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Developer Velocity: How software excellence fuels business performance
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DEVELOPER VELOCITY: HOW SOFTWARE EXCELLENCE FUELS BUSINESS PERFORMANCE
April 20, 2020 | Article
By Shivam Srivastava, Kartik Trehan, Dilip Wagle, and Jane Wang
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The businesses that are achieving the greatest returns from their software
investments are those willing to tackle entrenched cultural and structural
barriers.
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With technology powering everything from how a business runs to the products and
services it sells, companies in industries ranging from retail to manufacturing
to banking are having to develop a range of new skill sets and capabilities. In
addition to mastering the nuances of their industry, they need to excel first
and foremost at developing software.
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It’s a big leap for many, yet a large number of businesses are working hard to
make it. At the Goldman Sachs Group, for instance, computer engineers make up
about one-quarter of the total workforce.1Thomas Franck, “Computer engineers now
make up a quarter of Goldman Sachs’ workforce,” CNBC, April 30, 2018, cnbc.com.
Within retail, software development is the fastest-growing job
category.2LinkedIn Talent Blog, “Data reveals the fastest-growing job in retail
(and it’s not sales),” blog entry by Sharqua Abdullah, April 19, 2018,
business.linkedin.com. Indeed, of the 20 million software engineers worldwide,
more than half are estimated to be working outside the technology industry, and
that percentage is growing.
However, for the vast majority of businesses, these investments have not led to
meaningful performance improvements. Launching a new product or feature can
still take months. Leaders still struggle to scale promising sandbox
innovations. We often hear CEOs, chief technology officers, and chief
information officers lament that their software-development spending is a “black
box.”
Improving business performance through software development comes down to
empowering developers, creating the right environment for them to innovate, and
removing points of friction. Industry leaders refer to this capability as
“Developer Velocity.” This goes beyond the definition of velocity as it relates
to agile methodologies—meaning it is about not just speed but also unleashing
the full potential of development talent.
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ABOUT THE RESEARCH
The Developer Velocity Index (DVI) takes into account 46 different drivers
across 13 capability areas (exhibit). To develop and validate this list of
drivers, we conducted interviews with more than 100 chief technology officers,
chief information officers, and other senior engineering leaders. We then asked
technology executives at 440 large organizations across 12 industries in nine
countries to rate their company’s performance. DVI scores are calculated as a
weighted average of scores across the drivers, with equal weight given to the
three broad categories—technology, working practices, and organizational
enablement.
Exhibit
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Our analysis examined the impact of DVI scores on revenue, total shareholder
returns, and operating margin. We also looked at four nonfinancial
business-performance indicators: innovation, customer satisfaction, brand
perception, and talent management. Finally, we ran statistical correlations of
business performance against the various dimensions of Developer Velocity. We
used the Johnson’s Relative Weights analysis to quantify the relative importance
of the correlated drivers of DVI scores.
To gain a more precise understanding of the factors that allow organizations to
achieve Developer Velocity, we conducted an in-depth survey of senior executives
at 440 large enterprises, more than 100 expert interviews, and extensive
external research (see sidebar, “About the research”). As a result, we created
what we call the Developer Velocity Index (DVI), which pinpoints the most
critical factors (related to technology, working practices, and organizational
enablement) in achieving Developer Velocity, as well as those that are not
nearly as important as many executives and observers might believe.
WHAT REALLY DOES (AND DOES NOT) ACCOUNT FOR BUSINESS SUCCESS
Our research reveals that top-quartile DVI scores correlate with 2014–18 revenue
growth that is four to five times faster than bottom-quartile DVI scores
(Exhibit 1). Top-quartile companies also have 60 percent higher total
shareholder returns and 20 percent higher operating margins. In addition,
top-quartile players appear to be more innovative, scoring 55 percent higher on
innovation than bottom-quartile companies. These businesses also score higher on
customer satisfaction, brand perception, and talent management (Exhibit 2).
Exhibit 1
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Exhibit 2
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you. Please email us at: McKinsey_Website_Accessibility@mckinsey.com
Similar patterns hold within specific industries and sectors. For example,
top-quartile software companies saw revenue grow almost two times faster than
other software companies in the same period. In financial services and retail,
top-quartile companies saw positive revenue growth while average revenue
declined in the other quartiles.
While the link between Developer Velocity and business performance cuts across
all industries, not surprisingly, sectors that are more digitally
mature—including software (naturally), discrete manufacturing, and financial
services—have higher DVI scores overall (Exhibit 3).
Exhibit 3
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To take it a step further, we analyzed 13 capabilities (composed of 46
individual performance drivers) to better understand the specific conditions
that create high Developer Velocity. We found the four with the greatest impact
on business performance are tools, culture, product management, and talent
management (Exhibit 4). These four areas are also strongly correlated with each
other—that is, top performers with high scores in one capability tend to also
have high scores in the other three.
Exhibit 4
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The companies that have mastered Developer Velocity focus equally on empowering
the developer, anticipating critical enablers, aligning investments with
customer value, and minimizing barriers to productivity.
Interestingly, these findings fly in the face of conventional industry wisdom.
For example, many of the business leaders we interviewed assumed agile
ceremonies at a team level would be among the top enablers of software
development. But while agile team practices are helpful (especially in lifting
performance among third- and fourth-quartile players), our study finds they do
not play an outsized role in advancing DVI scores beyond that.
The other outlier was developer tools. Our research shows that best-in-class
tools are the top contributor to business success—enabling greater productivity,
visibility, and coordination. Yet only 5 percent of executives recognized this
link and ranked tools among their top-three software enablers. The
underinvestment in tools across the development life cycle is one reason so many
companies struggle with “black box” issues.
HOW TO IMPROVE DEVELOPER VELOCITY
Why the disconnect between what leaders think drives software success and what
actually does? One answer is that relatively few leaders understand the
day-to-day developer experience. Another challenge is prioritizing investment
among the large and diverse set of levers. Several actions can help address the
four biggest factors in Developer Velocity: tools, culture, product management,
and talent management.
EMPOWERING DEVELOPERS WITH WORLD-CLASS TOOLS
According to our research, best-in-class tools are the primary driver of
Developer Velocity. Organizations with strong tools—for planning, development
(for example, integrated development environments), collaboration, and
continuous integration and delivery—are 65 percent more innovative than
bottom-quartile companies. The ability to access relevant tools for each stage
of the software life cycle contributes to developer satisfaction and retention
rates that are 47 percent higher for top-quartile companies compared with
bottom-quartile performers.
Top-quartile companies give developers a degree of choice—usually between two
and five options to account for different needs and preferences—but restrict ad
hoc tools from being added. Leading companies also use tools to unleash
Developer Velocity by investing in low-code and no-code platforms. These
platforms enable the average business user to develop applications without any
software experience, freeing up seasoned developers to focus on the most
challenging tasks. For example, one pharmaceutical company grew its low-code
platform base from eight users to 1,400 in just one year. Business users outside
of IT are now building applications with thousands of monthly sessions. The
companies in our survey that empower “citizen developers” in these sorts of ways
score 33 percent higher on innovation compared with bottom-quartile companies.
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CREATING A CULTURE THAT FOSTERS PSYCHOLOGICAL SAFETY
Organizations that enable software teams to experiment, fail, and learn in a
safe environment see consistently better results. Knowledge sharing, continuous
improvement, a servant-leadership mindset (that is, managers viewing their role
as empowering their teams to be successful rather than simply overseeing them),
and a customer-centric philosophy are all correlated with superior business
performance. But far and away the most important cultural attribute is
psychological safety—a shared belief that risk-taking in the pursuit of
innovative problem-solving is permitted and protected.
Although most executives recognize the importance of psychological safety, only
20 percent believe their organization has succeeded in creating this culture.
The chief information officer of a leading multinational bank told us that
learning how to fail was the most difficult part of the company’s transition to
mobile banking.
Companies that perform best at this aspect of cultural change also invest in
systems that can absorb and minimize the cost of failures. These investments
include capabilities such as controlled releases, feature flags (the ability to
turn features on and off without redeploying code), and automated rollbacks, as
well as postmortems and retrospectives that allow teams to reflect
constructively on what worked and what did not. A software leader at one
top-quartile company said, “You need to implement safeguards in order to embrace
failure, so we build contingencies as part of the software-development process.
For example, we install a new version side by side with the stable version.”
In addition to promoting psychological safety, companies with high DVI scores
more frequently recognize employees for their achievements, publicly
acknowledging individual and team efforts and rewarding outstanding
contributions. They also build strong communities of practice through, for
example, regular, brown-bag meetups on specific topics. And they create
processes that allow teams to engage more directly with the customer—for
instance, through demos and site visits.
> Organizations that enable software teams to experiment, fail, and learn in a
> safe environment see consistently better results.
CREATING A COMPREHENSIVE PRODUCT-MANAGEMENT FUNCTION
Product management means more than simply ensuring on-time and on-budget
releases. It is about ensuring that the right products are built in the right
ways to deliver a compelling customer experience.3Ralph Breuer, Harald Fanderl,
Tjark Freundt, Nicolas Maechler, Stefan Moritz, and Fransje van der Marel, “What
matters in customer-experience transformations,” July 2019. The importance of
delivering this kind of experience is why the product-management function has
become so critical over the past decade and why these capabilities rank as the
third-leading driver of Developer Velocity.
Our research examined six dimensions of product management—customer experience,
strategic skills, business acumen, technical skills, leadership skills, and
organizational enablers (such as mechanisms that assist with strategic
prioritization, funding, and the adoption of product telemetry). The results
show that DVI scores are less sensitive to individual attributes and far more
responsive to an integrated, balanced product-management function. The
product-management team not only needs relevant business and market knowledge
but also a strong technical background. Companies with above-average performance
across the six dimensions have DVI scores 1.5 times higher than companies with
top-quartile performance in just one or two dimensions. It is important to note
that excellent product management is also not about the discrete
product-management team; developers and other members of an agile team are
increasingly wearing the product-manager hat to understand how their work is
aligned with business priorities and customer needs.
THE PRODUCT MANAGEMENT TALENT DILEMMA
Read the article
FOCUSING TALENT MANAGEMENT ON THE DEVELOPER EXPERIENCE
The world of technology has long been fixated on the idea of rock-star
developers: individuals capable of producing at ten times the rate of the
average developer. While debate exists over the size of the exponential, there
is little question that the most talented developers are engines of velocity in
their own right. With developers and related roles in high demand, the challenge
is how to attract and retain such talent and create the conditions that ensure
their continued success. Our study found that the talent factors most correlated
with high rates of Developer Velocity—in addition to the impact of tools on
talent outcomes as discussed earlier—are incentives, multifaceted recruiting
programs, a rich program of ongoing learning, well-defined engineering career
paths, and an active measurement of team health.
Leading companies are resourceful when it comes to keeping software talent happy
and motivated. One leading telecom company offers a wide range of skills
certifications or “microbadges,” from beginner’s-level mobile development to
machine learning. It also created a Developer University to provide developers
with fresh learning opportunities and the chance to apply these skills in their
workplace.
Best-in-class companies also recognize the role that team health plays in
boosting productivity and retention. They take the pulse of their developer
teams on a regular basis—for example, after every one or two sprints. Surveys,
whiteboard notes, and visual dashboards provide instant feedback that teams can
use to address issues and refine processes quickly. Comprehensive annual or
biannual employee surveys augment the more frequent check-ins, going deeper into
topics such as shared vision, leadership, motivation, and incentives.
BEYOND THE FOUNDATIONS: OPEN-SOURCE AND PUBLIC-CLOUD ADOPTION AND A SET OF
EMERGING DRIVERS
While the four core drivers apply across the entire group of companies surveyed,
a different driver emerged as the biggest differentiator for companies within
the top quartile: open-source adoption. For organizations that already have a
strong DVI score, open-source adoption acts as a major accelerator. The data
show that top-quartile company adoption of open source has three times the
impact on innovation as compared with companies in other quartiles. Top-quartile
DVI companies are especially active adopters, scoring 36 percent higher on
open-source adoption than the next quartile—the highest delta on any dimension
studied. We found that building an open-source culture is about more than using
open-source software within the code; it extends to encouraging contribution and
participation in the open-source community as well as adopting a similar
approach to how code is shared internally—that is, strong InnerSource adoption.
Another notable distinction is that DVI leaders are more advanced in managing
open-source development securely. Many are using centralized security management
and automated tools that can scan open-source components and remediate
vulnerabilities before deployment. Compared with these leading adopters, less
than 20 percent of companies are employing these advanced security measures.
Public-cloud adoption as a catalyst of Developer Velocity is especially strong
for nonsoftware companies—public-cloud adoption has four times the impact on
their business performance than it does for software companies. Developer
Velocity benefits are also sharply correlated with the degree of adoption:
companies in the top quartile of public-cloud adoption have DVI scores that are
32 percent higher than companies in the bottom quartile. By comparison, a
partial shift returns significantly less benefit: companies in the third
quartile gain only a 2 percent DVI score advantage over the lowest adopters.
The analysis also identified emerging drivers with the potential to accelerate
DVI scores over the next three to five years. Top-quartile companies are
increasingly exploring the use of artificial intelligence (AI) and machine
learning in developer tools. For example, some have begun using AI to perform
aspects of pair programming (in which typically one developer writes code while
another almost simultaneously reviews it), providing automated code reviews and
using natural language processing in low-code tools. Additional areas that
executives believe will accelerate software innovation and impact in the future
include increased usage of product telemetry to make product decisions and
automation in detecting and remediating production issues.
--------------------------------------------------------------------------------
Improving Developer Velocity is a journey, not a race. The businesses that are
achieving the greatest returns from their software investment are those willing
to tackle the entrenched cultural and structural barriers that are often the
hardest and most nebulous to address. Companies that excel in providing the
right tools, culture, product management, and talent management not only develop
software faster but also deliver significantly stronger business outcomes.
ABOUT THE AUTHOR(S)
Shivam Srivastava is an associate partner in McKinsey’s Silicon Valley office,
Kartik Trehan is an associate partner in the New York office, and Dilip Wagle is
a senior partner in the Seattle office, where Jane Wang is a consultant.
The authors wish to thank Santiago Comella-Dorda, Paul Dupenloup, Matias
Garibaldi, Chandra Gnanasambandam, Steve Jansen, Eric Kutcher, Ling Lau, Rahul
Mangla, Matteo Pacca, Aishwarya Singhal, Matthew Tesfalul, and Steve Van Kuiken
for their contributions to this article.
The authors would also like to thank HashiCorp, Microsoft, Pivotal Labs (part of
VMware), and Red Hat (part of IBM) for their contributions to the research.
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