CEOs who see software as an enabler put their company at risk

My father worked his entire life for Philips’ TV business, initially as an electrical designer and later, in the seventies and eighties, as a project lead. In this period, challenges were borne out of physical constraints and manufacturability. The perception of a product’s value was highly related to the cost price of the product and the organization selling it. Software was seen as an enabler for the hardware – merely a configuration and not an essential part of the value proposition. My father never had much appreciation for software until he saw a 3D ultrasound picture of the growing baby in the belly of the wife of his grandson. He realized that the hardware was quite comparable to the normal 2D ultrasound, but the huge difference in perceived value came from the software.

Today, in the era of digitalization, we no longer perceive software as an enabler. We’re aware that the majority of customer value is created in software and that hardware has become the enabler. The related cost and revenue structure is changing as well, including recurrent revenues and cloud costs, R&D costs spread over the product lifecycle and the evolving nature of sales – the right to use rather than the right to own.