Why software matters – from hardware to software

Why software matters – from hardware to software

In the first post I argued that software matters because it is the tool organisations have to encode information and knowledge so it can be effectively used, and that the firms being good at it will gain competitive advantage.

But computers have been around for decades, so what is it that have changed? The simple answer to that question is cost and performance. Thirty years ago, buying a computer was a serious business decision. The effect: computers was used only for the most valuable tasks at hand.

Today, computers are almost for free. Most of us have more computer power in our pockets than the one that was used to control the Apollo missions to the Moon. With the cloud offerings from companies such as Amazon, Microsoft and their likes, data centres have become commodities. Large organisations who have been running their data centres for years strive to understand this, while new companies exploiting it is started every day.

With data centres as commodities, competition, innovation and investment has moved from hardware to software. Competitive advantage is gained by being better than your competition in collecting data and to develop the software that transform your data into information and knowledge, and by doing so become learning organisations.

At the time of writing this is most visible for the Internet based businesses such as Facebook, Netflix and their likes. More traditional companies and industries will face the same race and now is the time where the actors positions themselves for the race.

So, what should firms do? Move your human resources away from tweaking computer hardware to writing high impact software.

Why software matters

Why software matters

I have for some time tried to answer questions like «why is software important for an oil and gas company and why must we take software seriosly?»

The short answer is that software is the mean organisations have to encode their information and knowledge, and to encode it in such way that it can be used, and that the organisations that are good doing this will be more competitive than those who are less good.

If this did not convince you, please read on.

For about 5000 years ago the Sumerians invented cuneiform writing and with the writing a new profession emerged, the scribe. The job of the scribe was to capture facts, insights and the knowledge of the time and write it down so it could be consumed and used by fellow humans.

During the millenniums writing technology changed. Clay tablets was replaced by papyrus and parchment and new encodings (read languages) emerged, but the task of the scribe remained more or less the same until the general level of literacy obsoleted the role in the western part of the world.

With the electronic computer came a change. There was suddenly a need for a new class of scribes. We did not call them scribes but programmers, but in many ways their task was the same. To capture facts, insights and knowledge and encode it into computer programs so it could be used.

The main difference between the Sumerian scribe and the modern scribe i.e. software engineer or programmer is that the primary user of the writings has changed. The modern scribe writes for computers.

The analogy with the scribe positions the programmers, but why should organisations bother about storing knowledge in computer programs, and why is this more important now than it was for say 10 years ago?

The simple answer to the last question is that now computers are everywhere and they are cheap. The effect is that organisational efficiency and accuracy depends on the speed the organisation is able to encode its knowledge.

The fuel of companies such as Facebook and Netflix is the speed they are able to encode their insights in user preferences into new offerings. These companies are at the extreme end, but the same competition has now come to more traditional industries.