Published on McKinsey, February 2017, by Chandra Gnanasambandam is a senior partner in McKinsey’s Silicon Valley office, where Martin Harrysson is a partner, Rahul Mangla is an associate partner, and Shivam Srivastava is a consultant.
An executive’s guide to software development
This essential capability is a blind spot for many nontech leaders.
The trends are clear. Over the last 20 years, the number of top-100 product and service companies that are software dependent has doubled to nearly 40 percent. Revenues from digitized products and channels are expected to exceed 40 percent in industries such as insurance, retailing, and logistics.
But the message here is not just that software matters or that it is increasingly found in things where software never existed before. All executives worth their salt already understand this in their daily lives, every time they drive their computer-controlled, high-performance sports sedans or take a fitness-tracking wearable on a run.
The point is that the C-suite has to take a more active role in how software is developed and make investments to build world-class software-development practices in their organizations. A modern company with any intentions toward industry or category leadership must be a great software company at its heart. Leaders of these firms need to have a secure understanding of how software development works and how to create an enabling organization around it.
It’s not too late to get up to speed on software, but time is running short. The arrival of cloud technologies and the fast-cresting Internet of Things wave are two unstoppable forces promoting digital capabilities. Competitors that have already made the digital transformation are busy at work building tough-to-overcome competitive advantages. The next move is up to you.
Companies pay a steep price for dismissing software’s importance:
- Vulnerability to tech-based disruption
- Subpar user experience and churn
- Higher costs and lower margins
- Portfolio management and product economics
- Talent and governance
- Product security and risk management