The Business of Tech
Introduction
It is easy to assume that the so-called Big Tech companies are successful because they have the biggest budgets to employ the brightest engineers. But, as with most generalisations, the truth is more nuanced, hidden from view, and sometimes highly misleading. What makes tech companies successful is a combination of factors mainly related to how they organise and run software engineering. Undoubtedly, technology has played an outsized role in the meteoric rise of many famous Silicon Valley companies or has at least appeared to the outside world. However, innovative engineering is only possible with strong leadership and an effective organisation.
People tend to have short (and often flawed) memories, so it is easy to assume that the current Silicon Valley tech giants have been at the top for a long time and that they will last even longer. But, it is worth remembering that not long ago, the most successful tech companies were not Google, Amazon, Facebook, Apple, and Netflix. In the 1990s, no catchy acronym like FAANG existed[1]. The list of tech powerhouses was quite different from today. The list would have included Cisco, Yahoo!, RIM, and Nortel were all industry and innovation leaders[2]. Companies rise and fall, surging into the public spotlight only to ebb back into obscurity faster than ocean tides. Of the powerhouse tech companies of the 1990s, for example, only two or three - IBM and Microsoft, and perhaps Oracle - still carry any weight in Tech circles, and those two are outliers[3]. It is hard for the current generation, accustomed to constant disruption from start-ups, to know that IBM was once world-renowned for ground-breaking research and development enabled by innovative management, top-tier engineers, and technical excellence. Just as some of those names have faded or disappeared entirely, today's innovation leaders will likely not be those of tomorrow. What makes companies technical giants is their ability to mesh technical prowess with business objectives. That requires competent leaders and an operating model at once structured enough to keep the ship on course and flexible enough to allow for innovative ideas to blossom.
When done well, software development contributes to a company's competitive advantage, allows scalable and efficient growth, and enables the business to react quickly to changing markets. How tech contributes to business success is measured by engineering’s ability to align technology and innovation with business objectives and adapt both to solve business problems.Many companies call themselves Tech Companies, as in Big Tech, or actively strive to become one. They see it as a club they want their company to join. Whether to attract investment eager to back tech or attract engineers, many CEOs are practising sleight-of-hand. They fail to accept the venerable adage that good managers can manage anyone no longer works well enough in companies aspiring to join the tech club. Technical companies require technically competent leaders.
Technical Literacy in the C-Suite
In my view, if we assume a broad definition of tech, there are three kinds of tech companies: Pure Tech is a company that sells software or SaaS services as its primary USP, Tech-driven is a company that uses technology to sell non-tech products, and Tech-enabled is a more traditional company that uses technology to improve or replace inefficient manual systems or processes. CEOs who imagine they lead tech companies don’t make the distinction. They lack technically literate leaders and put their company at a clear disadvantage in today's competitive markets. While technology plays an increasingly central role in most companies, old leadership and executive management structures no longer meet the needs of a twenty-first-century digital enterprise. They happily adopt the label tech company but cling to outdated management structures and hierarchies incompatible with that model. The management practices of non-technical, legacy sales-driven organisations are fundamentally ill-suited for most companies today. Harvard Business School Professor Rafaella Sadu wrote recently, "So much has changed during the past two decades that companies can no longer assume that leaders with traditional managerial pedigrees will succeed in the C-suite."[4] To achieve success, all executive leaders must adapt and become technically literate and comfortable dealing with what is often one of the largest and highest-cost divisions within their org: engineering. It is the modern shop floor, and CEOs must learn how it works. The separation between the C-Suite and the new shop floor. has never been smaller, and finding the correct balance between executive supervision and enablement is the first step in resolving the Tech problem. Yet, worryingly, this is the opposite vision adopted by many companies.
The Next Generation of Technical Leaders
A study analysing executive job descriptions from 2000-2017 concluded that companies today prioritise social skills above technical know-how, expertise in financial stewardship, and other qualifications. This trend can possibly be traced back to the influx of business graduates into tech-related companies.
"Ever since thousands of banking jobs were axed—and the industry’s reputation tarnished—in the wake of the financial crisis of 2007-09, big tech has looked more attractive to graduates than big banks have."[5]
Promoting success means setting people up for success, not failure. Here are a few red flags CEOs would do well to note.
- Non-tech-literate CEOs underestimate how complicated it is to be a technically competent leader and often don’t fully appreciate the difference between managing and leading a technical company. A CEO is a leader who can organise the talent and experience of the executive group. But, if that group has a low technical IQ, the company will never realise its full potential.
- Many C-suite executives - non-technical C-suite leaders - usually understand scaling to mean hiring more engineers. But, optimising for hiring is inherently unstable. Unfettered growth in newly funded start-ups is a perpetual source of waste and discomfort. Failing to consider how fast the organisation or department can or should absorb new hires leads to high attrition, low job satisfaction, not to mention increased costs. Senior leadership needs to raise its collective technical IQ.
- Growth to corporate size cannot be achieved by simply hiring people from corporate-sized companies. For example, the highly paid ex-AWS manager that a company employs to grow their scale-up is probably not one who helped grow AWS. So, it is not clear how they will know how to grow a scale-up.
- The technical competence of senior technical and operations leaders is often below an optimal level. The trend has been toward soft and people skills too often at the expense of meaningful technical ability. This has manifested in an over-reliance on second-tier technical leaders who too often have limited vision, strategic experience or both.
Promotion and hiring committees need technical voices, especially at senior levels. Talent acquisition is often slotted into HR departments when it would be far more efficient to be in an engineering group. Technical hiring is not a generic skill. It is a specialised function that requires close cooperation between specialised recruiters and engineers trained to interview.
The technical ignorance of far too many HR representatives has already risen to the level of folklore and ridiculed within the engineering communities, which does not help the company attract the right talent. After all, the first person a candidate meets in a hiring process provides the first impression of the company. It is high time to acknowledge and act to improve and set a standard for technical recruiters and HR partners working with technical departments to upgrade technical skills significantly. Embedding people functions into technical organisations is the first step towards that goal.
Conclusion
The distinction between pure tech, tech-driven and tech-enabled companies is crucial to understand for it determines the optimal level of technical awareness and knowledge required to run the organisation successfully. Not just for the technical leader - CTO, VP or Head of Engineering, but for all members of the leadership team, first and foremost the CEO. When a tech-enabled company sees internal engineering as equivalent to near- or offshore software development it is an indication of a relatively low level of technical literacy. Any pure tech or tech-driven company will suffer without a technically literate C-suite especially one without a tech-savvy CEO. Pure tech is especially, though not uniquely, vulnerable to a lack of engineering competence in the executive offices. To achieve excellent business results with the minimum resources required in a technical industry, the alignment between all parts of the business is fundamental and a relatively sophisticated understanding of technical and engineering challenges essential.
As easy as it may be to blame others in the C-suite, for not being technical enough or that the board of directors have failed to replace current leaders with technically savvy ones, in the end it is the job of the next-generation technical leader to drive tech literacy and educate the members of the leadership circle. Failing to do so will result in tech being led by second-tier executives who will be constantly doubted, excessively reviewed, and potentially overruled by individuals who really don’t understand how tech should be done. Sadly, like so many companies are today.
[1] In finance, the acronym “FAANG” stood for stocks from five prominent tech companies: Facebook (now META), Amazon (AMZN), Apple (AAPL), Netflix (NFLX); and Google (now Alphabet). The acronym MAAAN (Meta, Apple, Amazon, Alphabet, Netflix) has yet to gain traction and hopefully won’t.
[2] IBM is still a highly innovative company and in 2021 holds the US record for patents granted each year as it has done for each of the past 28 years.
[3] Microsoft and IBM are excluded from this group because, according to former CEO Eric Schmidt, they “have not driven major social change through their dominant role in online activity” like the others.
[4] Sadu, Raffaella, et al. "The C- Suite Skills that Matter Most: More than ever, companies need leaders who are good with people." HBR, July-August 2022, p. 42-50.
[5] The Economist. “What Gen-Z Graduates Want from Their Employers.” The Economist, 21 July 2022, https://www.economist.com/business/2022/07/21/what-gen-z-graduates-want-from-their-employers. Accessed 10 May 2023. The authors define "strong social skills" to mean "specific capabilities, including a high level of self-awareness, the ability to listen and communicate well, a facility for working with different types of people and groups," and empathy."