Tech at the edge: Trends reshaping the future of IT and business

October 31, 2022

Here is an excerpt from an article written by  Steve Van Kuiken for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out others, learn more about the firm, and sign up for email alerts, please click here.

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With technological change accelerating, companies need to make four fundamental shifts.
It is easy to become numb to the onslaught of new technologies hitting the market, each with its own promise of changing (more often “revolutionizing”) the business world. But our analysis of some of the more meaningful tech trends lays out a convincing case that something significant is happening. These tech trends are generally accelerating the primary characteristics that have defined the digital era: granularity, speed, and scale. But it’s the magnitude of these changes—in computing power, bandwidth, and analytical sophistication—that is opening the door to new innovations, businesses, and business models.The emergence of cloud and 5G, for example, exponentially increases compute power and network speeds that can enable greater innovation. Developments in the metaverse of augmented and virtual reality open the doors to virtual R&D via digital twins, for example, and immersive learning. Advances in AI, machine learning, and software 2.0 (machine-written code) bring a range of new services and products, from autonomous vehicles to connected homes, well within reach.Much ink has been spilled on identifying tech trends, but less attention has been paid to the implications of those changes. To help understand how management will need to adapt in the face of these technology trends in the next three to five years, we spoke to business leaders and leading thinkers on the topic. We weren’t looking for prognostications; we wanted to explore realistic scenarios, their implications, and what senior executives might do to get ready.The discussions pinpointed some broad, interrelated shifts, such as how technology’s radically increasing power is exerting a centrifugal force on the organization, pushing innovation to expert networks at the edges of the company; how the pace and proliferation of these innovations calls for radical new approaches to continuous learning built around skills deployed at points of need; how these democratizing forces mean that IT can no longer act as a centralized controller of technology deployment and operations but instead needs to become a master enabler and influencer; and how these new technologies are creating more data about, and touchpoints with, customers, which is reshaping the boundaries of trust and requiring a much broader understanding of a company’s security responsibilities.

[Here’s the first approach he recommends.]

1. Innovation at the edge

Key tech trends

We estimate that 70 percent of companies will employ hybrid or multicloud management technologies, tools, and processes. At the same time, 5G will deliver network speeds that are about ten times faster than current speeds on 4G LTE networks,with expectations of speeds that are up to 100 times faster with 40 times faster latency. By 2024, more than 50 percent of user touches will be augmented by AI-driven speech, written word, or computer-vision algorithms, while global data creation is projected to grow to more than 180 zettabytes by 2025, up from 64.2 zettabytes in 2020. The low-code development platform market‘s compound annual growth rate (CAGR) is projected at about 30 percent through 2030.

Shift: Innovation develops around personal networks of experts at the porous edge of the organization and is supported by capabilities that scale the benefits across the business.

These technologies promise access to virtually unlimited compute power and massive data sets, as well as a huge leap in bandwidth at low cost, making it cheaper and easier to test, launch, and scale innovations quickly. The resulting acceleration in innovation will mean that companies can expect more disruptions from more sources. Centralized strategic and innovation functions cannot hope to keep pace on their own. Companies will need to be much more involved in networks outside their organizations to spot, invest in, and even acquire promising opportunities.

Corporate venture-capital (VC) funds with centralized teams have looked to find and fund innovation, but their track record has been spotty, often because the teams lack the requisite skills and are simply too far removed from the constantly evolving needs of individual business units. Instead, companies will need to figure out how to tap their front lines, particularly business domain experts and technologists, to enable them to act, in effect, as the business’s VC arm. That’s because the people who are writing code and building solutions are often well plugged into strong external networks in their fields and have the expertise to evaluate new developments. One pharma company, for example, taps its own expert researchers in various fields, such as gene expression, who know well the people outside the company who are leaders in the field.

While companies will need to create incentives and opportunities for engineers to build up and engage with their networks, the key focus must be on empowering teams so they can spend their allocated budget as they see fit—for example, experimenting and failing without penalty (within boundaries) and deciding on technologies to meet their goals (within prescribed guidelines).

The IT organization of the future can play an important role in building up a scaling capability to make that innovation work for the business, something that has traditionally been a challenge. Individual developers or small teams working fast don’t tend to naturally think about how to scale an application. That issue is likely to be exacerbated as nontechnical users working in pockets across organizations use low-code/no-code (LC/NC) applications to design and build programs with point-and-click or pull-down-menu interfaces.

One pharma company has taken this idea to heart by giving local business units the flexibility to run with a nonstandard idea when it has proven to be better than what the company is already doing. In return for that flexibility, the business unit must commit to helping the rest of the organization use the new idea, and IT builds it into the company’s standards.

In considering how this scaling capability might work, companies could, for example, assign advanced developers to “productize” applications by refactoring code so they can scale. IT leadership can provide tools and platforms, reusable-code libraries that are easily accessible, and flexible, standards-based architecture so that innovations can be scaled across the business more easily.

Questions for leadership

  • What incentives will best encourage engineers and domain experts to develop, maintain, and tap into their networks?
  • What processes are in place for tracking and managing VC activity at the edge?
  • What capabilities do you need to identify innovation opportunities and “industrialize” the best ones so they can be shared across the organization?

For more on how to empower workers at the edge, see “Tech companies innovate at the edge. Legacy companies can too,” in Harvard Business Review.

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It is inevitable that the pace of technological change will continue to accelerate. The successful technology leader of the future will not simply need to adopt new technologies but to build capabilities to absorb continuous change and make it a source of competitive advantage.

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Here is a direct link to the complete article.

Steve Van Kuiken is a senior partner in McKinsey’s New Jersey office.

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