The dawn of a new day

The software and platforms (S&P) industry is defined by rapid innovation and hypergrowth. From reinventing the way we shop, work, travel, and socialize to creating an entirely new advertising ecosystem. In the quest for hypergrowth, software and platform companies face a growing number of blockers that impact performance.

In this blog, we will explore the importance of operational efficiency in driving the next wave of profitable growth in the tech space. By prioritizing operational efficiency and embracing continuous reinvention, leaders can overcome challenges, grow their moat, and win in new spaces, while staying relevant in an ever-changing market.

Key barriers for industry leaders

The Software and Platforms industry has a projected compound annual growth rate (CAGR) of 11% from 2023-26. This rate of growth is slower than the two previous three-year periods, which were 15% (2020-23) and 21% (2017-20).1 To retain market dominance and ignite a new era of hypergrowth, these innovators will need to balance growth with evaluating and quickly addressing operational inefficiency.

We see inefficiency manifest in five key areas:

Organizational silos can significantly inhibit agility within a company. When different departments or teams operate in isolation, communication and collaboration become challenging. Silos create barriers that impede the flow of information, ideas, and resources across the organization. This lack of cross-functional collaboration hampers agility by slowing down decision-making processes, hindering innovation, and limiting the ability to respond quickly to market changes. Silos also lead to duplication of efforts, as teams work independently without leveraging the collective knowledge and expertise of the entire organization. To foster agility, it is crucial for companies to break down these silos and promote a culture of collaboration, transparency, and shared goals.

Complex processes within a company can divert attention away from core product development and innovation. When processes become convoluted and cumbersome, employees spend a significant amount of time navigating through bureaucratic hurdles instead of focusing on their primary responsibilities. This diversion of attention hampers the ability to allocate resources effectively, slows down decision-making, and stifles creativity. Complex processes often involve excessive documentation, multiple layers of approval, and rigid workflows, which can lead to delays and inefficiencies. To foster innovation and prioritize core product development, companies need to streamline their processes, eliminate unnecessary steps, and empower employees to make decisions autonomously. By simplifying processes, organizations can free up valuable time and resources, allowing teams to concentrate on driving innovation and delivering exceptional products to the market.

Tech debt, which refers to the accumulated cost of shortcuts, compromises, and outdated technologies in software development, can manifest significant inefficiencies within a company. As software and platforms evolve, new features and functionalities are added, often built on top of existing codebases. Over time, this can lead to a complex and tangled web of code, making it difficult to maintain, update, and scale the software. Tech debt slows down development cycles, as developers spend more time fixing bugs, resolving conflicts, and navigating through the intricacies of the codebase. It also increases the risk of system failures, security vulnerabilities, and performance issues. Moreover, tech debt can hinder innovation, as resources are allocated to managing and maintaining existing systems rather than exploring new ideas and technologies. To address tech debt and mitigate its impact on efficiency, companies need to prioritize regular code refactoring, invest in modernizing their technology stack, and establish a culture of continuous improvement and technical excellence.

As the war for consumer attention and share-of-wallet intensifies, the industry has an opportunity to explore the rapid convergence of categories among big tech and media companies as they fight to stay relevant and essential in consumers’ lives. Companies are building, buying, pivoting and partnering into lifestyle offerings as a strategy to win and retain customers. Entertainment providers and platforms adding utility-type services and offerings into convenient packages – to offer more value. 

Innovation atrophy, which refers to a stagnation or decline in the pace of innovation within a company, can enable new entrants to win in key battlegrounds. When a company fails to continuously innovate and adapt to changing market dynamics, it becomes vulnerable to disruption by agile and innovative competitors. New entrants, unburdened by legacy systems and processes, can leverage emerging technologies, novel business models, and customer-centric approaches to gain a competitive edge. They can identify and address unmet customer needs, introduce disruptive products or services, and capture market share from incumbents. In contrast, companies experiencing innovation atrophy may struggle to keep up with evolving customer expectations, fail to introduce compelling new offerings, and lose relevance in the market. To prevent innovation atrophy and maintain a competitive advantage, companies must foster a culture of innovation, invest in research and development, encourage experimentation, and continuously seek opportunities for disruptive innovation. 

Market leaders are using the current inflection point to address these issues head on. Some are creating dedicated teams to target and remove complexity. Others are selectively using partners to rapidly clean up technical debt. Those on the leading edge are using this pivotal moment to completely reimagine their operating model and the key capabilities, such as Generative AI, that they must build to remain leaders.

Harnessing the power of Gen AI

Generative AI is a game-changer for S&P companies, potentially remaking the future landscape. Goldman Sachs projects that global investments in Gen AI will reach $200 billion by 2025, giving tech companies a unique opportunity to leverage this technology to both underpin internal reinvention while elevating user experience. Recent Accenture research found that 96% of tech executives are inspired by the new capabilities offered by generative AI. We are seeing market leaders leverage generative AI to reimagine processes, drive cost out of operations, and provide faster, relevant support to end users. 

Software and platform companies are bringing the power of AI to their clients, as both learners and leaders, navigating how to leverage this transformative technology within their organizations at the same time. From the adopter role, they’ll put generative AI to work in their own organizations, putting themselves under a microscope for their every move. As the innovators, software and platforms companies build and bring to market the models their customers need for their Gen AI journey.

The Path to profitability and growth

The winners of the next chapter of tech growth will prioritize and focus on four pillars:

1. Seek and Scale New Growth: With competition for new revenue reaching peak intensity, S&P players need to proactively target new growth opportunities. This requires incenting ongoing innovation, rewarding agility, and the ability to quickly evolve products based on market demands. This must be underpinned by active market sensing. Generative AI will play a key role in enabling organizations of the future to be purpose built for future growth. 
   
   
2. Create and Deliver Winning User Experiences: User expectations are evolving more rapidly than ever, and companies must anticipate, create, and deliver high-quality, relevant, and trusted experiences at scale. Our most recent consumer pulse survey revealed 74% of consumers cancelled at least one subscription service in the past year. Immersive technologies, such as extended reality, offer exciting opportunities for engagement and monetization. 
   
   
3. Power Your People: In the face of workforce rebalancing and rapid technological advancements, companies must prioritize employee experience and engagement. Creating innovative, growth-led cultures fosters career development and attracts top talent. Accenture modeling shows that 44% of working hours in the US are in scope for automation or augmentation. Companies such as Pinterest have successfully built a culture of experimentation, using data to continuously improve the employee experience and drive growth. 
   
   
4. Unlock Value: Driving operating income goes beyond new revenue growth. Leaders must focus on unlocking value from within the organization. This involves identifying hidden areas where investment or partnerships can benefit the business. 

The software and platforms industry is facing an inflection point ahead of the next wave of growth. At most companies, including leaders, material barriers exist to being well positioned to capture outsized growth going forward. Now is the time to address operational efficiency with generative AI, address tech and organizational debt, and invest in the capabilities required for growth going forward.