Cloud Business Operations Digital Transformation Strategy

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Est. reading time: 9 minutes
Author: Steph Locke

Businesses with the highest developer velocity experience the highest revenue growth, according to new research by Microsoft and McKinsey. Read on to understand how tools impact developer velocity and what the business case is for investing in them.

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Steph Locke

Technologist and consultant with a track record of delivering transformation of businesses into data science and AI companies.

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In my previous post on Developer Velocity I discussed how we can drive transformative business performance through software development. Today, I’m going to get stuck into the discussion of investing in tools to improve your developer velocity.

It’s important to do since companies with the fastest developer velocity outperform others in the market by four to five times. Top-quartile companies also have 60 percent higher total shareholder returns and 20 percent higher operating margins. The companies getting it right also tend to rank higher in innovation, customer satisfaction, brand perception, and talent management so it’s clearly not just a back-office, hidden department type of initiative.

Based on the data, manufacturers should focus on up to four key areas depending on where they are currently developer velocity-wise.

  • All manufacturers
    • Talent management
    • Tools
  • Low developer velocity
    • Move to the cloud
    • Develop more agile working practices
  • Medium developer velocity
    • Improve compliance and security practices
    • Develop a product management function
  • High developer velocity
    • Embrace open-source technologies

Which tools to invest in?

Tools are critical no matter the stage with the top ten areas to invest in tools ranked by overall impact are:

  1. Planning tools
  2. Collaboration tools
  3. Development tools
  4. DevOps tools
  5. Public cloud adoption
  6. Test automation
  7. Low- or no-code tools
  8. Software architecture
  9. AI assistance in development
  10. Infrastructure as code

The story is a little different for manufacturers with smaller tech teams.

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. 2

For companies with fewer developers and are not involved in making software generally, public cloud adoption, low- or no-code tools, and AI assistance can make much bigger gains. This gels with our experience providing no-code tools that use AI to help people in different business units develop digital automations to solve problems.

What’s needed to get the most ROI from tools?

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. 2

Planning and collaboration

The first and second most vital area of tools should be standardised across teams and facilitate remote work. The setup inside the tools should reflect your working team structures, so if you’re moving towards a product orientation the tools should reflect that.

Standardization of planning and code-management tools helps organizations coordinate and manage dependencies more easily, allowing developers to distribute knowledge and share learnings. 1

Most importantly these tools aren’t just for your developers. By surfacing knowledge about product plans, data, security and compliance you make more knowledge available to people will contribute or benefit from the technology.

Developer tools

Developers should have a budget and be able to pick from a variety of tools to help them develop solutions, whether they’re software, data, or machine learning specialists.

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. 1

Best practices for developer tools include:

  • making a recommended tools list
  • embracing open-source tools
  • having a tooling expert in each technology team
  • share best practices both inside and between teams

DevOps tools

Enabling the rapid testing and deployment of digital products and changes in the business is a key component of delivering value quickly. It also gives us a great opportunity to integrate important quality, compliance, and security practices.

We observe that standardization in a few key areas such as the CI/CD pipelines can drive higher levels of autonomy and psychological safety for developers. Standardization helps increase the confidence of developers to push code to production while reducing friction and manual quality, risk, and compliance reviews. 1

As standardisation in this area is important for long-term speed, you need to make plans to support migration to the new system. This could be trigger based e.g. a new major product change, or timescale oriented.

Further, as you standardise you will need to invest in training and knowledge transfer to ensure people use the tools effectively. These DevOps tools form the backbone of your technical delivery capability so it’s critical that it is robust and used appropriately.

Low- and no-code tools

We’re huge advocates of no-code tools that enable business users to be self-sufficient. Particularly for manufacturers, adoption of capabilities like Azure Logic Apps and Microsoft Power Platform is a huge productivity gain and it’s how we parcel up our AI capabilities.

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. 2

The business case for a tools budget

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. 2

Getting sign off for a budget for software can often cost more than the software itself, or it can be easier to hire someone instead. Unfortunately, IT is pretty much a sellers' market and recruitment can take a long time. Tools can be a compelling enabler of productivity both inside and outside the tech team so here is a way to put some financial calculations together to help you get the all-important sign off.

Start with your existing team

Let’s start with the use case of the existing team. You want to be able to add 1 Full Time Employee (FTE) equivalent of throughput to your team.

Your options are to hire a new person or to look for productivity gains in the team. You ask them, and as they don’t have a lot of tools right now, the team thinks they spend 20% of their time on stuff tools can automate.

So, if you can automate 20% of the work for 5 team members, you can get 1FTE extra whilst only spending the cash to buy the tools and maybe even splurge on training to ensure they’re using the tools well.

Contrast that with a new hire. To hire a new person, you usually not only have to pay their full salary but pay some recruitment costs. These could be to a recruiter, or they could just be the huge amount of your time spent on filtering CVs, interviewing, contract negotiating, liaising with HR and so on. You hire this person and because they too have no tools, you don’t actually get 1FTE. You get 0.8FTE! You’d have to hire one and a bit people to actually achieve the goal.

Putting some hypothetical numbers against these two cases, it can cost 4 times more to hire from throughput than it could to unlock productivity of your existing team.

AreaExisting staffNew hire
Avg Annual salary55,00055,000
Recruitment costs010,000
Hire(d)51
Time spent on tasks that tools can automate20%20%
Annual wasted time cost55,00013,000
Planned tool spend per person2,000
Training cost for tools2,000
Value unlocked (FTE)10.8
Total cost of acquisition to add 1FTE throughput20,00081,250

Retain staff for longer

The study from Microsoft & McKinsey, found that investment in tools improves satisfaction and improves retention by 47%.

IT has some of the highest turnover of different departments so being able to improve tenure by half is fantastic.

In the scenario below, we have our original 5 staff and over 6 years maintain the headcount. For pessimism’s sake I’ve assumed we have to buy everyone who starts tools again, even though licenses typically can be reassigned. Even with an extra outlay for tools and training on each new hire, it still costs less than the costs incurred by additional recruitment for higher churn.

AreaWithout toolsWith tools
Headcount55
Avg Annual salary55,00055,000
Recruitment costs10,00010,000
Tools & training spend per person04,000
Average tenure (years)23
Time period (years)66
Refill hires1510
Total cost to hire150,000140,000

Lower your costs for throughput going forward

There will be a point in time where you can’t automate any more of the tech team’s day job. You’ll need to hire eventually if you want to keep adding throughput. As you grow you need fewer staff than you would otherwise for throughput gains due to lower wasted time.

Let’s say you want to add 5FTE more throughput to your team and you use existing team’s performance as your benchmark. Without tools, each staff member is 0.8 FTE but with tools they’re 1FTE. You’ll need to hire 6 people instead of 5 to get roughly 5FTE if you don’t invest in tools. Even taking into account the cost of tools, you still save one headcount worth of salary.

AreaNew hireNew hire with tools
Avg Annual salary55,00055,000
Recruitment costs10,00010,000
Hire(d)65
Tool automatable tasks20%0%
Annual wasted time cost55,0000
Planned tool spend per person2,000
Tool training cost per person2,000
Value unlocked (FTE)4.85
Total cost of acquisition to add ~5FTE throughput390,000345,000

Your own business case

Obviously, the salaries, headcounts, and tools costs are going to vary. The business case generally holds true that it’s more cost-effective to boost staff with tools but to enable you to make your own business case with numbers from your organisation, I put together a quick spreadsheet that you can download and plug in your figures.

Invest in tools

Investing in tools helps businesses at all stages move faster and more safely. Letting your teams use tools improves their job satisfaction and improving retention. Spending money on tools also makes sense over the long run from a cost perspective.

These statements generally hold for all your staff too – so look at where tools can help your teams scale.

Further learning

In a webinar series with Quest I recently presented on this topic and you can watch the video or check out the slides.

  1. Developer Velocity: Lessons from digital leaders whitepaper
  2. Developer Velocity: How software excellence fuels business performance whitepaper
  3. Developer Velocity Assessment
  4. Developer Velocity Lab publications
  5. Team Topologies
  6. These 3 Industries Have the Highest Talent Turnover Rates

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