Transform into a Value-focused Digital Entity
What is next for business?
What is next for most enterprises is already a reality for many. Transforming into an asset-light digital enterprise that focuses on generating value is the route to success. A short path to IT asset-light is cloud adoption. A good example of generating value is focusing on product design while leaving manufacturing and logistics to others. The most striking example of value generation is the rise of the five largest US high-tech companies’ market value in 2020 to $7.511 trillion, up from $4.934 trillion in 2019.1
So, how did other organizations fare in 2020? Were they able to double their business values? That is unlikely as most enterprises felt challenged last year. One could reignite business growth engines by adopting value-producing strategies.
Move business workloads to the cloud
Digital transformation is no longer a choice; it is a survival tool for the data-driven economy. To remain competitive and grow, enterprises need to adapt to the new realities by harnessing the cloud’s power and leveraging its value. The pandemic increased remote working 20X in three months, added 150 million remote workers in two weeks, and increased eCommerce levels by ten years in eight short weeks.2 Here is a three-step approach that organizations can adopt without much disruption.
First, move business workloads to the cloud. Each company’s migration is unique and might be a long process that takes a few years to complete. The critical element to keep in mind is that the cloud is an efficient business operations model that produces value in the short, mid, and long term. In other words, look at the cloud as a valuable business growth engine and competitive tool, not as just another technology.
Second, adopt a cloud model that best fits business requirements. A hybrid cloud deployment model is best for organizations with monolithic legacy applications that may take several years to modernize. We suggest moving business applications to the cloud for all other organization types and gradually getting out of the capital-intensive data center business when possible.
Third, build and implement a robust network edge strategy based on 5G. The implementation side is the vital element as the network’s edge has already spread to the home of remote workers and distance learners. Most entities are in catch-up mode in this area.
Focus on creating value
One would think that focusing on creating value is the apparent path for business growth. Unfortunately, that is not always the case, as businesses find themselves entangled in activities that distract from their core business. We recommend that companies focus on their core business activities and enhance their value proposition while working with 3rd parties to perform everything else more efficiently.
By moving away from the IT infrastructure model, organizations can direct their energies to business growth. Companies’ market value is 3X revenue in the asset-heavy electronics industry, while the value for platform-oriented asset-light high-tech giants is 7X revenue.3 An excellent example of the value-driven asset-light model is playing right now in the semiconductor and auto industries with different outcomes for design-focused entities and integrated design and manufacturing ones. Fabless semiconductor companies focus on chip design while capital-intensive outsourcing manufacturing has increased their market capitalization several times faster than competitors with integrated design and manufacturing models. New auto companies in the electric vehicles (EV) market dedicate their efforts to design, leaving manufacturing to 3rd parties.
The most notable example of focusing on value creation comes from Apple. The company has focused its brainpower on designing revolutionary software and hardware devices that transformed several industries. While Apple has the resources to invest in manufacturing, it wisely opted to outsource the manufacturing to 3rd parties. The company leveraged its asset-light operating model into more than $2 trillion in market value.
Enterprises are at a pivot point where excellent business value and high growth could be realized by those adopting value-creating asset-light business models that embrace the data-driven economy and deliver superior customer experience.