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Companies are planning for a big shift toward digital software and services by 2023.
Going soft
Nontech companies are turning to software-based business models for growth. Four misconceptions stand in their way.
So you want to be a software company
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A quick briefing in five—
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Velocity factors
Succeeding in software requires “developer velocity,” a metric for the technology, working practices, and organizational-enablement factors that matter most.
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Four myths about building a software business
Not native
But nontech companies struggle to play the software game.
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Four myths
Watch out for misconceptions that can send companies down the wrong path.
Four myths about building a software business
Article – McKinsey Quarterly
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Developer velocity: How software excellence fuels business performance
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Developer velocity: How software excellence fuels business performance
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0
0
0
0
0
0
0
0
0
0
0
27
38
39
27
46
23
>50%
<25%
25–50%
Share of revenue
Past
12 months
Expected
by 2023
Impact of digital solutions on company’s overall revenues, % of respondents
Note: Figures do not sum to 100%, because of rounding.
All other industries 6
IT hardware 6
IT services 9
Software or internet services 80
Share of $500 billion in global software revenue by primary business of parent company, %
Four myths about building a software business
Article – McKinsey Quarterly
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Selected sectors, %
1
4th quartile
1
3rd quartile
2
2nd quartile
5
Top quartile
5×
Software
4th–2nd quartile
Top
quartile
9
17
-1
1
Financial services
-1
3
Retail (including
consumer
packaged goods)
-1
8
Automotive,
manufacturing,
and resources
Revenue CAGR by Developer Velocity Index quartile, all companies, 2014–18, %
Do software engineers alone make software companies successful? They’re necessary, of course—but they’re not sufficient by themselves. Companies need a digital transformation of their entire business model, too.
Bosses consistently underestimate how their actions affect and will be interpreted
by others.
Companies rightly want top talent. But hiring them can be difficult in top-tier markets, where nontech players often lose out to leading tech firms. Instead, become a top-choice employer in lower-tier markets.
Programmatic M&A is a secret to strategic success—except when you’re building a software business. Building scale in software requires one big purchase followed by a series of smaller deals.
Avoid the temptation to go to market with your existing sales force. Software products
usually require a parallel go-to-market approach—carefully coordinated with your existing sales organization.
Change
Merge
Hire
Sell
Four myths about building a software business
Article – McKinsey Quarterly
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