Seven lessons on how technology transformations can deliver value

August 13, 2021

Here is an excerpt from an article for the McKinsey Quarterly, published by McKinsey & Company. IT shares the results of an especially important IT strategy survey. 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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Our annual IT strategy survey shows how technology investments are proving their worth, especially at companies making more tech-based changes and bridging more of the technology-business divide.
In the past year, the COVID-19 crisis has made clear the business imperative of making technology-driven changes, which are more ubiquitous now than ever. Indeed, our latest McKinsey Global Survey on technology and the business suggests that even in the crisis’s earlier days, 1 respondents were reporting progress on their integration of technology and business—and that these efforts were creating tangible business value across four measures, including new revenue streams and lower costs. The results also suggest that, on average, some transformation activities result in more impact than others (namely, those related to talent and capabilities). And according to the data, the companies with top-performing IT organizations 2 have differentiated themselves from others in their efforts to create value, adopt new technologies, and bring technology and business closer together.More specifically, the results point to seven key lessons about technology transformations.  [Here are the first two.]

Lesson #1: Technology investments are creating significant business value

In the latest survey, companies’ tech-transformation activities appear to be paying off. The survey asked about ten different types of transformation initiatives (for more information on the ten plays in our “tech forward” approach, see sidebar, “A tech-forward transformation”). 4 According to respondents, more than three-quarters of the initiatives their companies pursued have yielded some or significant cost reductions and improvements to employee experience. What’s more, more than two-thirds of respondents say these change efforts increased revenue from existing streams, and more than half cite the creation of new revenue streams: for example, a new product line or new business (See Exhibit 1).

The results also suggest that these investments aren’t one-off attempts to catch up, with nearly all respondents reporting plans to pursue at least one transformation play in the next one to two years.

Lesson #2: People-focused plays result in the most value

With regard to impact, the results suggest that not all types of transformations are created equal. Across the ten transformation initiatives, respondents say that changes to their companies’ people and talent strategies are among the highest-value moves to make (Exhibit 2). At companies that have transformed their approaches to technology talent—that is, changing practices to attract, retain, and upskill talent with digital and engineering skills—respondents report the greatest impact on all four measures of business impact. (See Exhibit 2)

Meanwhile, those that pursued changes to their sourcing strategies report a significant impact on three of the four measures: realizing new revenue streams, reducing costs, and improving employee experience. And according to the results, scaling up data analytics is a critical enabler of new revenue and increases to existing revenue streams. By the same token, respondents whose companies saw no or negative value across these measures say they were least likely to pursue talent transformations or the scaling of their data and analytics capabilities.

Yet even though the people-focused initiatives link most closely with value creation, they are the least likely ones that companies plan to pursue in the future (Exhibit 3). Instead, the largest shares of respondents predict their companies will pursue digitization of the end-user experience, scaling of data and analytics, and enhancements of IT architecture. That is a notable shift from our past three annual surveys, when infrastructure transformations were the most-cited play that companies pursued. Now, respondents are half as likely to say their companies will modernize infrastructure in the next one to two years.

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Finally, the top performers are much more focused than others on measurement, even for metrics that aren’t technology-specific. According to respondents, top-quartile companies are more likely to track their technology organizations’ performance as well as team performance across the company, using more business-oriented metrics such as user satisfaction, time to market, and financial impact.

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Here is a direct link to the complete article.

The contributors to the development and analysis of this survey include the following members from McKinsey’s Chicago office: Anusha Dhasarathy, a partner; Ross Frazier, an associate partner; Naufal Khan, a senior partner; and Kristen Steagall, a consultant.

 

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