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Now Every Company Is A Software Company

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The future of big industry can be seen through a little technology company in Silicon Valley. Sunnyvale-based Picarro, with 90 employees, has developed a highly accurate mobile measurement device for gasses, with related software that turns the tool’s output into an easy-to-understand visualization. Any organization or individual can drive Picarro’s $70,000 instrument around and create stunningly detailed maps documenting, say, point-by-point methane leakage from a pipeline or a refinery. The implications are enormous. Rather than produce in blissful ignorance, industrial and energy giants can now know what, if any, toxins they are putting into the atmosphere. More critically, if they’re unwilling to look at this data, anyone with a car and Picarro’s tools can do it for them. This calculus has already produced concrete ramifications: One well-respected executive recently quit the board of a natural gas giant, I’m told by someone directly familiar with the matter, specifically because he felt the company was not responding with sufficient urgency to Picarro-like information about methane leaks.

That dynamic illustrates a current reality: Regardless of industry  your company is now a software company, and pretending that it’s not spells serious peril. With hardware and software growing more capable at exponential rates, data of all sorts are increasingly getting into the hands of ordinary people—competitors, employees and, especially, customers. Extraordinarily sophisticated tools of measurement, analysis and communication allow these empowered hordes to evaluate, process and distribute the data, along with their opinions about it. Ordinary people increasingly have tools that match and in some cases exceed the sophistication of those used inside the companies that serve them. “When I release a new product or a new ad campaign ... I can get instant feedback about what people are thinking and how they react to it,” says Jack Dorsey, cofounder of Twitter and financial-services upstart Square. “And I can use that feedback to tune and to better my policies or my product or my company, all in real time.”

That leads to an increasingly urgent and overarching mandate: Your company must, using software and technology, become as responsive and agile as your customers. And then remain as aggressive as they are by measuring, monitoring, evaluating and responding to data about your products and services and their impact on society. This proved a major theme of last month’s Techonomy 2011 conference, for which FORBES was media sponsor. Picarro CEO Michael Woelk’s talk had the room in Tucson buzzing, and dozens of similar presentations focused on technology’s central role in changing modern business and society. What struck me, though, both at the conference and in the months I spent preparing for it, was the acceleration point we’re hitting right now. The era when traditional industries could view the technology world from afar is officially over.

“All the things we’ve spent the last three or four decades of our lives working on are finally impacting the world and creating the change we’ve wanted since the Sixties,” says Marc Ben­i­off, CEO of Salesforce.com. “We heard it through the music, and now we’re seeing it through the technology.”

To see how immediate this change is—and how smart business leaders are stepping ahead of it—it’s instructive to start with the company that invented the 20th-century industrial model: Ford Motor Co.

“Bill Ford said recently that when he was growing up he used to worry about making more cars,” says Venkatesh Prasad, senior technical leader at Ford. “Now he worries—what if we only made more cars? Just making more cars is not our future.” Instead, Prasad reenvisions Ford as a maker of “sophisticated computers-on-wheels.” Anyone who’s test-driven a Ford lately can experience this: Wi-Fi receivers turn your car into a mobile hot spot; built-in software helps maximize fuel efficiency; ultrasonic sensors enable automatic parallel parking. The key piece now, in Prasad’s view, is connecting their vehicles together. “We’re rapidly marching toward 2 billion cars, trucks and buses on this planet,” he says. “There’s no reason why they should not all be fully networked.”

To this end Ford plans to mail owners a quarter-million USB devices early next year, containing a new interface, much like Apple introducing a software update for the iPad. When the cars are all networked, the process will be even smoother. In doing this, Ford seeks, much like Facebook or Twitter, to ­integrate its products into its customers’ lives. “There’s an opportunity,” says Prasad, “to now look at software playing a role in really shaping those experiences of tomorrow.”

This transition to a new world of responsiveness and agility will be painful and require a new mind-set. “We can build organizations that are far more adaptable, far more inspiring places to work, far more innovative than anything we’ve seen so far,” says management thinker and author Gary Hamel. “But there’s a huge ideological challenge in doing that, because inside most huge organizations is a bureaucratic caste that believes it’s their role to make decisions.” Scott Cook, founder and chairman of ­financial­-­software maker Intuit, concurs: “The kind of leadership my dad learned in World War II—where the leader makes all the decisions and tells everybody else what to do—that’s the flaw in organizations.”

But Citigroup shows that it’s possible for even the largest, most established organizations to embrace a new tack of openness, open-mindedness and speed. One of the painful lessons of the financial crisis that seems to have taken hold there: the need for humility. Citi now has a chief innovation officer, Deborah Hopkins, charged with overcoming organizational inertia. “Somebody has a great idea, and somebody else says, ‘Oh, legal won’t let us do it’ or ‘Compliance won’t let us do it,’” says Hopkins. “What we’re saying is ‘Just innovate out there and then we’ll solve it.’”

Her group, which also oversees venture capital initiatives, has met with over 500 startups this year alone, seeking to bring in good ideas from the outside, including recent investments in Silvertail, which produces leading-edge antitrust software, and InvestLabs, a Hong Kong startup that provides cloud services to retail brokerages.

Hopkins also tries to help the banking giant harvest ideas from the inside via crowdsourcing initiatives and an innovation contest. Her team recently redesigned the consumer banking experience in Japan, eliminating paper transactions and streamlining 156 branch processes down to 12. By year’s end 121 branches across Asia will have adopted it, and it will ultimately be used as a model globally. “You used to think of a bank as a place, a physical thing with a big safe in the wall,” she says. “Now it’s a virtual thing. ... It’s about enabling your life and helping you solve big problems.”

This fall I took a trip to the DreamWorks Animation studios in Glendale, Calif., to see an even more radical transformation. CEO Jeffrey Katzenberg, who had plenty of experience overseeing animators at Disney, created the kind of campus 17 years ago that creative types tend to like: welcoming buildings blanketed with ample, sunny windows.

Yet as I walked the DreamWorks hallways the shades on those thousands of windows were almost all down. The animators no longer want sunlight—rather than hand-drawing movies, DreamWorks has gone all-digital. No longer merely a traditional firm that embraces technology, DreamWorks is a technology company that happens to be in a traditional field.

Katzenberg found religion back in 2003, when a costly hand-drawn feature, Sinbad, performed poorly, illustrating some daunting economics for the company’s future. “We were on a catastrophic path to extinction,” says Katzenberg.

Then, a savior appeared in the form of a computer-generated green giant: Shrek. Katzenberg put DreamWorks on a crash course to an all-digital future. But the way it got there is a cautionary tale about the challenges companies in other industries may face. DreamWorks had to eliminate a third of its then 1,200 employees and retrain another third. “That was as culturally disruptive as anything you can imagine,” Katzenberg tells me. “But what doesn’t kill you makes you stronger.”

Today DreamWorks aims to think like a Silicon Valley company—600 of its 2,200 employees actually work near San Francisco. “We spend a good deal of our time looking over our shoulders and crawling into any garage where we can find talented kids who may help us get on to whatever the next transformation may be,” Katzenberg says. The company’s latest project is designing new software, with Intel and HP, that takes advantage of the 12-processor chips, enabling animators to see the results of their work in real time. This will streamline the “manufacturing line” of animation from 12 separate stages to 6, enabling more creative freedom as it reduces costs.

While expensive, the Intel/HP initiative may soon enable DreamWorks to sell software to other computationally intensive industries like oil exploration, medical imaging or automobile and airplane design. A software company, in other words, that happens to make animated movies.

This evolution goes far beyond the creative industries. Consulting firm McKinsey has moved past the advice business: It offers 21 products in its software services, says McKinsey director Hugo Sarrazin, adding that the firm’s software revenues, in the millions, would constitute a “pretty big software company” by Silicon Valley standards.

FedEx, which early in its history took the view that “the information about the package is as important as the package itself,” now employs hundreds of developers who build and deploy products for 350,000 customer sites. “I do run a software company inside of FedEx,” says David Zanca, senior vice president for information technology, who has been pondering, like DreamWorks, whether FedEx should move past shipping and sell its software to others. Technology is so important there that FedEx’s board now has a full-fledged IT subcommittee, alongside the three usual suspects: compensation, audit and nominating and governance.

The urgent argument for turning any company into a software company is the growing availability of data, both inside and outside the enterprise. Specifically, the implications of so-called “big data”—the aggregation and analysis of massive data sets, especially mobile, that lead to new insights about customer preferences and company strategies. “Everyone has mobile devices, and those devices have the ability to take a picture or capture sound or say where they are or how fast they’re moving,” says Marissa Mayer, vice president for consumer products at Google. “Business models can become a lot more personalized.”

At Ford every vehicle has a tire-pressure-monitoring system that generates a bitstream of data to monitor and improve the tire, the car and the driver’s experience. At FedEx the next stage in gathering and responding to data will see a chip on every package that, besides providing real-time info about location, temperature or whether it has been opened, will also be customizable.

Utilities are starting to install so-called smart grids that communicate with appliances and devices that use the electricity, allowing real-time data to balance supply and demand. “When power lapses, for example, the grid can tell the electric car in your garage to stop charging,” says Fred Krupp of the Environmental Defense Fund. “And new refrigerators will communicate with the grid and be told, for example, that the daily defrost cycle should be done in the evening instead of during the day. This is the smarter, greener grid of tomorrow, brought to you by data.” Krupp is also excited about how ID tags applied to fish when they are caught will both enable consumers to be sure they are getting the freshest fish and fishery managers to ensure stocks are not depleted.

Yet entire industries still resist the inevitable data onslaught. Most egregious: health care. “We should take all the data that exists in this country in all the health care systems and make it interactive and searchable,” says Craig Mundie, Microsoft’s chief research and strategy officer, who serves on the President’s Council of Advisors on Science & Technology. “Everybody knows you need to go to some kind of system where you pay based on outcomes. ... You need a universal view of the data, for comparative pricing and quality control. ... But the industry doesn’t want to do this.” Eventually tech-based startups from outside the medical system will emerge to tackle costs. David Jones of Chrysalis Ventures, for example, has invested in diagnostic-coaching companies that use mobile feedback loops to help people eat better or quit smoking.

The health care inertia serves as a helpful reminder: Roadblocks are embedded within internal cultures, and these roadblocks will impede data and software responsiveness unless companies change how they are organized, managed and led. “Big data can get us to business at the speed of thought,” says Francis deSouza, group president for enterprise products and services at Symantec. “But the reality is that most companies do business at the speed of the weekly meeting.” Adds Kendall Collins, senior vice president of Salesforce.com, who manages its intra-company dialogue product, Chatter: “If you’re a CEO out there today and you have not gone to Glassdoor.com to see what people have to say about your company, then you’re fundamentally lost. You have to be vulnerable enough to have that conversation in your own living room.”

“As humans we resist change,” says Twitter and Square’s Dorsey. “It’s scary and something we can’t necessarily control. You hear that Twitter is important or Facebook is important or HTML5 is important, but how do you actually begin? There’s no easy way. It’s not fun to be self-reflective or self-aware.

“In many cases it means we have to do more work,” he adds. “So we have to do more work.”

Additional reporting by Adam Ludwig

See Forbes ongoing series, Data Driven, for more stories about how information is changing the economy. For more information about Techonomy, visit www.techonomy.com. You can also follow Techonomy on Twitter and Facebook.