machinery manufacturers, struggle with digitalization.

Many companies are now spending more money on software technology than ever before. Many have also introduced modern methods of agile software development like Scrum in their software departments. But that’s not enough to become a digital company.

Digital
Essentially, digital represents 1 and 0, the foundation of all computer software, and therefore embodies everything that can be executed as software on a computer processor. The computing power of these computers has increased exponentially over the past decades (see Moore’s Law), and especially during the COVID-19 era, we realize what this means. However, today we are only making sensible use of a fraction of the computing power developed over the last 2 decades. Inventions capable of harnessing this computational power can thus be termed as digital innovations.

Tesla’s example clearly showcases the disruptive factor of native digital companies (referred to as ‘tech companies’ in the USA). While Tesla still manufactures cars, previously significant components, like the engine, have been overshadowed or commoditized by the use of electric motors with modern battery technology. In essence, Tesla builds a mobile supercomputer, equipped with a powerful central control computer and corresponding sensors. In contrast, nearly all car manufacturers have outsourced a majority of their digital system innovations to suppliers for decades, procuring separate independent components from them. This native digital platform developed by Tesla enables entirely new iterative product innovations based solely on software. Vehicle performance updates via the internet or autopilot features are just the beginning.

For many sectors in this millennium, the focus was on utilizing existing computing capacity through software and the internet. From this, almost magically growing technology empires emerged, threatening to wipe out entire industry sectors with excellent global and hyperscalable products.

It’s no coincidence that the world’s most valuable companies are tech giants like Apple, Google, Alibaba, Tencent, Amazon, etc., representing various generations of the so-called platform economy.

While many traditional companies are still figuring out what this means for them, an even bigger wave of digital innovation is already approaching. Through self-learning algorithms, also known as Machine Learning or broadly Artificial Intelligence, the world’s existing computing power can finally be used meaningfully. It’s as if humans have found a way to harness a large portion of their unused brain, creating superpowers on the mobile interconnected supercomputers we all carry in our pockets.

A prime example of what happens when a company ignores this is Boeing. Although Boeing can be considered a traditional technology company, they failed to prioritize digital technology and software products. As if it weren’t bad enough that, due to cost-cutting on sensors and a software glitch, two 737 MAX aircrafts crashed, almost every week new software issues surface, currently even a bug in the approach software of their modern 777/787 aircraft series. The root cause being that the 737’s control computers haven’t been updated for decades and vital digital software development was outsourced would certainly be unthinkable for a company like Tesla.

So why would anyone claim today that not every company must become a digital company to survive? Even companies that understand this find it extremely challenging to truly digitalize.

Understanding what distinguishes the best tech product companies from the rest of the world and what characterizes the latest generation of platform economies is crucial.

In my over 20 years of leadership roles in startups, scaled internet platforms, tech giants, and traditional companies, I’ve learned what sets digital companies apart from the rest.

From this, I can derive the following 3 success factors as crucial for the digital transformation of a company of any size:

Understanding the role of digital technology and properly anchoring it in the company.

1. A digital leadership and management culture characterized by empowerment, autonomous teams, and OKRs.
2. The ability to build digital software products.
3. The most important first step is for a company’s leadership to recognize that digital technology is not just a cost factor, and merely spending more on technology won’t help. Instead, the essential role of technology must be understood, placed at the core of the company, and actively managed with an adapted leadership culture and new competencies.

But then, every company can be successfully digitalized.