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McKinsey: Core-technology transformation

Three-step guide to a holistic transformation which fuses technology and business goals, according to McKinsey & Company

Janet Brice
|Oct 16|magazine12 min read

As companies face strong market pressures to transform their technology, consultants McKinsey & Company has produced a three-step guide to navigate the challenges.

Successful transformations demand a disciplined approach, a top-team mindset, that holistically fuses technology and business goals, plus an execution tailored to the complexity of core-technology.

The report, Overcoming the core-technology transformation stalemate, states these changes need a requires a shift in mindset, from thinking of IT as a function to understanding technology as fundamental to all aspects of the business. 

“This is the primary responsibility of all leadership, especially the CEO, who must demonstrate unflagging commitment to the effort. From there, companies can manage the three steps,” advises McKinsey & Company.

Despite a growing pressure to adapt many companies face a set of common fears and misconceptions. McKinsey & Company calls on leaders to overcome these barriers as they point out the payoffs for successful transformations are substantial. 

“We have seen organisations increase run and change productivity by 20% double the speed of delivery and decrease risk and resilience issues by a third. While core-technology transformations are complex, they are also critical to remaining competitive in a rapidly digitising world,” says the report.  

Three steps to core-technology transformation:

  • Repaint - by making the minimum investment to maintain existing operations and digital channels 
  • Renovate - through gradual but persistent upgrades of the core and improvements when necessary 
  • Rebuild and replace - by building or buying a completely new IT stack (or large portions of it) and migrating the existing business to it 

“Which approach or archetype is right for a company depends on its particular circumstances. Companies under significant financial pressure may need to repaint, with targeted investment to maintain the technology stack,” comment McKinsey & Company.

“At the other end of the spectrum, companies that have significant levels of technology complexity and technology debt and sufficient financial resources or capabilities on hand can choose a greenfield rebuild approach.”

Holistic technology transformation

The report highlights transformations are successful only when company leaders believe in the need to change and start to work holistically.

“The more holistic understanding of technology’s role requires an entirely new mindset that enables the business and technology organisations to work as one.”

This includes:

  • Reimagining the role of technology in the organisation as a partnership in designing a technology-forward business strategy
  • Reinventing technology delivery to change how IT functions by embracing agile next-generation capabilities, building small teams around top engineers and developing flexible technology partnerships
  • Future-proofing the foundation through flexible architecture supported by modular platforms, enabling data ubiquity and advanced cybersecurity

A case study from one banking executive reported: “As we entered the digital era, there was a stark realisation that from a customer perspective, we’re one organisation. So, we decided we would fuse the DNA of the business with IT, with one group of people in each case responsible for envisioning, designing, building, and deploying technology to customers.”

Putting this into practice, the company shifted its operating model by grouping its technology assets, processes and people around platforms aligned to business journeys. 

Rigorous and transparent execution

McKinsey & Company suggests the third step should reflect deep culture changes as long-term transformation need to be “woven into the fabric of an organisation”.

As technologies are often complex there tends to be a communication gap in the C-suite, which can derail transformations quickly. The report suggests that leaders need to address this issue by creating a basic level of technology fluency. 

Detail the end-state technology before building the transition plan

The final stage should be the transformation team detailing the desired end-state technology system. “Input from engineers and architects with first-hand understanding of systems can provide important guidance at this stage,” says the report.

Execute methodically but adaptively, with success measures embedded across business and technology

Delivery of the changes can be approached with a factory model, where teams make technology improvements to journeys and then roll them into the business, much like a production line. Each factory should have reportable technology and business outcomes for which business and IT sponsors are jointly accountable.

“Each of these three stages should be supported by the enabling capabilities to ensure and sustain the impact,” reports McKinsey & Company. 

“As companies progress on their transformation journey, they may switch from one archetype to another,” outlines the report.

“There is no doubt that a core-technology transformation takes time, effort, and investment. These costs, however, are more than offset by the resulting gains in the efficiency, quality, and speed to market of customer-focused solutions,” says McKinsey & Company.

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