Every business must be a computer system innovator

There used to be a differentiation between “high technology” product companies that relied on proprietary innovative computer technology for their business success and “non-tech” businesses that viewed computer systems as the engines enabling good accounting systems. This has dramatically changed because of major advances in computer systems and software technology.

Of course, we have computer technology companies selling software, but no business no matter what its product can ignore the powerful competitive advantage of implementing innovative computer systems.

What has changed in recent years is the dramatic evolution of software, computer and communication technologies that together enable business capabilities previously too costly and complex for widespread use. These developments can be grouped in five broad areas.

First, the microprocessor process chip capabilities that now pack in a silicon chip the size of a thumbnail the process capabilities of early mainframe computers (Moore’s Law at work).

Second, the ability to store data on chips that range in the billions of bits in tiny silicon areas.

Third, the ubiquitous Internet that reaches most of humanity thanks to the parallel development of wired and wireless communications.

Fourth, the emergence of “cloud” computer services that allow businesses of any size to access on demand computer capabilities previously only affordable to the biggest businesses.

Fifth, great improvements in software capabilities in the area now described as artificial intelligence.

And finally, coming now are fifth-generation (5G) wireless systems that will enable to dramatically improve the ability to reach billions of people with enormous amounts of data.

You can thank the evolution of the transistor and the semiconductor laser as the core devices that enable these marvels of technology. And we not seen the limits yet of their capabilities.

That computer systems are the essential drivers of businesses was not a secret. I remember asking, in 1990, Jack Welch, the legendary chief executive of General Electric, what he thought was the single most important system innovation he introduced. “Sophisticated computer systems to manage performance. If you can’t quantitatively  measure business performance, you can’t improve it.”

Welch invested huge amounts of money in building the computer infrastructure. Running efficient computer hardware centers was once a differentiating business capability for big companies. Today such a capability is available to all as an on demand cloud service from Amazon, Microsoft and others, and operating efficient computers is no longer a differentiating competitive advantage.

The competitive advantage comes from the ability to creatively harness data management, analysis and flow within a corporation to offer products and services with better quality, customer satisfaction and speed to market.

Mining corporate data is only the first requirement of a successful business, but its value can only be realized by the organization of the business and the control of the interlocked functions such as manufacturing, sales, marketing and product development. This means that businesses of all sizes and markets need internal high levels of competence in sophisticated data analysis  using the most advanced technologies – areas such as artificial intelligence and machine learning. These skills need to be applied on a continuing basis to the evolving needs of the business.

An interesting example of such amazing success is amazon.com, which has revolutionized retailing on the basis of innovative computer and communications technology and became one of the most valuable companies in the world in what is basically a “mundane” consumer service.

The growing recognition of the  importance of new computer systems became glaring to me recently when a friend (and former CEO of a Warburg Pincus portfolio company) with an accounting background became CEO of a major international fertilizer company.

I asked him why he was selected given his financial and not chemical background.

“I told the CEO selection committee that I knew nothing about fertilizers but a great deal about computer systems, software and architecture that allows the most efficient operations and ultimate growth and profitability,” he said. “In fact, I had demonstrated that successful capability in my prior CEO position of an insurance company.

“When I took that job I had no experience in the insurance business either but I took it from loss-making to growth and profitability by changing its business architecture based on innovative computer systems.”

So he was selected because the company was staffed with many fertilizer experts but no one with the proven ability to lead the building of a computer-based infrastructure that would maximize the value of the company’s products and manufacturing skills. There is a lesson here for all businesses.