Competing in a digital world when software is not your primary business: Lessons learned from the software industry

In today’s digital business world, the question is no longer, “Who is developing software?” but rather, “Who isn’t developing software?” From transportation and manufacturing to healthcare and banking, leading companies know that staying competitive and relevant in the face of digital disruption requires them to dip into a secondary market of codes and algorithms that goes well beyond their established product line.

That’s not to say it is enough for companies to simply throw money at IT. Like any business initiative, software development requires strategy and insight. A study by the Harvard Business Review confirms the point. After identifying digital leaders based on gross margins, earnings, and net income, HBR found that the best-performing companies had technology budgets on par with digital laggards. Both spent a little more than 3 percent of revenue on IT. “Clearly, digital transformation involves some significant capability building,” HBR noted.

So what’s the secret sauce? How can companies outside of software development find success in the digital landscape and, even more so, transfer that success into increased revenue? In most cases, the answer is about a company’s approach to technology as much as it is about the actual technology. Expanding into software development requires executives to think outside of their traditional business models. Business can’t—and shouldn’t—run as usual.

A closer look at the way leading software companies operate can provide key insight into how any industry leader can turn their technology investments into profitable, strategic advantages. The following are three key lessons from the software industry that every executive should know.

Lesson #1: Focus on the customer

One of the main differentiators among industry disruptors, especially within the software industry, is their laser-focus on the user. Companies like Venmo and Paypal are giving long-established banks a literal run for their money because they based their product on the needs of consumers, not long-held business models. Uber has done the same to the taxi industry. In both industry examples, the companies started by looking at the priorities of the user and then developed their businesses around meeting those needs with software.

Traditional companies can invest a lot in technology, but if they base their strategy on how they want the customer to use the software or what they think is important, they will likely miss out on new revenue-building opportunities. Instead of treating IT as an afterthought, companies need to approach their digital investments as key strategic business initiatives that could unveil new revenue streams and help maintain long-term business viability. This means listening to the customer and, more importantly, learning from their behavior.

For instance, a recent study found that more than three-quarters of U.S. caregivers are interested in technologies that help with medication refills, delivery, and adherence. However, only 11 percent reported using refill and delivery tools, and a mere 8 percent used adherence tools. Why the gap? The study found that awareness of the best management tools is a significant barrier for caregivers, as well as the perception that medication tools lack total interoperability. “If a tool helps them obtain all available providers, but does not provide refills for all medications at all available providers, they’d rather not use the tool at all,” the study found.

As this example illustrates, user feedback is critical in the digital landscape. According to the HBR study, digital leaders are 2.3 times more likely to inform product design by capturing data on how their products are used. They are also 1.8 times more likely to monitor products remotely and drive customer support based on data insights. The goal for any company investing in software should be figuring out how to get input from the customer, using that feedback to build a reliable product that brings value, pushing that product out to the customer as quickly as possible, and then validating that it is actually bringing value to the end user.

Lesson #2: Get Agile

Moving quickly is a key objective of any software company. In today’s competitive world, most software companies have redesigned their entire development process to be more agile so that they can release updates and make improvements as fast as possible. Being a first-mover is critical in the digital space.

Agile software methodologies are rooted in adaptive planning, early delivery, and continuous improvement. While traditional companies may not have the capabilities to release software updates on a weekly basis, there are a lot of aspects of agile software development that are relevant. The first is having a user mindset, as discussed above, whether that user is an external customer using a mobile app or internal “customer” that is receiving a new accounts payable system. Developing with the customer in mind first and foremost drives value. In fact, two of the key principles of agile software development are:

  •    Individuals and interactions over processes and tools
  •    Customer collaboration over contract negotiation.

Another key piece of being agile is leveraging smaller, collaborative teams. Small teams allow for fast decision-making and less red tape, while collaboration ensures that the end product is well thought out. Every member of the team, from development to quality assurance, gets a seat at the table. This speeds the whole process and reduces the chance for error and rework.

Lesson #3: Quality is paramount

Of course, having a user mindset and agile development practices mean nothing if your software has major quality issues. Software laden with bugs and issues doesn’t build value, it frustrates customers. Popular apps like Instagram and Snapchat have set the user expectation around software—it better be simple, quick, and reliable.

For software leaders, monitoring and managing the development and delivery of high quality applications and software are top priorities. That’s why one of the key aspects of agile software development is continuous testing. Quality assurance (QA) testing is no longer a siloed activity that comes at the end of the development cycle. Instead, it has become a strategic, integral part of the development process that enables software companies to manage risk and accomplish their two greatest goals—meeting customer needs and being able to deliver on those needs quickly.

Traditional companies that are moving into the digital space would be best served to create a robust development organization with a keen focus on QA. Quality should not be an afterthought. Thinking of quality and testing strategically from the outset will improve outcomes, especially if the goal is to better serve and streamline the customer experience. As may software companies know firsthand, a strong QA strategy can help build customer trust, enhance customer satisfaction, and breed customer loyalty.

There is no question that software is being used across every industry to enhance the customer experience. For companies outside of the tech space, this offers immense opportunity, but it also brings new challenges and some risk. By learning from the business models employed by software providers, executives can put a solid strategy in place and compete in today’s digital space with confidence and success.

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