IDC: The "Digital-First Enterprise" Will Be Half of the Economy by 2023. Are You Ready?

The Digital Economy is no longer a just a concept, but rather an operational reality for more and more firms, research firm IDC told its attendees at its annual Directions conference this week. In a variety of presentations, analysts discussed how technology is impacting enterprises and the overall economy, with the research firm predicting that within three years, more than half of global GDP will be driven by "digitally transformed" enterprises.

Because of concerns about the coronavirus, the conference was held online, and IDC President Crawford Del Prete said the group now expects that IT growth in 2020 will probably end up at 2.5 to 3 percent, a couple points lower than the firm was expecting before the virus outbreak.

Del Prete said the digital economy is increasingly being driven by more powerful platforms, with ecosystems gaining lots of developers, as well as buy-in from major enterprises. As a result, he said innovation has accelerated, particularly the ability to target the specific needs of customers. We are moving to a more data driven world, but success involves transforming data into insights. Customers today expect engagement, personalization and simplicity, and it is incumbent among suppliers to provide these capabilities.

He described the "fast five" big trends of today's digital economy. AI is everywhere, with the technologies being incorporated into more and more products. Everyone is a developer, with more people able to create applications and more applications being created today than ever. The cloud is no long seen as a location, but rather as a platform, which includes edge devices and needs to be managed. Trust now includes more than just security. Customers want to work with you to create automated solutions as quickly as possible.

Riffing off the common comment that "data is the new oil," he said, "Data will no longer be viewed as 'oil,' but as water. It is essential for life but needs to be accessible and clean."

The Digital-First Enterprise

IDC Chief Analyst Frank Gens elaborated on a number of these things, saying he thought the biggest pivot was that "Enterprises are becoming big time producers of technology, not just consumers."

He gave several examples of companies that have become "digitally transformed" including Walmart now becoming the third largest purchaser of technology (behind Alphabet and Amazon) and now offering things like its own distribution system; and Goldman Sachs providing its own APIs that other companies can build on.

By 2023, IDC predicts that 52 percent of global GDP will be driven by "digitally transformed" enterprises; and that by 2024, 51 percent of IT budgets will be for digital innovation and transformation.

This is paying off, Gens said, noting that an IDC survey shows that "digital-first" enterprises across retail, manufacturing, and banking delivered 8 times the revenue growth and twice the profit margin compared to "digital laggards" over the past five years.

One big transformation is moving the infrastructure away from traditional data centers into both the cloud and into edge devices.

In 2021, IDC predicts there will be 38 billion connected "things" and said the 39,000 core data centers are both too few and too far away to support all of these. He is predicting a big growth in a distributed tier of "cloud systems" at the edge and near-edge—things like bank branch offices, hotels, and retail sites. He is thus expecting a "renaissance" in enterprise infrastructure as these cloud-like devices are installed. By 2022, IDC expects 70 percent of enterprises will deploy hybrid/multi-cloud management across their digital infrastructure, and that by 2023 over half of new infrastructure will be deployed at the edge (including all sites outside of corporate data centers), compared with just 10 percent last year. Some of these systems will be fully integrated with cloud offerings (such as AWS Outposts), while others will be more open (such as those based on Azure Stack, Red Hat, or Google Anthos). The methods of distributing and using this infrastructure may change as well, as this is becoming strategic for more firms.

Indeed, he talked about how enterprises were increasingly incorporating technology from multiple sources, including open source, internally developed, and external solutions, into creating a larger system, which he dubbed a "digital innovation factory." As a result, technology vendors are increasingly becoming part of their customer's "digital supply chain." Last year, he said only 20 percent of an enterprise's codebase came from outside; by 2025, IDC predicts that 80 percent of code in enterprise digital services will be externally sourced.

He said enterprises were increasingly using agile and DevOps methods of creating and managing software, more modular software, and democratizing development. As a result, IDC expects 60 percent of enterprises will deploy code to production at least once a day by 2025. Last year, it was only 3 percent.

As a result, he said IDC predicts that over 520 million new apps and services will be developed and deployed in support of the digital economy by 2024. To put that in context, that is about the same number of applications produced in the next four years as have been produced in the past 40 years.

Much of this will use at least some external code, Gens said, and many will open their code to external partners in a process of "hyperconnecting enterprises and industries." IDC predicts that 60 percent of the Global 2000 will have third party developer ecosystems, and 30 percent of the Global 2000 will derive more than 20 percent of digital revenue from third party developers and partners, all by 2023. Already, he said, over half of Fortune 100 have developer APIs available.

For technology providers, he said, this presents new challenges and opportunities. He said we will see a "new species of enterprise" so we need a "new species of tech provider" to help customers scale and extend their digital reach, build digital innovation factories, and create digital distribution platforms and ecosystems. In other words, technology providers will need to position themselves in their customers' "digital supply chain."

A New Species of Tech Supplier

In a talk mainly aimed at technology suppliers, IDC Chief Research Officer Meredith Whalen noted that 50 percent of tech spending now comes from outside the IT department, so it's important for vendors to interact with line of business operators as well as IT. She said successful technology suppliers don't just need to offer products or services, but also to be innovative, be critical thinkers, provide access to a wide array of technologies and, most importantly, become a trusted advisor to the enterprise.

She said that to date, most of the gains in digital transformation have been about productivity and improvements. But this is changing. In an IDC survey conducted earlier this year, CEOs said they expected digital products and services would grow from an average 26.4 percent of their business in 2020 to 46.5 percent in 2025.

She said that 87 percent of CXOs said that they want their technology providers to provide knowledge and skills transfer so that their enterprises "can innovate on our own." These vendors are acting as trusted advisors to enterprises, who then can incorporate components and/or learning into the enterprise's products and services.

The Empathetic Enterprise

IDC Program Vice President for Customer Experience Alan Webber pushed the idea of the "empathetic enterprise." In 2020, an IDC survey indicated enterprises will spend $1.4 trillion on technology to digitally transform the enterprise. Much of this, he said, is going to improve the customer experience. He said that the single top investment will be in customer experience, followed closely by marketing, with sales not too far behind.

He noted that 73 percent of consumers say a good experience is key to brand loyalty, and that customers tell 9 people (on average) about a positive experience and 16 about a negative experience.

By 2023, he said, 65 percent of consumers will be using voice, images, and AR for interaction with brands and their mobile device; and that by 2025, 60 percent of leading consumer brands and retailers will enhance customer engagements using emotion detection and management to influence purchasing.

"The experience economy is about empathy at scale," Webber said, adding that customer experience is all about engaging the customer, through the lens of technology, that drive business outcomes.

This can involve several different technology lenses, dealing with awareness, engaging, learning, and measuring. But when it all works, it creates customer trust. Eventually, of course, the goal is to tie an improved experience to additional revenue.

Pervasive Integrity

In a discussion on the future of trust, IDC Program Vice President, Security & Trust Frank Dickson pushed for the concept of "pervasive integrity." He showed survey results that indicated CEOs and CXOs both strongly agree that digital trust programs need to be on the agenda, and said trust is crucially important as we move to "the third platform" with edge locations and distributed connected endpoints.

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Dickson said trust was more than just security, but rather incorporated other concepts as well, such as risk, compliance, privacy, and social responsibility and ethics. Things like data breaches impact consumer trust, but how the organizations responded was much more important. "Perception matters," he said.

Moving forward, enterprises should develop a "trust roadmap" that increases security, privacy protections, and transparency, as well as creating a "trust framework" for access, managing, and measuring risk in the system. He went as far as suggesting that companies need a Chief Trust Officer to drive these processes.

Insights at Scale

Companies need to rethink what it means to have enterprise analytics, IDC Group Vice President for Analytics and Information Management Dan Vesset said in his talk. He asked what would happen if our enterprises could double the productivity of knowledge workers, halve the time it takes to respond to customers, or increase the success rate of new product or service launches by 25 percent?

He then suggested several examples of companies doing advanced analytics. He talked about how Ikea uses software from Dynamic Yield to do price optimization, and how McDonald's was so impressed with the concept it bought Dynamic Yield (the company), thus McDonald's is actually now selling software to Ikea. McDonalds also bought a company named Apprente, which does voice-based conversational technology, and is now deploying that in drive-throughs.

He said organizations will increasingly be judged by their capability to learn, their ability to synthesize information, and then to deliver insights at scale. This is often based on using probabilistic techniques in data collection, analysis, and implementation. He said 87 percent of enterprise CXOs say enterprise intelligence is a priority; and that the big goal is to use the decisions driven by this intelligence to improve future performance.

He noted that CXOs are facing new challenges, such as new key performance indications, new external and internal data, new data types, new architecture, and new tools.

I was interested in his "Activity Distribution Map" that talks about the different kind of analytics. Currently, Vesset said 16 percent of data activity was in augmented analytics, basically traditional analytics but getting smarter, and another 16 percent were in intelligent process automation (sometimes called robotic process automation or RPA). Four percent is in what he calls "intelligent apps" which use both techniques combining organized information with a structured process.

That still leaves 64 percent of the activity dealing with ad hoc processes and unorganized data. These "decision environments" require disruptive innovation. Vesset didn't expect that any single product or category would cover everything here, but rather talked about using a variety of products, some old and some new. These include optimization and simulation (old, but could be broader), digital twins (used in product development) decision management (mostly rules-based, now being used with AI), prediction markets (gamification), and swarm intelligence (going back away from centralization).

Rethink Work

Finally, IDC Group VP for APAC Sandra Ng talked about the Future of Work, noting that with millennials increasingly dominating the global workforce, the "multigenerational workforce is a reality." She said we needed a fundamental change to a variety of elements in work, including to work force (which will require a new focus on human/machine collaboration), to work culture (which will require new experiences, enabling workers aligned to new digital skills), and to work space (where we need intelligent ways to work " unbounded by physical space.")

She cited an IDC study in which 62 percent of CIOs said the Future of Work was a priority, and discussed a variety of specific areas where enterprises are rethinking how work gets done.

(For comparison, here's my post on last year's conference.)