The perils of ignoring software development

Published on McKinsey, February 2015, by Peter Andén is an associate principal in McKinsey’s Stockholm office, Chandra Gnanasambandam is a principal in the Silicon Valley office, and Tobias Strålin is a principal in the Seattle office. The authors wish to thank Karim Doulaki, Simone Ferraresi, and Shannon Johnston for their contributions to this article.

Software is a key to market differentiation and value creation for an increasing number of products and services.

As digital technologies relentlessly reshape competition, products and services increasingly depend on software for differentiation and performance. Software is behind smartphones and other interfaces that guide consumer interactions; algorithms orchestrate productivity-boosting process automation; wearable devices loaded with software monitor the health and performance of athletes and patients alike. Despite the mission-critical nature of software, it gets surprisingly little attention in the C-suite. Most often, it is relegated to functional managers, several levels down the organization, who manage teams of programmers.

New research suggests, however, that companies pay a price when they undervalue the strategic importance of producing excellent software. We examined three core measures of software-development performance at 1,300 companies of varying sizes and across all regions of the world.1

We found not only stunning differences between the highest- and lowest-performing organizations but also sizable differences between the top and average performers (exhibit). Top-quartile companies developed software upward of three times more productively than companies in the bottom quartile. They had 80 percent fewer residual design defects in their software output. Our research also shows that the companies benefited from a 70 percent shorter time to market for new software products and features. This performance gap means that top companies can speed up the flow of new products and applications at much lower cost and with markedly fewer glitches than other companies can...

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