The 2013 TMT Value Creators Report: The Great Software Transformation

How to Win as Technology Changes the World

By David DeanPatrick ForthNeeraj Aggarwal, and Frank Plaschke

Software has been an important—if often hidden—shaper of industries and consumer behaviors for several decades. But in the past decade or so, we have seen how software can fundamentally alter, disrupt, and create industries, business models, and sources of competitive advantage. Software is the thread that stitches together what we call the “digital metasystem”—a digital environment that offers the ability to mine big data and connect and engage with customers anywhere and at any time.

This software-powered digital metasystem will have far-reaching impact, crossing industry boundaries and pervading all aspects of business and society. Understanding these developments cannot be optional for management.

Companies in the technology, media, and telecommunications (TMT) industries are at the vanguard of bringing the products and services to market that will drive this cross-industry transformation. Future winners will grasp this opportunity by responding to the needs of customers, expanding to new customer groups in emerging markets, and building trust in business models that are driven by personal data. Lasting success will require much more, however. Leaders need to understand this rapidly changing landscape, and companies need to transform their mindsets, capabilities, and overall business models.

Companies that can quickly and effectively build capabilities based on software and computer intelligence into their business will gain competitive advantage. They will need to focus on innovation rates but also on overall strategy, alliances, customer-centricity, and productivity—essentially managing the transition from current business models to new ones.

In addition, engagement with policymakers and regulators will be increasingly important. Because technology is changing faster than regulation, leaders must ensure that regulatory policies are based more upon broad principles of conduct; policies must also recognize and enable innovation.

The total shareholder return of winners and losers continues to be a stark scoreboard of how well companies are managing this set of challenges. Over the past five years, the top-performing TMT companies—such as Apple, ARM, Samsung, Tencent, and Naspers—have been among the top performers across all industry sectors. The weak performers have collectively destroyed hundreds of billions of dollars of shareholder value. This contrast between winners and losers is particularly evident in the tech industry, where the pace of change is arguably the fastest. Likewise, in the media industry, a few traditional companies—such as Pearson, publisher of the Financial Times—have successfully managed cash flow in their traditional properties while building digital businesses, but most companies have struggled. And although the telecom sector includes some strong performers, a weak European economy, the end of high growth in emerging markets, and the challenge of transforming to data-centric business models have massively destroyed shareholder value.

The messages are clear. You need to be a part of the new digital metasystem. You need to understand how software is influencing your business. If you are global, you need to be entrenched in emerging markets. If you are a mature company, you need to transform your business fast while managing your legacy assets for cash flow. And because the digital and emerging-market platforms are burning hot, you do not have the luxury of taking five years to manage this evolution.

Act now.

The 2013 TMT Value Creators Report: The Great Software Transformation