FRESH TAKES ON BIG IDEAS

Every business leader says they want their organization to be a tech company. But what does that mean in practice? There are some things it means, and others it doesn’t. It does mean you need an organization that can build technology. And we really mean build, not just make good choices about what to buy.

In our research over the past seven years, we’ve looked closely at hundreds of companies that are true digital leaders. Even before generative AI, 70 percent said that they were making their own software. A third were aspiring to monetize that software externally, but the vast majority were using it to help propel their own operations. We expect that number will eventually trend toward 100 percent. Everybody’s going to be able to make the technology they need to run their business. They’re also going to buy technology. But in domains where they hope to gain a real competitive advantage, they want to build something that is unique to them by assembling a carefully curated mix of available components.

What does this mean for your company? First, you want business and technology working well together and you want technology embedded in the company. Organizations that get that right are much more likely to be successful than those that don’t. At a recent conference, I was challenged to come up with one paragraph that explains the difference between a modern digital and AI tech culture and an IT culture. After some back-and-forth, we got it down to one word: “requirements.” 

In an IT culture, businesspeople write requirements and hand them off to the technology team so they can provide gains. At successful digital and AI companies, business and technology co-own a problem, iterate around that problem, and own the answer on an ongoing basis. That’s not a new thought; it’s been called a product operating model, or agile before that. But how business and technology work together is the essential factor for operating like a tech company.

For our recent book, Rewired: The McKinsey Guide to Outcompeting in the Age of Digital and AI, we benchmarked 50 banks to understand which ones were creating value through technology and which were not. We found that some 25 percent could pinpoint real and significant value from their digital investments. This 25 percent couldn’t be identified by how much they were spending, the quality of their apps, or even their technology architecture choices. They could be identified, however, by how well business and technology worked together.

“Being a tech company doesn’t necessarily mean spending the most on technology. This is not about spending the most.”

Speed is another important factor. Companies that are becoming tech companies iterate faster and faster. They work in agile short-sprint cycles. They insource more than they outsource. To do so, they don’t just go out and hire all the cool kids from Silicon Valley. That’s a really good way to change the company’s dress code, but if you want to create lasting impact, you need to upskill and reskill your own employees. You also create the right technology career ladders for your digital talent. This means that technologists can learn from other technologists and that they can progress in a way that makes them as important as business leaders, rather than seen as support. 

Being a tech company also means caring deeply about adopting and scaling technology. It’s change management; although I don’t like that term, because it implies that technology is always wonderful, and we dumb humans need to adapt to it. Instead, it’s about digging into the question of how you transform a business domain and thinking hard about the right incentives to encourage true technology adoption and scaling. This usually means incentivizing the businesspeople. They need to co-own the tech impact incentives. If everyone’s looking to the CEO for constant direction, that’s a failure.

There are some important questions a CEO can ask to determine if their organization is functioning as a true tech company. Do you understand which business domains are most able to be transformed by technology and have you put a clear financial goal against them? Do the best technologists want to work at your company? Do you have a product-release-and-update cycle that’s measured in weeks, not months? When you look at your senior-leadership team, how many would self-identify as being tech savvy and tech capable? When you think about advancing people into senior roles, is experience in getting value from tech one of the essential criteria? Do you have a tech talent road map that is as detailed as your road map for scaling technology? Do you understand where data will create competitive advantage in your company and how to combine your proprietary data successfully with the world’s data? 

For some, these will coalesce into two questions. First, have you thought about how technology can completely reinvent your business? Second, how do you do business today and how could that fundamentally change if you harnessed technology properly? 
  
Being a tech company doesn’t necessarily mean spending the most on technology. This is not about spending the most. It’s not about being the earliest adopter of new technologies. Perhaps you like to talk about having technology everywhere in your company or about the success of an exciting pilot. But if you’re not actually seeing the technology affect your profit and loss, you’re not a tech company.

ABOUT THIS AUTHOR

Rodney Zemmel is a senior partner in McKinsey’s New York office.