Seven lessons on how

technology transformations
can deliver value
Our annual IT strategy survey shows how technology investments are proving
their worth, especially at companies making more tech-based changes and
bridging more of the technology-business divide.

© Jorg Greuel/Getty Images

March 2021
 In the past year, the COVID-19 crisis has made revenue from existing streams, and more than half
clear the business imperative of making technology- cite the creation of new revenue streams: for example,
driven changes, which are more ubiquitous now than a new product line or new business (Exhibit 1).
ever.1 Indeed, our latest McKinsey Global Survey on
technology and the business suggests that even in The results also suggest that these investments
the crisis’s earlier days,2 respondents were reporting aren’t one-off attempts to catch up, with nearly all
progress on their integration of technology and respondents reporting plans to pursue at least one
business—and that these efforts were creating transformation play in the next one to two years.
tangible business value across four measures,
including new revenue streams and lower costs.
The results also suggest that on average, some Lesson #2: People-focused plays result
transformation activities result in more impact in the most value
than others (namely, those related to talent and With regard to impact, the results suggest that
capabilities). And according to the data, the not all types of transformations are created
companies with top-performing IT organizations3 equal. Across the ten transformation initiatives,
have differentiated themselves from others in their respondents say that changes to their companies’
efforts to create value, adopt new technologies, and people and talent strategies are among the highest-
bring technology and business closer together. value moves to make (Exhibit 2). At companies that
have transformed their approaches to technology
More specifically, the results point to seven key talent—that is, changing practices to attract, retain,
lessons about technology transformations.4 and upskill talent with digital and engineering skills—
respondents report the greatest impact on all four
measures of business impact.
Lesson #1: Technology investments are
creating significant business value Meanwhile, those that pursued changes to their
In the latest survey, companies’ tech-transformation sourcing strategies report a significant impact on
activities appear to be paying off. The survey asked three of the four measures: realizing new revenue
about ten different types of transformation initiatives streams, reducing costs, and improving employee
(for more information on the ten plays in our “tech experience. And according to the results, scaling up
forward” approach,5 see sidebar, “A tech-forward data analytics is a critical enabler of new revenue
transformation”).6 According to respondents, more and increases to existing revenue streams. By the
than three-quarters of the initiatives their companies same token, respondents whose companies saw no
pursued have yielded some or significant cost or negative value across these measures say they
reductions and improvements to employee were least likely to pursue talent transformations or
experience. What’s more, more than two-thirds of the scaling of their data and analytics capabilities.
respondents say these change efforts increased

1
“How COVID-19 has pushed companies over the technology tipping point—and transformed business forever,” October 5, 2020, McKinsey.com.
2
The online survey was in the field from April 14 to April 30, 2020, and garnered responses from 487 participants. Of these, 275 have a
technology focus, and the remaining 212 are C-level executives representing other functions. The participants represent the full range of
regions, industries, company sizes, and tenures. To adjust for differences in response rates, the data are weighted by the contribution of each
respondent’s nation to global GDP.
3
We define “top-performing IT organizations” as those that, according to respondents, had an average effectiveness score in the top 25 percent
of the survey sample, based on ratings of 15 key IT activities that were tested in the survey.
4
We define “technology transformations” as large-scale change efforts—which are more comprehensive than short-term improvement
programs—to modernize the technology function.
5
Anusha Dhasarathy, Isha Gill, Naufal Khan, Sriram Sekar, and Steve Van Kuiken, “How to become ‘tech forward’: A technology-transformation
approach that works,” November 2, 2020, McKinsey.com.
6
The ten initiatives the survey asked about were changing IT’s delivery model (for example, lean IT, agile at scale); digitizing of end-user
experience (that is, digitization of end-to-end business processes or end-user/customer journeys across the organization); enhancing IT
architecture (for example, using a flexible, services-based architecture, modernizing legacy applications); modernizing infrastructure (for
example, cloud migration, infrastructure automation); redesigning the IT operating model (for example, establishing a stronger partnership
between the business and IT functions, changing processes such as budgeting and IT demand management, organizing around product-
focused teams); redesigning the technology organization to support new digital products or services; scaling data and analytics (for example,
deploying artificial-intelligence models, building next-generation data platforms); transforming cybersecurity practices (for example,
strengthening defenses against cyberthreats and data-privacy threats, proactively running cyberthreat drills); transforming talent strategy
(for example, changing practices to attract, retain, or upskill talent with digital and engineering skills); and transforming vendor management
(for example, revamping sourcing strategy, consolidating suppliers, entering new types of strategic partnerships).

2 Seven lessons on how technology transformations can deliver value

A tech-forward transformation

Through detailed conversations with platform orientation with strategic 7. Flexible technology partnerships
nearly 700 chief information officers at spend allocation) (capability focused, outcome based)
some of the world’s largest companies, as
well as through our own experience helping 3. Steward of digital user experience 8. Flexible, business-backed architecture
businesses execute complex technology (design thinking, user centricity, rehaul delivered iteratively (open
transformations, we’ve synthesized our and seamless integration with architecture, microservices, application
findings into a “tech forward” model of analog technologies) programming interfaces)
guidelines and best practices. This model
includes the following ten “plays,” or 4. Agile@scale software delivery 9. Data ubiquity and advanced-
domains of activity: analytics enablement
5. Next-generation infrastructure
1. Tech-forward business strategy (new services (cloud; end-to-end 10. Defenses that preempt evolving
tech-enabled business models or automation/no operations, or NoOps; threats (cyber, data privacy)
customer-facing products) platform as a service)

2. Integrated business and technology 6. Engineering excellence with top talent,

management (no silos, and a product/ both internal and external (do more
with less)

Web <2021>
<Seven lessons on how technology transformations can deliver value>
Exhibit
Exhibit <1>1 of <6>

Most respondents
Most respondentsreport
reportsome
someororsignificant
significant impact
impact from
from their
their companies’
companies’
technology transformations.
technology transformations.
Impact from technology transformations over the past 2 years, % of respondents,1 n = 487

Realization Increased Reduced Improved

of new revenue from costs employee
revenue existing experience
streams streams

21 31 34
Significant impact 19

Some impact 40 47
45 45

No impact 24 21 16 14

1 5 4
Negative impact 3 3
1
Figures do not sum to 100%, because respondents who answered “don’t know” are not shown.

Seven lessons on how technology transformations can deliver value 3

 Web <2021>
<Seven lessons on how technology transformations can deliver value>
Exhibit 2 of <6>
Exhibit <2>

Talent- and
Talent- and sourcing-related
sourcing-relatedtransformations
transformationstend
tendtoto result
result inin more
more value
valueto
to both the top and bottom line.
both the top and bottom line.
% of respondents reporting significant impact from Top-line measures
technology transformations in the past 2 years Bottom-line measures

To realize new revenue streams

Redesigning technology organization to support new digital offerings 22
Transforming vendor-management and sourcing strategy 22
Scaling data and analytics 24
Transforming talent strategy 30

To increase revenue from existing streams

Digitizing end-user experiences 26
Enhancing IT architecture 26
Scaling data and analytics 33
Transforming talent strategy 33

To reduce costs
Digitizing end-user experiences 35
Transforming vendor-management and sourcing strategy 35
Transforming talent strategy 37

To improve employee experience

Transforming cybersecurity practices 41
Transforming vendor-management and sourcing strategy 42
Transforming talent strategy 45

Yet even though the people-focused initiatives link Lesson #3: Talent remains the holy
most closely with value creation, they are the least grail of technology transformations—
likely ones that companies plan to pursue in the valuable to pursue but difficult
future (Exhibit 3). Instead, the largest shares of to execute
respondents predict their companies will pursue Not only do the transformations focused on
digitization of the end-user experience, scaling of talent strategy stand out in their value potential,
data and analytics, and enhancements of IT but they are also much more commonplace at
architecture. That is a notable shift from our past top-performing companies. Top-quartile
three annual surveys, when infrastructure respondents are more than three times likelier
transformations were the most-cited play that than their bottom-quartile peers (41 percent,
companies pursued. Now, respondents are half as compared with 12 percent) to say they’ve pursued
likely to say their companies will modernize a transformation of their talent strategy in
infrastructure in the next one to two years. recent years.

4 Seven lessons on how technology transformations can deliver value

Web <2021>
<Seven lessons on how technology transformations can deliver value>
Exhibit 3 of <6>
Exhibit <3>

Despitetheir
Despite theirhigh
high value
value potential,
potential,people-focused
people-focused initiatives
initiatives are
are the
the least
least likely
likely to be pursued by companies.
to be pursued by companies.
Types of transformations most likely to be pursued over next 2 years,1 % of respondents

Digitizing end-user experience 37

Scaling data and analytics 36

Enhancing IT architecture 31

Modernizing infrastructure 30

Transforming cybersecurity practices 26

Redesigning the tech organization 23

Redesigning the IT operating model 22

Changing IT’s delivery model 17

Transforming talent strategy 15

Transforming vendor management 12

1
Respondents who answered “other” or “don’t know/not applicable” are not shown. We define “technology transformations” as large-scale change efforts that
are more comprehensive than short-term improvement programs.

Yet the need to address talent is universal and urgent. Lesson #4: The talent challenge has
Respondents believe that more than 40 percent of clear implications for sourcing
their workforce will need to be either replaced or Perhaps because companies have found talent-
fundamentally retrained to make up for their related changes so difficult to pursue, responses
organizations’ skills gaps. But only 15 percent of suggest that they have been using new or different
respondents say their companies plan to pursue a approaches to sourcing to fill some of the gaps. We
talent-strategy transformation in the next two asked technology executives and respondents
years, even though the talent challenge remains about recent changes to their technology-sourcing
considerable (Exhibit 4). At companies that have strategies, and they tend to say that reliance on
pursued recent transformations, the top challenges external providers to support both core IT activities
to doing so continue to revolve around talent as well and digital activities has increased. Among
as culture: namely, skill gaps and cultural differences, respondents reporting changes to their sourcing
the difficulty of changing cultures and ways of strategies, 47 percent say they are relying more on
working, and difficulty finding talent to fill new roles— sourcing partners to supplement internal
which is as challenging for top performers as it is for capabilities. Overall, most respondents say their
everyone else. Talent also appears to impede companies have engaged partners in a range of
progress at the companies that haven’t pursued sourcing models, from traditional time-and-
technology transformations; 42 percent of materials to managed services and joint ventures.7
respondents say they have stuck with the status quo
because it’s difficult to source the talent they need.

7
Other changes to sourcing strategy that the survey asked about: moving work on digital or front-end applications from global providers to niche
sourcing partners; changing commercial models (that is, from time-and-materials or contingent workers to managed service providers); and
pursuing larger sourcing models (for example, joint ventures or build-operate-transfer models where partners develop assets that they hand
over to an organization to operate).

Seven lessons on how technology transformations can deliver value 5

 Web <2021>
<Seven lessons on how technology transformations can deliver value>
Exhibit 4 of <6>
Exhibit <4>

Talent-relatedand
Talent-related andcultural
cultural issues
issuespose
posethe
thegreatest
greatest challenges
challenges to technology
to technology
transformations.
transformations.
Challenges to changing organizations’ technology operating models, % of respondents1

Skill gaps It has been difficult It has been difficult Traditional Integrating
and/or cultural to change culture to find the right talent teams have new technologies
differences have and ways of working to fill new roles struggled to keep into core
arisen as we from being project (eg, scrum masters, up with the pace architecture has
change the focused to product product owners) at which digital been harder
way we work focused on digital teams teams work than expected
54 52 37 35 30

Likelihood of Speed of digital The business’s Newer ways of Newer ways of

cyberthreats delivery and releases needs have working3 have limited working3 have reduced
and/or security has made it hard for outpaced the our ability to manage valuable governance
breaches the business speed of demand and/or track or transparency on
has increased to keep up2 IT delivery delivery teams’ work
30 25 25 21 21

1
Out of 12 challenges that were offered as answer choices. Question was asked only of respondents who said the target state of their organizations’ technology
operating models are digitally integrated or fully digital; n = 334.
2
Eg, not enough time to train end users on the new changes, poor adoption of products by end users.
3
Eg, agile, cross-functional teams.

Lesson #5: No silver bullets—the This result is consistent with our experience
top performers execute more that building capabilities in one area often
transformation plays than others requires the development of others at the same
We looked more closely at the results from a subset time because these capabilities reinforce one
of respondents whose companies are in the top another. For example, companies that work on
quartile of performance on core technology scaling their agile-development capabilities often
activities, or our “top performers.” These companies invest in hiring new talent—and accelerating their
not only have seen more value as a result of their cloud or automation strategies to enable continuous
technology transformations but also have focused integration/continuous delivery (CI/CD) and
on multiple initiatives—and more so than their DevOps—in parallel.
peers. On average, they have run five out of ten
transformation initiatives in recent years, versus
three initiatives at the bottom-quartile companies.

6 Seven lessons on how technology transformations can deliver value

 Lesson #6: The broader use of What’s more, the top-performing respondents
advanced technologies supports report using a slightly larger suite of technologies.
greater value creation Out of the six we asked about,8 nearly one-quarter
The results suggest that overall, advanced of top performers say their companies used four
technologies can generate outsize value in tech to six advanced technologies, compared with
transformations. Forty-four percent of respondents 10 percent of all other respondents. Inversely, the
reporting the use of the Internet of Things (IoT) top performers are half as likely as others to report
or edge-computing technologies in recent using only one advanced technology.
transformations say they saw significant cost
reductions—compared with an average of only
31 percent who saw significantly reduced costs Lesson #7: Bridging the business-
overall. Yet these technologies are relatively technology chasm is critical to
uncommon. Only one-quarter of respondents say outperformance
their companies use IoT in the first place. At the same Beyond their focus on talent, deployment of new
time, 45 percent of respondents at companies using technologies, and a broad transformation agenda,
the cloud to process data at scale report a significant the top performers also follow several practices that
improvement in employee experience from their foster a stronger partnership between technology
transformations, versus an average of 34 percent and the business (Exhibit 5). At top-performing IT
of all respondents. organizations, 57 percent of respondents say their
senior leaders are very involved in strategic planning,
versus 17 percent in the bottom quartile.

At top-quartile organizations, 57 percent

of respondents say their senior tech
leaders are very involved in strategic
planning—versus 17 percent in the
bottom quartile.

8
The survey asked respondents about the following technologies, and which their organizations had deployed at scale in their technology
transformations: automation; advanced analytics (that is, artificial-intelligence and machine-learning-based solutions); large-scale data
processing through the cloud; design thinking (that is, user-centered product development); the Internet of Things or edge computing; and
advanced mobility (for example, use of 5G mobile networks).

Seven lessons on how technology transformations can deliver value 7

 Web <2021>
<Seven lessons on how technology transformations can deliver value>
Exhibit <5> of <6>
Exhibit 5
Top performers bridge the business and technology gap at significantly higher
Top performers bridge the business and technology gap at significantly higher
rates than others.
rates than others.
% of respondents who say their most senior technology leaders are very involved in shaping
enterprise-wide business strategy and agenda
Bottom-quartile Top-quartile
performers performers1
17 57

0 20 40 60 80 100

Companies’ process for setting IT/digital strategy, % of respondents2

Bottom-quartile Top-quartile
performers performers1

Business and IT/digital strategies are cocreated equally by

business and IT and revisited throughout the year in an iterative process 8 4.3× 34

Business and IT/digital strategies are cocreated

equally by business and IT every year 11 22

The business strategy is developed first, and the

IT/digital strategy and priorities derive directly from it 39 34

The business and IT/digital strategies are developed 22 7.3× 3

independently of one another; there is no link between them

Not applicable; we do not set a separate IT/digital strategy 13 7

Respondents who reported an average effectiveness score in top 25% of the sample, based on ratings of 15 key IT activities that were tested in the survey.
1

Respondents who answered “don’t know” or “not applicable; we do not share the IT/digital strategy with the rest of the organization” are not shown. For top-
2

quartile respondents, n = 125; for bottom-quartile respondents, n = 120.

At these organizations, IT and business teams also are Finally, the top performers are much more focused
much more likely to work together to both develop than others on measurement, even for metrics
strategy and deliver technology. Top-quartile that aren’t technology-specific. According to
respondents are nearly three times as likely as their respondents, top-quartile companies are more likely
bottom-quartile peers to say that business and IT to track their technology organizations’ performance
cocreate corporate and technology strategies. And as well as team performance across the company,
they are more than four times likelier than their bottom- using more business-oriented metrics such as user
quartile peers to have a digitally integrated or fully satisfaction, time to market, and financial impact.
digital operating model, in which digital and business-
oriented teams—or cross-functional teams—all deliver
technology across the organization (Exhibit 6).9

9
For more on technology operating models, see Naufal Khan, Gautam Lunawat, and Amit Rahul, “Toward an integrated technology operating
model,” October 2, 2017, McKinsey.com.

8 Seven lessons on how technology transformations can deliver value

Web <2021>
<Seven lessons on how technology transformations can deliver value>
Exhibit 6of <6>
Exhibit <6>

Top performers are more likely

likely than
thanothers
others to
to involve
involveboth
bothdigital
digital and
and business-oriented teams in technology delivery.
business-oriented teams in technology delivery.
Organizations’ current technology operating model, Top-quartile performers2
% of respondents1 Bottom-quartile performers

Predigital Pilot programs Digital factories Digitally integrated Fully digital

Traditional operating Traditional operating Traditional operating Technology delivered All technology-
model for delivering model with digital pilot model with an at-scale at scale by both digital delivery teams
technology solutions programs (eg, small digital factory3 and traditional teams4 operate in a digital
ring-fenced teams manner, using entirely
that work in new ways) modern software,
infrastructure,
and tools

46 29
36
14
18

8 24 10 8 4

1
Respondents who answered “don’t know” are not shown. For top-quartile respondents, n = 125; for bottom-quartile respondents, n = 120.
2
Respondents who reported an average effectiveness score in top 25% of the sample, based on ratings of 15 key IT activities that were tested in the survey.
3
A group of delivery teams that is dedicated to building digital products and is largely separate from the traditional technology organization.
4
Teams are not siloed or incubated and are governed by a single operating model.

The contributors to the development and analysis of this survey include the following members from McKinsey’s Chicago
office: Anusha Dhasarathy, a partner; Ross Frazier, an associate partner; Naufal Khan, a senior partner; and
Kristen Steagall, a consultant.

Designed by McKinsey Global Publishing

Copyright © 2021 McKinsey & Company. All rights reserved.

Seven lessons on how technology transformations can deliver value 9