The Rise of the Technology Company
Many business leaders today are proclaiming their companies as technology companies, and consequently, as data companies. But the operational code of conduct for technology companies differs significantly from that of mainstream companies. Tech companies navigate intense, rapidly evolving markets where fortunes can shift quickly. This requires them to be extremely agile and open to immediate shifts in their business models and product lines.
Consider DeepSeek’s recent entry into the market with its relatively low-cost generative AI service. The impact of this was that it prompted established, multi-billion-dollar AI companies to react quickly. Simultaneously, smaller technology companies face the risk of seeing their investments undermined by the actions of larger foundational technology providers.
The Need for Agility and Innovation
Throughout discussions with numerous tech company CEOs over the years, it became evident that, alongside keeping pace with rapidly changing markets, these leaders felt a consistent pressure to achieve an annual growth rate of at least 10%. Anything less implied falling behind.
Andrew McAfee, co-founder and co-director of MIT’s Initiative for the Digital Economy, recently explored the lessons that mainstream-to-technology organizations need to learn. “In financial services, there are a lot of companies that are apparently technology companies now,” he stated. “Investment banks, commercial banks, insurance companies, also in manufacturing and particularly in auto manufacturing, there seem to be a lot of technology companies now, both final car manufacturers and parts suppliers.” According to McAfee, most of these companies now qualify as technology companies. A key indicator is where the money is being spent. “CEO after CEO is realizing that the way they’re spending their investment money is shifting very very quickly,” from standard goods and materials to digital technologies.
“Back in about 2007, US companies were spending about $1.70 on non-digital stuff for every dollar they spent on digital stuff,” McAfee explained. “Now, the situation is actually just about reversed. Companies are spending about $1.60 on digital stuff for every dollar they spend on non-digital stuff.” Consequently, when CEOs declare their company as a technology company, “they realize things are different, and they realize that the pressure to innovate, remain agile, and continue to execute at a high level. that pressure is actually getting more and more intense over time.”
Adapting Management Styles
“Companies that are technology companies need to be managed differently,” McAfee continued. “Because of that intense competition for so long, a bunch of geeks have flat figured out a better way to run a company.” At the top of the list is running agile. While electric vehicle manufacturers, for example, are essentially building robots on wheels, they are still frustrated by software issues. Tesla, for example, solved this in 2018 when it began over-the-air software fixes within days of identifying problems or new features.
Traditional companies typically do not have the software development cultures that thrive on iterative work focused on the customer. “It is hard to know how much progress is being made. you can’t really look at a piece of software and know if it’s doing what it’s supposed to do or not. Software typically has low observability.”
Additionally, “the people writing the software in this case, don’t often get valid feedback about how well they’re doing.”
The Agile Approach
The agile movement was introduced with the Agile Manifesto in 2001, and the key principle is “our highest priority is to satisfy the customer through early and continuous delivery of valuable software,” McAfee said. “In other words, don’t just wait till the end to deliver what you’ve got to the customer. Keep doing it as often as possible throughout the project.”
The goal of agile is “to have these fast frequent interactions where the customer tells you if you’ve satisfied them or not. When you’re doing agile right you iterate very rapidly, and you have very high transparency. Everybody knows if you satisfied the customer on the most recent interaction or not.”
McAfee recounts the observation of venture capitalist Steve Jurvetson, who stated that he sometimes has “a sixth sense. I can see dead companies. they don’t know they’re dead. but they’re just not responsive enough. they can’t iterate quickly enough. they can’t respond quickly enough. The companies that are that are able to thrive and survive in a technology-rich environment move faster, they iterate more quickly, compared to the ones that we built up over the course of the 20th century.”
Furthermore, “these companies are a lot more egalitarian, they try to modularize themselves and give a great deal of autonomy, and they try to settle their arguments via evidence.”
