According to McKinsey, anyone who thinks their company is not a software company is wrong
“Every company is a software company.”
A shift to this mindset in 2023 would benefit any company in any industry, even if it’s more than 100 years old, according to McKinsey. To remain competitive and thrive in a digital world, traditional companies are realizing they need to look, think and act like a software company.
I sat down with Jeremy Schneider, a senior partner at McKinsey in the New York office and co-author of a report on the subject. “Software is becoming an essential element in an enormous proportion of most companies,” says Schneider. “Nearly 70% of top-performing companies use software as a core strategy to differentiate themselves from the competition. And a third of the top-performing companies actually sell software.”
He continues, “When you think of companies that have really come down this road and been successful, either all of the company, or at least part of the company, really feels, operates, and has a culture like a software company.”
The team analyzed more than 20 software transformations and interviewed a dozen senior executives who have led successful software transformations, he says. The results: Becoming a software company requires fundamental changes with different skills, practices, leadership and organizational structures.
“The way people interact with software is changing,” Sudhir Nair, global head of BlackRock’s Aladdin business, told McKinsey. (Aladdin is a portfolio management software system.) “Today at BlackRock and at our Aladdin client [companies]a significant portion of the organization self-identifies as technologists, and a large portion of these people are not in the part of the company that is officially recognized as a tech organization.”
cultural transformation
According to McKinsey, cloud computing, platform-as-a-service and AI-based programming support are “giving billions of workers unprecedented power”. And it certainly helps drive remote work forward. But some companies still don’t understand the business culture change part.
“I often go and talk to companies and they say, ‘I want to build deeper software skills. This is not a problem. I’ll just hire a few more software engineers,’” explains Schneider. “But the reality is that this is only a tiny part of what is required. It’s truly a culture shift that allows you to attract and retain the right talent. And it allows you to thrive on that talent by empowering them and changing the organization’s mindset to value their work.”
In fact, CFOs play a big role in this process, says Schneider. “There are five CFO practices related to building deeper software skills or acting like a software company,” he told me.
1) Have the right attitude towards investments. “The reality is that building comprehensive software capabilities or products requires sustained investments,” says Schneider. “In many cases, it can take three to sometimes five years before you see the amazing returns that people are excited about in software.”
2) “It’s important for the CFO to understand software M&A,” he says. Especially since it’s “still quite expensive compared to other M&A categories.”
3) Reallocation of resources is an important part of all CFO jobs, but some of that reallocation is even greater in software than in most other companies, says Schneider.
4) There are a number of areas of portfolio management that often fall on the CFO’s plate. “However, running a software portfolio requires understanding the right form and contour of investment at different stages of the lifecycle,” he says.
5) When monetizing software directly, it’s important to understand how to implement the right metrics internally and externally, such as: B. Yearly recurring revenue, he says.
“We’re seeing more and more companies from all industries coming to us and saying, ‘I don’t want to learn from my peers. I want to learn from the best software companies because I invest hundreds of millions of dollars in software development,” says Schneider.
Software companies also know how to prioritize the customer, he says. “When you think about how large software companies build a product, the focus on the customer is ingrained in it,” says Schneider.
Mckinsey’s report also states, “In our experience, one-third to one-half of an executive team should be deep software experts.” I asked Schneider if that meant CFOs need to be more tech-savvy.
“If you think of the CFO lens in a software transformation, it really goes from thinking of technology as a cost center with a group of projects to thinking of it as a collection of products that create value,” he explains. “Whether that value is direct sales or sales promotion. This mindset shift is pretty important. In many cases, this meant enlisting new financial leadership to change mindsets. Or some CFOs themselves can make the switch.”
For some CFOs, improving tech literacy should be high on their list of New Year’s resolutions.
Have a good weekend.
Sheryl Estrada
[email protected]
Big thing
A new study by Accenture (NYSE: ACN) found that 76% of semiconductor executives expect the industry’s supply chain challenges to ease by 2024. However, executives cited challenges that could hamper their ability to innovate, even as the ongoing impact of COVID-19 on the supply chain lift. Other challenges identified include geopolitics (48%), cybersecurity threats (42%), the changing competitive landscape (39%) and skills shortages (35%). The results are based on a worldwide survey of 300 senior semiconductor managers.
go deeper
Here are a few reading samples from the weekend:
Slack’s CEO says “relatively generous” severance packages give him “some solace” after Salesforce announced a 10% cut in a 3am message from Kylie Robison
Apple is cutting back on orders for key products amid flagging demand — which is why Will Daniel analysts are still bullish on the company
No more free coffee and no more layoff warnings as Goldman Sachs workers get a rude awakening from Chloe Berger
6 foods and drinks to choose in the New Year to boost mood, energy and longevity by Alexa Mikhail
leaderboard
Here’s a list of some notable moves this week:
Jennifer Williams has been appointed CFO, effective immediately, at R1 RCM Inc. (Nasdaq: RCM), a revenue cycle management partner for hospitals and healthcare systems. Williams succeeds Rachel Wilson, who will remain with the company in an advisory capacity during a transition period. Williams was previously CFO of Cloudmed and brings more than 20 years of experience at multiple companies including Change Healthcare, First Advantage, LexisNexis Risk Solutions and Ernst & Young.
Tom Boyle, CFO, has been appointed to also serve as chief investment officer at Public Storage (NYSE: PSA), an owner, acquirer, developer and operator of self-storage properties, effective January 1. Boyle’s additional role as chief investment officer will include development, redevelopment, acquisitions, asset management and third-party management. He joined Public Storage in 2016, where he served as CFO of Operations until becoming the company’s CFO in 2019. Before joining Public Storage, Boyle held positions of increasing responsibility at Morgan Stanley since 2005, from analyst to his most recent role as executive director of equity and debt markets.
Zahir Ibrahim has been appointed CFO of BARK, Inc. (NYSE: BARK), an e-commerce and content company for dog lovers, effective immediately. Most recently, Ibrahim served as CFO and Chief Administrative Officer at startup Do Good Foods LLC. Prior to that, he was CFO of KIND LLC, a healthy snack company. Ibrahim also previously served as CFO at Annie’s Inc., a natural and organic food company. He also held several positions at Molson Coors Brewing Company, most recently as VP, Controller and Chief Accounting Officer. Earlier in his career, Ibrahim held senior finance positions at CML Innovative Technologies, Elementis Specialties and Pirelli Tyres.
Paul K. Ito has been promoted to EVP and CFO of Hawaiian Electric Industries, Inc. (HEI) (NYSE: HE), the parent company of Hawaiian Electric Company, Inc. and American Savings Bank, FSB, effective January 1. Ito served as interim member of HEI CFO since July 2022. He was selected after a national search. Ito has been with HEI since 2018, where he served as VP of Tax, Controller and Treasurer. He also led HEI’s IT efforts and led digital transformation initiatives in accounting, tax and financial reporting.
Renee Lentini has been appointed interim CFO at ImmunoGen, Inc. (Nasdaq: IMGN) as Susan Altschuller, current SVP and CFO, who is on leave under the Family and Medical Leave Act, will not continue her employment after her leave of absence. Lentini was most recently VP of Finance and Chief Accounting Officer. Since joining ImmunoGen in 2004, Lentini has held positions of increasing responsibility in the company’s finance organization, including oversight of global accounting, tax and treasury. ImmunoGen is seeking Altschuller’s permanent replacement.
overheard
“Vulnerability is very important, and it is very important to be accountable as a leader. The more my team knows about me and the more they feel like I share that with them, the closer they feel to the company and the more they feel they understand what we’re trying to do.”
– Saks CEO Marc Metrick, who oversees the digital component of the luxury brand, a separate entity from Saks Fifth Avenue stores, spoke to him wealth on leadership and how wealthy consumers seem unperturbed by market turbulence.
