By Oliver Bittner, Partner, Bain & Company Middle East and Daan van Ginneken, Partner, Bain & Company Amsterdam
When technology spending and operations are discussed in executive suites, we often hear a mixture of frustration and concern. Senior executives are frustrated that, while ramping up investments in technology and talent, they’re not getting the payback they expected in value, speed, and cost-effectiveness.
And even though their organizations have been climbing the experience curve on digital capabilities, cloud computing, modularity, and automation, they now see a new wave of tech coming their way bringing web3, the metaverse, and artificial intelligence (AI). Most are currently focused closely on cost, intent on reducing operational spending and ensuring that any new investments are realized successfully.
If technology generates value, then what is it that has to change? As companies adapt their operating model to enhance the value from their technology investments, they need to focus on technology that helps the business grow, as opposed to tech that just keeps the lights on.
But before any of those things occur, the most important change is a mindset shift. Executive teams have to stop thinking of their technology function as a cost center and begin to see it as a place where the company generates value.
This is an important shift, because it forces everyone to focus on outcomes. It changes the relationship between the business and technology, elevating tech leaders to become thought partners who collaborate with their business peers. Accountability grows, ideas flow in both directions, delivery speeds up, and quality increases.
Six traits of successful operating models
In our client work across industries, we’ve identified six key themes that successful companies apply to their operating models to realize greater value from their technology investments.
Adopt the product model. Arguably the central theme in any operating model upgrade is to adopt the product model rather than project-based work as the way to organize, manage, and resource technology and data investments and activities. This changes everything because it sets up persistent cross-functional teams that continuously focus on improving their product and its business outcomes. It places greater emphasis on the user’s needs, and it requires close collaboration and sometimes integration with the business.
Invest for outcomes. The shift to a product model supports an equally important change in funding: Executive teams fund a product area rather than individual projects. The company assigns persistent budgets to product teams and holds them accountable for delivering outcomes, such as increasing conversion of online baskets to sales, reducing call volume to human resources, or increasing visibility in the supply chain.
Talent first. Talent remains a critical topic on executives’ mind. Demand for top tech talent more than doubled between 2015 and 2019. The nature of the job is also evolving quickly: 40% of the most in-demand jobs didn’t exist in 2015. And among those in demand, their expectations have changed; they can pick and choose where and how they work. The pandemic spurred the adoption of a work-from-home model, and now flexibility (in location, timing, and choice of projects) remains a top criterion for choosing a job.
Other trends are shaping the market for top tech labor. Many companies have overinvested in watcher-type roles such as project managers and business analysts, which tend to be more expensive and create less value than thinker or doer roles.
Global scale, local traction. In the past, there was a tension between executives who advocated for localization to appeal to consumers (or regulations) in specific countries or business units, and those who argued for centralization of systems and platforms across the company, to gain economies of scale and pool innovation. More recently, it’s possible to please both. Cloud computing makes global scale more achievable, while modular architecture and APIs support the flexibility that allows for localization. The technology is so flexible that you can build things centrally and make it relevant for local brands or business units—something that wasn’t as easy to do 10 years ago.
Delivery excellence. Adopting Agile ways of working, in teams and at scale, is an essential first step in improving the company’s ability to deliver quickly at the highest levels of quality. Another important action is implementing software engineering best practices, automated testing and release, and best practice for code writing and review. Advances in AI can help here as well. Adopting best practices in software engineering can boost developer efficiency by 25% to 50%, increase quality and stability of code by 20% to 40%, and deliver products 5 to 10 times faster.
Elevation of technology. Finally, and in line with a shift in mindset, at companies that say they’re getting their expected returns from technology investments, the relationship between technology and business has evolved from service provider to thought partner. One indicator of this is the number of companies that are raising their technology leaders to the C-suite. Ten years ago, only 10% of leading consumer packaged goods companies had their tech function in the C-suite; today, it’s about half.
Six traits can be a lot to focus on. Successful efforts select one or two areas for initial focus, build on success, and move on to other traits in sequence. Nearly everyone is looking for stronger results and more value from their investments in technology. At the same time, cost pressures are leading most senior tech leaders to increase their scrutiny on technology spending. Evolving the technology operating model is an essential journey for tech leaders and their companies to achieve their goals.