These days nearly every company is, or is in the process of becoming, a technology company. Major retailers have mobile apps and robust e-commerce platforms. Banks are getting into cryptocurrency. Grocery stores no longer expect customers to come inside to shop — they can place an order online and pick it up outside the store, or have it delivered right to their homes.
All kinds of companies are developing and using technology to make their operations more efficient and their products and services more attractive to consumers.
Satya Nadella, CEO of Microsoft (MSFT), knows the world of digital enterprises particularly well.
Speaking at the recent AT&T Business Summit, Nadella offered some advice for companies looking to make a digital transformation.
“One of the things I think a lot about is: If we use this term that every company is a digital company, every company is a software company, what does it mean?” Nadell said. “How does one create that digital strategy inside of any enterprise, across any vertical or industry? The formula I think about is what I describe as ‘tech intensity.’”
First, he said, companies need to be early adopters of new technology to power their businesses, so they don’t waste time or money later trying to get out from behind the curve. Then companies need to cultivate the ability to develop their own “digital IP,” building exclusive software and tools that only their customers have access to.
“You don’t want to be caught up in spending your scarce resources on what is essentially something that can be available as a commodity. You want to bring in the commodity, and build your own IP,” Nadella said.
The final piece of the puzzle, Nadella said, is that companies must develop technology that both they and their customers can trust — relying on credible suppliers and building security into new products.
Nadella said he thinks of it like a math formula: “Tech adoption” times “tech capability,” multiplied “to the power of trust.”
“This is what I feel every company needs to do to become a software company,” he said.
Of course, it makes sense that Nadella would be doling out such advice. In recent years, Microsoft has shifted some of its focus away from its Windows operating system and devoted more resources to developing web-based enterprise technologies. The company’s business model largely relies on enterprises wanting to become tech companies, and using Microsoft products and services to do it.
That’s especially true when it comes to new technologies such as the cloud business, where Microsoft is competing with industry giant Amazon Web Services to convince businesses and government agencies to entrust their data storage to its Azure cloud. It was handed a big win last month when the US Department of Defense awarded a $10 billion cloud services contract to Microsoft Azure over AWS.
Nadella said that fueling others’ digital transformations has been part of his vision for Microsoft since he became CEO in 2014. He said that as only the third chief executive in Microsoft’s history behind Bill Gates and Steve Ballmer, and the first without what he called “founder status” at the company, he felt he needed to establish a sense of purpose that would define his leadership.
“That’s what led me all the way back to the origin of the company,” Nadella said. “We were a tools company, a platform company … If we stick to what we were really meant to do, which is to create technology so that you can create technology, we’ll be okay. So that’s why I went back to say, ‘let’s have that and be proud of that and let’s be grounded in that sense of purpose.’”
Nadella said there are three major technological shifts that companies today will have to harness in the coming years in order to succeed as digital enterprises: the ability to have powerful computing capabilities in many different kinds of devices, artificial intelligence that will make sense of all the data generated from that computing, and the fact that people all have multiple devices that interface with their various senses, such as smart speakers and augmented-reality glasses.
Developing artificial intelligence technology has been one of Nadella’s top priorities during his time as CEO, and it’s one of the key selling points of the Azure cloud.
“These three trends compound — computing is everywhere, every experience is powered by AI and we live in a multi-sense, multi-device world,” Nadella said. “And the question is: What does it mean for retail? What does it mean for hospitality? What does it mean for healthcare?”