Don’t Fail to Scale: Overcoming Leadership Barriers to Workforce Transformation in Software

As software companies scale, they often reach an inflection point where rapid innovation and early success give way to a more complex operating model. While product-market fit and strong revenue growth might suggest a software business is positioned for long-term success, many organizations find themselves constrained – not by market conditions or competition, but by internal leadership challenges.

In fast-scaling enterprises, executive teams set bold visions and frontline teams drive execution. However, the leaders responsible for translating strategy into action – those managing key business functions, product lines, and go-to-market execution – often struggle to evolve at the pace of the company’s growth, as evidenced by leaders’ falling confidence in their executive team’s ability to effective embrace change globally. This misalignment creates operational inefficiencies, slows decision-making, and stifles the agility required to compete in a dynamic industry.

According to our Global Leadership Monitor, workforce transformation has become a key priority for organizational health. In its debut on our external threats list, 42% of leaders ranked workforce transformation as a top five threat to performance in the next 12-18 months. Additionally, leadership preparedness to address the availability of key talent and skills has dropped to an all-time low, with less than half of leaders in the software industry feeling prepared to address this challenge.

At the same time, McKinsey’s recent report on the economic potential of generative AI forecasts that the pace of workforce transformation is likely to accelerate, given increases in the potential for technical automation across customer operations, marketing and sales, software engineering, and R&D.

These findings highlight the urgency for companies to transform their workforce for the future to sustain growth.

Common growth constraints: Why software organizations often fail to scale

Software companies that reach a certain level of maturity frequently experience stalled growth, with expansion efforts failing to gain traction. The root cause often lies in the organization’s structure and talent strategy:

• Decision-making bottlenecks – As companies mature, they introduce layers of management to maintain order. However, if these leaders are not empowered or equipped to drive strategic execution, they become gatekeepers rather than accelerators of change. According to our Monitor, 61% of software executives agreed that their middle management requires some changes, and more than a quarter of respondents indicated that a complete overhaul was needed at this level. Activating this middle layer of management in workforce transformation strategies is a critical component to enabling change and future business success.
  
  
• Risk aversion and incrementalism – Many leaders within scaling organizations focus on optimizing existing processes, rather than identifying transformative opportunities. This can lead to a culture of refinement, rather than reinvention. Nearly all (96%) of software executives responded that some transformation of their organization’s technology and resources. One in four executives believed that a complete transformation of resources was needed. Without bold leadership willing to challenge the status quo, organizations risk stagnation—missing opportunities to redefine their competitive edge and unlock new growth areas.
  
  
• Functional silos and misaligned incentives – As organizations expand, different business units develop their own priorities, creating misalignment between product development, sales, and operations. Without strong leadership to bridge these gaps, collaboration suffers and growth initiatives stall. In fact, 87% of software leaders agree that a complete or partial org structure change is needed to ensure there is a balance between process discipline and entrepreneurial agility across business functions.
  
  
• Outdated skillsets – In best-in-class software companies, product and go-to-market talent is accustomed to working in a flatter hierarchy with speed, specialization, data-driven decisions and intense ownership of outcomes. Per our Monitor, software executives cited product/engineering talent (93%) and salesforce talent (88%) as the two functional groups with the biggest need for workforce transformation. Nearly all (96%) of software executives responded that some transformation of the skillset of their employees was needed.
  
  
• Lack of confidence in peers – Gaps in leadership teams – whether in vision, capability, or alignment – create roadblocks that trickle down through the organization. When senior leaders fail to model adaptability and strategic clarity, it weakens the sponsorship needed for catalysts further down the org to drive transformation. The most noteworthy group that leaders flagged as needing a skills transformation? Senior leaders themselves. A staggering 91% of software executives felt that their own senior leadership team needs to meaningfully change, and 24% think a complete change is needed at the senior leadership team level.

What software leadership competencies drive transformation?

To break through these constraints, software companies must rethink their leadership frameworks. The profiles that drive success in an early-stage, high-growth environment are often different from those required to scale a company to a global enterprise. Effective leaders in these roles must demonstrate:

1. Systems thinking – Leaders must be able to understand how different parts of the business interact and optimize across functions, rather than just within their own domain. This ability helps drive cross-functional collaboration and strategic alignment.
   
   
2. Bias for action – Decision-makers at all levels should be empowered to take calculated risks and move initiatives forward without excessive bureaucratic friction. The most effective scaling organizations foster a culture where leaders are expected to take ownership and drive change.
   
   
3. Adaptive leadership – The ability to evolve alongside the business is critical. Leaders who thrive in scaling environments embrace continuous learning and adjust their approach as market conditions shift.
   
   
4. Customer-centric execution – Growth-oriented leaders keep the end customer at the center of decision-making, ensuring that product development, go-to-market strategy, and operational execution align with market needs.

To better understand how today’s leaders are approaching workforce transformation, we explored which behaviors are driving change and which may be causing organizations to fall behind.

Workforce transformation: A call to action for software companies

Many software firms reach a stage where their existing leadership model no longer supports the company’s evolving needs. Recognizing and addressing this challenge is essential for continued success.

Software CEOs and boards should ask themselves:

• Are our mid-level leaders equipped to translate strategy into scalable execution, or are structural bottlenecks slowing decision-making?
  
  
• Are we fostering a culture that encourages bold, transformative thinking, or are risk aversion and misaligned incentives stifling innovation?
  
  
• Do we have the right leadership and collaboration mechanisms in place to break down silos and ensure cross-functional alignment?
  
  
• Are we investing in upskilling and reskilling talent to meet evolving business needs, particularly in product, engineering, and go-to-market functions?
  
  
• Does our senior leadership team have the right mix of capabilities and adaptability to sponsor change and drive transformation?

If the answer to any of these questions is unclear, it may be time to assess whether your company’s current leadership framework is the right fit for your organization’s future.

To help organizations understand the best predictors of success among leadership teams within our changing business context, Russell Reynolds Associates created Leadership Portrait. Built upon years of proprietary research, the Leadership Portrait model encompasses an executive’s readiness to meet immediate challenges—their relevant experience and leadership competencies—as well as their future potential—their growth factors and their ability to realize their full potential amidst inevitable change and transformation.

Companies that proactively address these leadership challenges position themselves for sustained success. By investing in the right talent – whether through leadership development, external hiring, or structural realignment – software firms can break through operational constraints and unlock new levels of growth.

Now is the time to ensure that the leadership engine driving the business is built for the road ahead.

Authors

Robert Alexander leads content strategy for Russell Reynolds Associates’ Software practice. He is based in New York City.
Todd Savage is the global leader of Russell Reynolds Associates’ Software practice. He is based in Miami.