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Five key questions to get a tech transformation right

Jul 13, 2023 | Public | 0 comments

Why do some technology transformations succeed while others fail? This is a perennial question that has frustrated IT departments for years, presenting both a clear-cut opportunity for growth and the risk of falling further behind. Our latest McKinsey Global Survey of technology and business leaders set out to better understand the keys to transformation success. We identified respondents working for the most financially successful organizations (whom we refer to as “top performers”), whose results suggest that they reap greater benefits than others from their tech transformations.

According to the survey, these top performers pursue transformations differently from their peers in a few critical ways: they are more likely than others to anchor their technology and digital strategies in their overall business strategies, they report greater effectiveness at building environments that foster organizational change, they are more likely to invest in foundational technologies, and they are better at retaining their tech talent. What’s more, the top performers are more likely than others to combine their initiatives—a set of eight “plays” that comprise our Tech:Forward approach to technology transformations—in ways that maximize business value.

All told, we see their methods as a foundation for successful tech transformations—and the source of five critical questions that every organization should ask itself in order to increase its chances of achieving similar success.

Top financial performers are more likely than others to anchor their tech transformations in strategic business priorities, to build environments that foster change, to invest in foundational technologies, and to retain tech talent.

1. What value is IT delivering?

Most respondents with experience in tech transformations continue to report meaningful benefits from their efforts, as we have seen in previous years. For example, at least 60 percent of all respondents credit their transformations with improving performance on a range of metrics.

Yet the top performers seem to have positioned themselves even better than others in terms of maximizing a transformation’s impact, especially to spur business growth (Exhibit 1). These respondents report a stronger financial return from their investment in tech transformations (87 percent of top performers say they have seen a positive impact on generating new revenue streams, compared with 58 percent of everyone else), as well as greater impact on all other metrics we tested.

Top financial performers report outsize impact from their tech transformations, especially to drive business growth.

How did they do it? One reason for their success appears to be that top performers tend to anchor their technology and digital strategy in their overall business strategy. In our survey, respondents from these companies are 14 percent more likely than others to say they develop their business and technology and digital strategies in tandem, which can enhance the business value they reap from tech transformations.

One financial-services firm, Allianz, has taken a business-led approach in its recent tech transformation. Chief technology and transformation officer for Austria, Germany, and Switzerland Axel Schell says the company has shifted its mindset during this transformation: from putting the technology first to cracking business problems with technology. This means not only optimizing purely technical KPIs (such as the number of app features and releases) but also favoring specific business KPIs (such as customer interactions and purchases in the app).

In the recent modernization of its IT organization, B2B and consumer player Rich Products Corporation has made digital technology a critical part of creating value for the company’s customers and enabling its long-term growth and productivity. According to executive vice president and global chief information officer Yexi Liu, the company deployed new digital systems and tools at scale, so technology touches every corner of the company: from the sales and culinary teams, which now have access to data and analytics that help them deliver solutions to customers in real time, to supply chain teams, which enjoy greater transparency and access to information at a speed the company has never experienced before.

2. How holistic is your approach to transformation?

In general, the top performers appear to be taking a more comprehensive and strategic approach to their tech transformations than others. Relative to their peers, they have pursued a higher number of tech initiatives (an average of 3.5 initiatives, out of 8.0 we asked about, compared with 2.7) in their transformations of the past two years. But their distinctiveness is about more than just the number of initiatives in play.
In line with our other research, the survey results confirm that deploying certain plays in combination with others can unleash even greater impact than if they were deployed in isolation, as many of these plays have effects on one another.

Exploring the combinations that most top performers have pursued offers insights into the relationships between the initiatives that have underpinned their success and that other companies can also follow (Exhibit 2). For example, at least 50 percent of top performers who say their companies reshaped their business strategy to be more technology based say they also redesigned their tech organization and operating model, scaled their data-related capabilities, and transformed talent management and sourcing.

Top performers report strong interdependencies between several of their tech transformations’ initiatives.

Fittingly, Rich Products has taken a holistic approach to its recent technology transformation. Liu says the company is implementing multiple company-wide initiatives that focus on future proofing its technology foundation and enabling future scaling and growth—for example, shifting to a global software as a service (SaaS) enterprise resource planning solution and embedding new customer relationship management, supply chain, and procurement platforms in more than 60 countries. At the same time, Rich Products is also changing how its technology function operates, from a decentralized and regionally managed approach to a global model with teams organized around enterprise products and platforms.

At Allianz, Schell says the company is taking a similarly comprehensive route. Allianz is approaching the modernization of its IT function holistically, setting minimum standards on architecture across applications and infrastructure platforms, data, and cybersecurity. The company is also adjusting governance processes in its operating model to enforce this in daily work and investing in engineering capabilities to foster good technology craftmanship over time. These shifts, along with ongoing efforts to scale cloud solutions, are enabling Allianz to move more quickly and autonomously when following standards but also making it deliberately more difficult in the case of exceptions.

3. What is holding you back from developing and deploying new technology at the rate and quality of top performers?

The survey suggests that top performers are also more likely than others to have invested in modernizing and securing their IT foundation—that is, their infrastructure, data, and cybersecurity—so they can deploy technology rapidly and effectively (Exhibit 3). They are three times more likely than others to report building next-generation data platforms and enabling AI applications throughout their organizations. They are also more likely to say they are strengthening their cybersecurity defenses and modernizing their infrastructure, through initiatives such as automation and cloud migration and management.

Top performers are more likely than others to report making investments in modernizing and securing their IT foundations.

Top performers are also less likely than others to say their existing technology foundation is an impediment to their tech aspirations. Twenty-two percent of them cite the slow speed of their legacy platforms as a top three challenge during their transformations, compared with 38 percent of their peers. What’s more, the top-performing organizations are more effective overall at managing their data architecture and infrastructure.

In our experience, there are multiple reasons that could prevent companies from leveraging their tech foundations to the fullest. One is a lack of investment, as technology organizations often meet ad hoc demand from multiple stakeholders on the business side and aren’t always able to focus enough time or resources on making foundational improvements, which are difficult and often time-consuming to execute. Second is that products are often built in silos without communication or alignment between technology and business stakeholders. Third, it can be hard to get buy-in for modernizing legacy technology without a strong business case or strategic alignment on the need for these changes.

4. How can you make the most of the talent you already have?

Finding and retaining tech talent is a perennial challenge and tops the agenda for nearly every technology and business leader. But the competition for tech talent will only intensify as organizations seek to attract and retain an increasingly mobile, ambitious, and purpose-driven workforce.

Yet, even when it comes to broad corporate concerns such as talent, the top performers are significantly ahead of their peers. According to the survey, top performers are more likely than others to say they were effective at retaining top talent, recruiting new talent, training existing talent, and having a healthy IT work culture (Exhibit 4).

Almost half of all respondents rank tech talent and reskilling as a challenge during tech transformations, but top performers report stronger capabilities.

At Allianz, Schell says people are the most important factor for their transformation activities’ success. The company fosters global collaboration through teams that are staffed with colleagues in different continents and across communities of practices, where engineers regularly exchange their ideas. The combination of individual strengths and diversified expertise is a powerful asset and enables these teams to perform in an even more customer-centric way. In its transformation, Allianz has also increased internal awareness of what individuals, teams, and the entire organization are capable of—and communicated that self-awareness externally as part of its employer brand.

5. Does your operating model reflect the changes you are making to your technology foundation?

While transforming the IT organization and operating model is a critical way for companies to get the most out of their technology, that change alone will not necessarily lead to better performance. In fact, the proportion of respondents who say they have a mature operating model is nearly the same among top performers as it is among everyone else. What sets the top performers apart is that they are twice as likely as their peers to rely on operating models that are product- and platform-centric.

Our experience suggests that these types of operating models, which focus on the end-user experience, present tremendous business benefits. To name a few, product- and platform-centric operating models can help streamline product development, reduce time to market, help cut costs, promote accountability within the organization, and ensure that the company is creating the highest-quality products.

At Rich Products, Liu says the company has continued to emphasize that the transformation is not only an implementation of new systems but also a fundamental transformation of its work, workforce, and workplace—all enabled by technology that is simple, standard, and global. Indeed, the company has organized work around product- and platform-based teams, which has enabled it to benefit from business and technology partnerships across the organization while also maintaining the agility to account for local nuances.

In its tech transformation, Allianz also made meaningful operating-model changes to get the most out of its foundational improvements. According to Schell, agile tribes are assuming more end-to-end ownership of their products, including innovation and operations. Agile teams are staffed with experts from the business and technology sides of the organization, and on the best teams there is no distinction between people who came from the business and who came from IT. This setup enables more autonomous decision making at the team level rather than by steering committees that don’t fully understand a decision or have to deal with its consequences.

Allianz’s agile journey also involves reducing complexity: that is, moving from large, long-term programs and monolithic platforms to a minimum viable product approach and microsystems. One recent example of where the transformation’s efforts are already paying off: the migration of the Allianz Business System from the mainframe to Linux, where the business case is clearly positive.

The post "Five key questions to get a tech transformation right" appeared first on McKinsey Insights

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