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Friday, December 16, 2022

Every Company Uses Software, but are they a Software Company?

Even more so now that we have things like ChatGPT,   but we still need to understand increasingly deeper context when using the algorithms involved.   Caution is needed all around.  

Every company is a software company: Six ‘must dos’ to succeed

December 13, 2022 | Article  in McKinsey    By  Chandra Gnanasambandam, Janaki Palaniappan, and Jeremy Schneider

As software transforms every industry, leaders must turn to a new playbook.

Marc Andreessen’s observation from more than ten years ago that “software is eating the world”1 needs an update: software is the world. The software industry continues to grow at a massive clip. More and more traditional companies are realizing that to compete and grow in a digital world, they must look, think, and act like software companies themselves.

Per McKinsey research from June 2022, nearly 70 percent of the top economic performers, compared with just half of their peers, are using their own software to differentiate themselves from their competitors.2 Fully one-third of those top performers monetize software directly.

The pressure to evolve is building thanks to three fundamental shifts. First, the accelerated adoption of digital products is driving an effort to embed software in the product and purchase experience through everything from personalization to seamless omnichannel delivery. Second, more of the value in more products and services from more industries is coming from software. For example, the average industrial company expects its share of revenue from software to double over the next three years. Finally, the growth of cloud computing, platform as a service, low- and no-code tools, and AI-based programming assistance are putting unprecedented power into the hands of billions of workers.

Yet while companies might already accept the importance of software (research shows that nearly two-thirds of companies have invested in software as a service or modern commercial software), they still tend to look at software as a capability that they can bolt onto their existing business. That just doesn’t work. Becoming a software business requires foundational change with different skill sets, practices, leadership, and organizational structures.

Three ‘switch to software’ models

It is hard to become a software company—less than 7 percent of all software revenue in the world accrues to nontech companies.3 But models for successful transformation do exist (see sidebar, “Three ‘switch to software’ models”). To understand what works, we analyzed more than 20 software transformations and spoke with a dozen senior executives who have led successful software transitions. The result: six principles that are at the core of any successful effort to become a software company.  ... 

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