Here is an excerpt from an article written by Anusha Dhasarathy, Isha Gill, Naufal Khan,, and Steve Van Kuikenfor 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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Counteracting the most devastating tech-transformation failure modes
Some companies are starting to see real impact from their tech transformations. In a recent McKinsey study, some 50 percent of surveyed companies reported moderate to significant impact on realizing new revenue streams, almost 70 percent reported impact on increasing existing revenue streams, and 76 percent reported impact on reducing costs. 1
Tech transformations, nonetheless, remain notoriously difficult and complex. Though many companies are transforming their tech organizations, about 50 percent of them report that they’re still in the pilot phase (small tech teams working with advanced technologies but isolated from the rest of the technology function). 2
To understand better what successful tech transformations look like—as well as what the most important pitfalls are—we spoke with nearly 700 CIOs at some of the largest companies across the world. These conversations illuminated a number of consistent factors that most consistently kill off even the most promising tech transformations and revealed antidotes to address them. Following are three of the most common failure modes.
Piecemeal activity and limited scope
There is no shortage of technology-transformation initiatives, all of them with good intentions and promising payoffs. In fact, our latest analysis shows that companies are expanding the range of tech-related transformations (See Exhibit 1).
But too often companies focus on a series of initiatives without accounting for crucial dependencies that need to be in place to enable the change. Simply migrating systems to the cloud without also thoughtfully implementing cyber strategy, agile, and DevOps, for example, would leave a company unable to take advantage of the automation, scale, and flexibility that cloud-based systems offer. The other side of the coin is that activities in one area can have unintended consequences in another, often breaking or disabling tangential systems. Modernizing the architecture, for example, changes how development teams deploy to it; using old methods results in errors and delays. Successful CIOs, in contrast, are explicit in identifying system dependencies and deliberate in managing them so that the full scope of potential benefits can be captured.
No link to business value
New technologies continually hit the market, many with tempting promises to solve many of tech’s ills. Unfortunately, many of these “shiny objects” in which technology functions invest have limited value to the business due to limited partnering between technology and the business, the inability of technology to communicate the value of tech to the business, and an often unclear sense of the business value at stake.
Top organizations instead are deliberate in developing a governance program tied to the business, grounding each initiative in an explicit P&L result and building in specific metrics to track progress against business targets. This becomes even more critical in a post-COVID-19 world in which budgets are tightening and return on investment (ROI) is essential.
Too expensive to sustain
Tech transformations are expensive. When their ROI lies too far in the future (or is disappointing, as has happened in the past), critical investment is too often pulled back. That doesn’t need to happen.
Successful transformations, in contrast, frontload activities that unlock value quickly. Those activities can include agile sourcing strategies, clean-sheeting the portfolio, or optimizing the balance of engineering and non-engineering roles—changes that often unlock millions of dollars.
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The current COVID-19 crisis, of course, is having a significant impact on how CIOs and businesses manage tech transformations. Despite the pressures it has added to costs, however, the urgency to get moving and transform has never been higher, according to many CIOs. But while the demands placed on the technology function have grown, so too have the opportunities. Experience suggests that the most effective transformations are not only comprehensive, covering the function’s role, delivery model, and core systems, but also sequenced to ensure that changes that reinforce each other are carried out together. With up-front planning focused on business value and careful delivery, a company can bring its technology function forward and gain the capabilities to thrive in challenging digital markets.
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