“Every company is a software company.”
Shifting to this mindset by 2023 will benefit any company, in any industry even if it’s more than 100 years old, according to the report. McKinsey. To compete and thrive in the digital world, traditional companies are realizing that they must look, think and act like a software company.
I sat down with Jeremy Schneider, a senior McKinsey partner in the New York office and co-author of a report that delves into this topic. “Software is becoming an essential element that makes up a huge part of most companies,” says Schneider. “Nearly 70% of top performing companies are using software as a core strategy to differentiate themselves from the competition. And a third of the best performing companies are actually selling software.”
He continued, “If you think about the companies that have really come this far and have been successful, the whole company or at least part of the company really feels like it, operating like this. like and have a culture like a software business.”
He said the team analyzed more than 20 software transitions and interviewed dozens of senior executives who have led successful software transitions. The result: becoming a software business requires fundamental change with different skill sets, practices, leadership, and organizational structures.
“The way people interact with software is changing,” said Sudhir Nair, global director of Aladdin Business at Black stones told McKinsey. (Aladdin is a portfolio management software system.) “Today, at BlackRock and at our customer Aladdin [companies]a significant portion of the organization identifies itself as a technologist, and the majority of those people do not sit in the part of the business that is officially recognized as a technology organization.”
Cultural acculturation
According to McKinsey, cloud computing, platforms as a service, and AI-powered programming are “putting unprecedented power in the hands of billions of workers.” And it is certainly helping to power remote work. But some companies have not yet received the part of the business culture change.
“I often go and talk to companies and they say, ‘I want to build deeper software capabilities. That is not the problem. I will hire some more software engineers,” explains Schneider. “But the reality is, that is only a tiny fraction of what is required. It’s truly a cultural shift that allows you to attract and retain the right talent. And it allows you to set that talent up for success by empowering them and changing the mindset of the organization to value what they do.”
If real, the CFO plays a big role in this process, says Schneider. He told me, “There are five CFO practices in the context of deeper software capacity building or operating as a software company.
1) Have the right investment mindset. “The reality is, building a deep software product or capability requires sustained investment,” says Schneider. “In many cases, it can take three to sometimes five years before you experience such great returns that people are so excited about the software.”
2) “It’s important for CFOs to understand software M&A,” he said. Especially since it’s “still quite expensive compared to other M&A categories”.
3) Resource reallocation is an important part of all CFO jobs, but in software part of that reallocation is even larger than in most other businesses, says Schneider.
4) There are several areas of portfolio management that are often within the reach of the CFO. “But running a software portfolio requires understanding what is the right investment form and path across different stages of the lifecycle,” he said.
5) If you’re directly monetizing the software, it’s important to understand how to properly set internal and external metrics, such as annual recurring revenue, he says.
“We’re seeing more and more companies across industries come to us and say, ‘I don’t want to learn from my peers. I want to learn from the best software companies because I am investing hundreds of millions of dollars in software engineering,” said Schneider.
Software companies also understand how to prioritize customers, he said. “If you think about how great software companies build a product, the customer-first focus is firmly embedded in that,” says Schneider.
The Mckinsey report also states: “In our experience, one-third to one-half of the leadership team should be specialized software professionals.” I asked Schneider if that meant CFOs would need to be more tech-savvy.
“If you think about the CFO lens in software transition, it really shifts from seeing technology as the cost center with a project team to seeing it as a collection of products,” he explains. creating value. “Whether that value is direct revenue or revenue support. That mindset change is quite necessary. In many cases, that means bringing in new financial leadership for a mindset shift. Or some CFOs themselves can make changes.”
For some CFOs, increasing their tech literacy should be at the top of their list of goals for the new year.
Have a nice weekend.
Sheryl Estrada
sheryl.estrada@fortune.com
big deal
One New research from Accenture (NYSE: ACN) found that 76% of semiconductor executives expect the industry’s supply chain challenges to ease by 2024. However, executives pointed to challenges. could affect their ability to innovate even as the lingering impact of COVID-19 on the supply chain lifts. Other challenges identified include geopolitics (48%), cybersecurity threats (42%), changing competitive landscape (39%) and talent shortage (35%) . These findings are based on a global survey of 300 senior semiconductor executives.
Go deeper
Here are a few weekend readings:
Slack’s CEO says ‘relatively generous’ severance packages give him ‘comfort’ after Salesforce announced a 10% cut in a 3am message by Kylie Robinson
Apple is cutting orders for key products due to weak demand — here’s why analysts remain upbeat about the company by Will Daniel
No more free coffee and layoff warnings – Goldman Sachs workers experience a rude awakening by Chloe Berger
6 dishes and drinks to choose on New Year’s Day to improve mood, energy and prolong life by Alexa Mikhail
charts
Here is a list of some notable moves this week:
Jennifer Williams Named Chief Financial Officer at R1 RCM Inc. (Nasdaq: RCM), revenue cycle management partner for hospitals and healthcare systems, effective immediately. Williams succeeds Rachel Wilson, who will stay at the company as an advisor during the transition period. Williams previously served as CFO of Cloudmed and has over 20 years of experience in a number of businesses, including Change Healthcare, First Advantage, LexisNexis Risk Solutions and Ernst & Young.
Tom BoyleCFO, has been appointed to concurrently hold the position of investment director at Public Archives (NYSE: PSA), owner, buyer, developer and operator of self-storage assets, effective January 1, Boyle’s additional role as chief investment officer will include development development, redevelopment, acquisition, asset management and third party management. He joined Public Storage in 2016, serving as the Chief Financial Officer of Operations, until being appointed as the company’s CFO in 2019. Before joining Public Storage, Boyle was in charge of the company. He has taken on increasing responsibilities at Morgan Stanley since 2005, from an analyst position to his last role as managing director of equity and debt capital markets.
Zahir Ibrahim Named Chief Financial Officer at BARK, Inc. (NYSE: BARK), the e-commerce and content company for dog lovers, effective immediately. Most recently, Ibrahim was the chief financial officer and chief administrative officer of the startup Do Good Foods LLC. Prior to that, he served as the Chief Financial Officer 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 a number of roles at Molson Coors Brewing Company, culminating in Vice President, Controller and Chief Accounting Officer. Earlier in his career, Ibrahim held senior finance positions at CML Innovative Technologies, Elementis Specialties and Pirelli Tires.
Paul K.Ito was promoted to EVP and CFO at Hawaiian Electric Industries, Inc. (HEI) (NYSE: HE), the parent company of Hawaiian Electric Company, Inc. and American Savings Bank, FSB, effective January 1. Ito serves as the interim Chief Financial Officer of HEI since July 2022. He was selected following a nationwide search. Ito has been with HEI since 2018, where he served as vice president of tax, controller and treasurer. He also manages HEI’s information technology efforts, leading digital transformation initiatives in accounting, taxation and financial reporting.
Renee Lentini appointed as interim CFO at ImmunoGen, Inc. (Nasdaq: IMGN), as Susan Altschuller, current Senior Vice President and Chief Financial Officer, on leave under the Medical and Family Leaves Act, will not resume employment after when on leave. Lentini most recently served as deputy chief financial officer and chief accountant. Since joining ImmunoGen in 2004, Lentini has held positions of increasing responsibility with the company’s financial organization, including overseeing global accounting, taxation and treasury. ImmunoGen is looking for a long-term replacement for Altschuller.
Listen
“Vulnerability is very important and being a trusted leader is very important. The more my team knows about me and the more comfortable they feel I am sharing this with them, they the closer they feel to the company and the more comfortable they feel sharing this with them, understanding what we’re after.”
—Saks CEO Marc Metrick, who oversees the luxury brand’s digital component, a separate corporate entity from Saks Fifth Avenue stores, talk to Asset leadership and affluent consumers seem unfazed by the market turmoil.
