The DX economy is a rapidly rising tide and organizations better start swimming or they'll sink like a stone, as...
Nobel Laureate Bob Dylan once sang.
This was the main message delivered at the IDC Directions 2017 conference held in Boston this week. We are at the dawn of a new economic age, Frank Gens, IDC senior vice president and chief analyst said in the opening keynote address, adding that two questions face the technology industry. The first is when will the DX economy reach scale, and second is what do technology companies need to do to thrive in and lead the DX economy, which is also known as the digital transformation economy.
Gens said organizations need to understand two sides to digital transformation: technology and business processes. Technology centers on the third platform, which is built on the pillars of cloud, mobility, social, and big data, and includes innovation accelerators such as artificial intelligence (AI), robotics, 3D printing, next-generation security, and virtual or augmented reality (AR/VR). The business side centers on what companies are doing at the business process level to use the third platform technologies, including offering new services, new ways of operating and new ways to establish relationships.
The virtuous circle
"What's great about the marketplace today is that there is this virtuous circle that the third platform technologies are making possible all these digital transformations for the business level," Gens said. "The more digital transformation that goes on the more it's driven for those very platform technologies. So we are just at the beginning of this big flywheel of growth and demand and innovation."
The question of when the DX economy will reach scale should be answered very soon, as the global economy is well on the way to being entirely digitized. Gens said IDC research indicates that well over half of the Global 2000 organizations will have the majority of their business digitized. The remaining businesses will have gone through at least some percentage of digital transformation.
"The global economy will be almost all digitized by 2025, and the global economy and DX economy will essentially be one and the same," Gens said. "So it is reaching macroeconomic scale."
Grab for the pot of gold
There's a lot of money to be spent and made in this new DX economy. IDC estimates that in 2019 companies will spend $2.1 trillion on technology and services to execute digital transformation initiatives. Gens pointed out that any company that wants to grab onto the pot of gold needs to first determine what kind of DX company to be and develop a digital transformation use case. He cited examples from companies such as GE, with its Predix platform that uses AI and IoT for predictive analytics and predictive maintenance in manufacturing; Toyota, which has invested $1 billion to support a connected and driverless car initiative; Lemonade, a new startup for renters' insurance that uses AI to speed the process of cutting new policies; and American Express, which is using AI for fraud detection and to find new customers.
Whether a company is old and established like GE or brand new like Lemonade, they all have to figure out a digital transformation identity, Gens said. "It won't cut it if you are generic DX."
However, to compete in the DX economy, companies have to be optimized on the two things that comprise the digital innovation infrastructure: a cloud core and mega-platforms, which Gens characterized as a vast and diverse ecosystem of connected devices at the edge and the IoT.
The cloud is where it's at
The cloud is where almost all business will reside in the near future. IDC estimates that 75% of all enterprise infrastructure and software spending will be targeted for cloud offerings, and may be even more as companies eventually become unshackled from legacy systems. Also, the IDC Cloud View survey of 2016 found that 70% of CIO's have a cloud-first strategy for IT investments.
The cloud is becoming ubiquitous because it is changing into something different from what it was in the past 10 years, Gens said. More cloud is moving from central data centers, as 43% of IoT will be processed on the edge of the cloud by 2019; security for the cloud is improving because of such innovations as cloud-powered encryption; and the cloud will become more intelligent. IDC estimates that cloud-based AI services will be integrated into 40% of all digital transformation initiatives and 100% of all IoT initiatives.
The Cambrian explosion of devices
The other part of the infrastructure is the vast network of connected things, and Gens said there's "a Cambrian explosion of diversity in what can be connected to these digital networks: everything from smart prosethics, to robots, to drones, to home digital assistants, to connected cars." The numbers of connected devices will grow from 15 billion in 2016, to 30 billion in 2020, and 80 billion by 2025, and Gens admits that these numbers may actually be underestimated. By any measure, the numbers are extremely large and companies need to connect all the IoT dots.
"If you are intending to be a player in the DX economy and you aren't either delivering a part of this infrastructure, or building it, or using it, or helping others to use it, you are a non-player in the DX economy," Gens said.
One way companies are becoming players in the DX economy is by developing their own industry-specific platforms or networks that become the digital innovation crossroads of their industries.
"They want to build a platform and ecosystem around themselves to grab a super power position within the industry," Gens said. "They collect relevant industry data, provide industry specific apps and services, and most importantly they are inviting in other developers to come in and build on their platform to create a marketplace of solutions."
The advantage to these is that if you participate in the network you are not just getting customers, you get a whole ecosystem, and IDC estimates that by 2020, 75% of all Global 500 companies will supply digital services through industry collaborative clouds.
Organizations must identify which digital transformation efforts they are uniquely qualified to offer in order to fully participate in the DX economy, Gens said.
"The global economy is becoming the DX economy, every company is becoming a tech company, and the pace and volume of innovation is going off the charts, so you have to think about how to build your own digital innovation network and ecosystem," he said. "The digital way of thinking is not a theory, it's a reality."
Business units need to collaborate with IT as organizations deploy third platform technologies
Here are some lessons from Sabre's digital transformation centered on SAP S/4HANA
Digital transformation is for government organizations as well as businesses