Technology is the Primary Disruptor and Value Creator Across All Sectors

Technology is the Primary Disruptor and Value Creator Across All


Technology is the Primary Disruptor and Value Creator Across All Sectors
By Juerg Kronenberg, Partner, Bain & Company, Middle East and Matthew Crupi, Partner, Bain & Company, Dallas

Dubai, UAE, 28 December 2021: Most of the largest creators of value in recent years, regardless of sector, have one thing in common: technology is critical to their business.

In general, companies and sectors with less tech-enabled innovation had smaller market-value gains from 2015 through 2020. The clear message is that technology isn’t just an industry. It has become the primary disruptive force across the entire global economy.

“Born tech” companies deliberately built their businesses upon technology at an early stage because they viewed it as critical to their success, even if their end product isn’t a traditional technology product or service.

But even more-traditional, often “brick-and-mortar,” businesses have recognized the outsized benefits of adopting a tech-led strategy.

This phenomenon goes beyond legacy companies’ digital transformation projects, which often focus on converting analog processes to digital ones. This is about all sectors learning how to wield technology and the tech industry’s platform and ecosystem playbook as a needle-moving competitive advantage.

As we explored in last year’s Technology Report, the massive global success of cloud technology and platform business models fueled the technology industry’s value creation over the past decade. These two trends gave rise to the tech giants, the leading cloud tools and service providers that we call “hyperscalers”.

Now, cloud technology and platform business models are unlocking significant value for companies across every sector. The winning companies of the next decade will be defined by their ability to take full advantage of these catalysts.

Cloud-native infrastructure software

Within the technology industry, the unprecedented growth of the hyperscalers has overshadowed the rapid rise of another segment that has become a formidable value creator and disruptor in its own right: cloud-native infrastructure software vendors.

The publicly traded companies in this group were collectively worth nearly half a trillion dollars at the end of 2020, with many of the leading ones more than doubling in market value last year. Plus, there’s a healthy pipeline of earlier-stage competitors reportedly valued at more than $1 billion each (so-called unicorns).

Cloud-native infrastructure software companies have flourished because they can more easily launch and rapidly scale up new applications by building them on top of the big cloud service providers’ public cloud resources. Rather than making costly up-front capital investments, cloud-native infrastructure software companies can pay for cloud computing resources as they go, based on how much they use. This can free them to focus investments on product development, sales, marketing, and other areas that can grow their businesses.

Nontech companies and the cloud

As cloud infrastructure and supporting tools get more advanced, they’re empowering companies across industries not only to build more efficient and effective IT footprints, but also to use large amounts of data to enhance their business model. For example, automakers are scaling up vehicle telematics services underpinned by cloud technology. This can improve customers’ safety and vehicle experience and lower the total cost of car ownership.

Nontech companies and platforms

Platforms are usually associated with the technology sector, but now companies in other industries are shaking up their markets by adopting business models built upon tech platforms. The term “platform” is often used broadly. Here, we use it specifically to indicate a product or service upon which others build their livelihood―one that attracts an ecosystem of partners and customers who collectively deliver value. The power of platforms lies in their network effects, which drive down marginal acquisition costs and fuel compounding increases in value for the platform and its participants.

Patterns emerge

In our analysis of companies worldwide adopting cloud technology and platform business models, we’ve found that the most successful are doing four things differently.

First, they’re using data and analytics to gain an edge. By actively managing and drawing insights from large data sets, companies can more rapidly improve their offers based on real-time customer feedback.

Second, winning companies are scaling rapidly while owning fewer assets. Cloud technology and platforms have made this “asset-light” model possible because companies can now achieve scale through “connection” rather than “production,” by tapping into capital goods owned by others

Third, realizing they don’t have to own everything, leading companies are using partnerships to add capabilities faster and cheaper than developing them internally.

Lastly, companies are investing in tech talent to help them take full advantage of cloud technologies and platform business models.

The question on the table in every boardroom, regardless of industry, is not whether technology can make a difference for the business. It’s how, and to what extent? Companies that embrace technology as a fundamental, differentiating capability have a shot at unleashing more growth than ever.

ENDS



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