Uncovering the $126 Million Software Knowledge Gap. Is Your Organization Missing Out?
September 20, 2021

Michael Stahnke

Technology executives are often hard-pressed to explain how investing in developer headcount and tooling results in returns for their bottom line. As a business leader, it can be difficult to measure the true value of hiring more developers or investing in software delivery tools.

In the retail industry, for example, ROI can be measured by sales per square foot. Retail execs can easily understand their velocity of sales by space for a new versus existing
store, how long it would take to pay off, and their overall sales volume.

But in the world of software, it's far more complicated.

To accurately make this type of ROI assessment, it's essential to track meaningful engineering output metrics. But after surveying more than 2,000 business leaders across the US and UK, a recent report revealed a significant gap in how these metrics are being measured:

Tech leaders are relying on ineffective metrics. While software is a driver of business value, the knowledge gap between leaders and their developer teams is holding back growth.

Lack of innovation comes with a cost. Relying on ineffective software metrics, like lines of code and story points, are costing companies up to $126 million in lost revenue per year.

Companies are on different digital transformation journeys. Despite this knowledge gap, many businesses are in a good position to reach their potential by focusing on and adopting modern DevOps practices.

There's a lot at risk but there's good news too — there are several strategies engineering teams can employ to bridge this gap and ensure organizations are reaching their maximum potential in software delivery. Let's explore how to put them into practice.

Business Success Relies On Software and Software Engineers

97% of leaders believe at least some of the success of their business within the next year relies on the ability of their software teams, with 62% of those saying that it "matters a lot" or is "critical." More than 60% of these leaders ‘strongly agree' that they understand how to measure their teams' performance.

Accurate measurement plays a vital part in aligning the software engineering process and output with business goals. But it doesn't happen overnight. It happens as you start tracking a few metrics, drill deeper, and add more meaningful metrics to your
dashboard over time.

The Software Knowledge Gap

One of the key findings of this study — and one that may surprise business leaders — is the gap between the ability leaders think they have in measuring the output of their software teams, and the way they actually measure that output.

89% of survey respondents believe they have a good understanding of how to measure the performance of their engineering teams. Yet many are still measuring delivery effectiveness through outdated metrics. In total, 40% of respondents said they are measuring by lines of code written, and 37% are using story points.

Based on the best estimates of respondents, improving how software delivery is measured could be worth a mean revenue increase of as much as 40.8%. Using the reported sales of these businesses, that would equate to a staggering $126 million per company per year left on the table.

Through observing day-to-day practices across the software industry, Rachel Stephens, Senior Industry Analyst at Redmonk, came to this conclusion as well. "High-performing software delivery teams can be a key differentiator for business success, but many companies are still grappling with how to define and measure their teams' performance," Stephens said. "Poorly chosen metrics can negatively impact developer productivity and can hold organizations back from success."

Looking Forward: How Businesses Can Reach Their Maximum Potential

So, what can businesses do to ensure they're measuring software delivery output in the most effective way and maximizing earning potential? First, the knowledge gap must be addressed.

A knowledge gap occurs when different parts of an organization stop communicating and collaborating effectively. Developers and engineering managers and their business counterparts should work together to review and revise company and team goals, taking time to check shared definitions and understandings. The same should be done with budgets, tools, and team and manager skills audits.

Defining Good Outcome Measurements

One possible way to measure software delivery outcomes is to align on service level objectives (SLOs) for engineering teams to maintain. SLOs are simple, numerical measures that can bring business context to a particular part of your output, and commonly include things like error rates, uptime, and time to recovery.

Investing in continuous integration and continuous delivery is an important method for improving critical metrics like Duration, Success Rate, Mean Time to Recovery, and Throughput. Teams that commit to the practice of CI/CD have been shown to rank as elite in these four metric categories.

How to Link Business and Technology Goals

1. Get everyone on the same page. Introduce goals, whether from the overall business or within a technology team, so everyone knows what they're working towards. These goals should link back to the company's mission.

2. Link goals to important metrics and explain them. Leaders must be clear about what they need from technologists and what the expected product must achieve. Developers should set their team goals and KPIs in ways the business can understand and support them.

3. Start small. Changes should be incremental. If they work, keep doing them.

4. Don't rely on common sense. Consistently review metrics. If you review goals, KPIs, and results and find a disconnect, bring all the stakeholders together to review and get back on track, without judgment.

5. Look at software delivery as a revenue accelerant. If software is a critical aspect of your organization, it is not a cost center. Innovators need the right tools to grow and improve, and to deliver on the company mission.

Digital Transformation is a Journey

Business leaders need to accurately measure the productivity and business impact of engineering work, but digital transformation in and of itself has no endpoint. It's important that both engineering and business leaders don't exclusively compare themselves to others. Run your own race, compare your teams to a baseline, and improve from there.

Michael Stahnke is VP of Platform at CircleCI
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