Impacting EBITDA: Testing is a Boardroom Decision
The KMS team was excited to join the Software Development Times podcast, What the Dev?, to discuss how test automation can protect and drive EBITDA. Listen here:
Top Takeaways
EBITDA tends to be the focus of boardrooms, not testing organizations. Likewise, how often do executive teams really consider testing as anything more than an aspect of the software development lifecycle?
In this podcast, we explore how testing can be a key driver of EBITDA, and how testing leaders can advocate for the resources they need by positioning testing as an enabler of business growth, not just a cost center.
Here are our high-level takeaways:
- EBITDA is shrinking, which means executives need to get creative in protecting their business health. This puts more pressure on the software side of the business to deliver faster.
- Software product quality is more critical than ever as global competition increases. This means QA and testing is a differentiator and accelerator.
- Automation enables faster release cycles, improved quality, and testing that more closely resembles real user behaviors. Testing leaders must advocate for the resources to scale up automation. It not only saves costs but actively drives revenue.
- Testing organizations are dealing with a perception problem. Leaders can grab a seat at the boardroom by showing measurable impacts driven by testing, demonstrating how much impact testing has on EBITDA.
Full Podcast Transcript
DAVID:
Hello and welcome to this Software Development Times podcast: What the Dev?
Today we’re speaking with the team from KMS Technology on Impacting EBITDA: Testing is a Boardroom Decision. We have Kim Mirazimi, CRO, joining us. Kim brings 20 years of expertise in accelerating corporate growth in software products, product consulting, and software development services across a myriad market sectors, including technology, security, manufacturing, healthcare and retail, from early-stage start-ups to Fortune 500 organizations.
Welcome, Kim.
KIM:
Thank you David, happy to be here today.
DAVID:
Also joining us is Nilesh Patel, senior director of software services. Nilesh has over 15 years of experience in leading software testing and quality assurance organizations and implementing automation to enhance testing outcomes.
Welcome Nilesh
NILESH:
Thank you, David.
DAVID:
I’m excited to jump into this topic and understand more about how testing can impact EBITDA. This isn’t something we often discuss in the realm of testing. To start things off, let’s open up with the current state of testing to set the stage.
Could you talk about the current landscape of software testing?
NILESH:
According to World Quality Report, new trends in quality show that business assurance is more important than ever, and quality now a boardroom decision due to high levels of competition.
A boardroom decision is big shift, as in years past testers just focused on testing the software and its features and didn’t really worry about business impacts. But testing is a critical stage in the SDLC, and testing teams are feeling pressure to deliver high quality software faster than ever before with emphasis on businesses assurance.
Applications and products are more complex than ever, so a wider range of testing is required.
To do this, organizations are leveraging automation and AI in the testing process and reducing manual steps while increasing test coverage. Automation enables testers to increase coverage, testing business assurance scenarios and workflows across different devices/browsers. In other words, automation enables teams to test behaviors that are closer to real user activity. This increases the ability to compete globally. When you have ten products that do the same thing you do, you need to release faster and get good user feedback, or customers will easily jump to another product.
DAVID:
You mentioned that testing teams are facing a lot of pressure to deliver quality products faster. What are the factors behind this pressure?
KIM:
Well an obvious answer is that delivering quality products faster helps you meet and exceed market demand and drive client satisfaction, right?
But there is another level of pressure here that goes beyond the testing teams, and it goes all the way up to leadership. And that is the market’s pressure on the performance of software companies today. This ultimately points to EBITDA, and executive leadership teams are finding themselves working harder to drive successful results here.
When I talk about EBITDA I mean earnings before interest, taxes, depreciation, and amortization. EBITDA gives the best picture of a company’s business performance as a whole. The reality right now is that tough conditions like weak demand and rising costs are contributing to shrinking EBITDA margins and will continue to do so.
We can also add in competitive pressure here and the challenge around gaining and maintaining market share. If companies aren’t addressing these competitive pressures and aren’t decreasing their fixed costs for production, EBITDA margins are also at risk to decline.
Gartner is predicting that EBITDA Margins will shrink by more than 30% by 2027. You can imagine the challenge that lies ahead, and executive teams are asking: how do we manage this beyond how we usually do? What are other ways we can get creative with other areas of the business?
Nilesh, this is something we’ve talked about…can you share your thoughts here?
NILESH:
That pressure funnels down to the testing organization.
If testing delays product releases, that increases costs and minimizes the window for the software to be monetized. If the testing isn’t thorough, bugs can slip through releases. That increases costs as well, because you have to redeploy, and you potentially lose revenue if customers encounter bugs that drive them off of your platform. These problems can further shrink EBITDA.
On the other hand, testing organizations can be key drivers of strong EBITDA if they adopt the right automation tools and strategies.
DAVID:
So we’re seeing this pressure at the business level impact every part of the business, including testing organizations. If the testing organization catches bugs and releases high quality software fast, that increases profitability, which directly impacts EBITDA.
Let’s dive into those tools and strategies. How can testing organizations enhance EBITDA?
NILESH:
Automation is key. It has huge potential to optimize costs and increase profitability, but it must be deployed in a holistic strategy. A lot of organizations use ad hoc testing automation. It’s a band-aid approach where automation is applied to isolated use cases. Good testing automation is a combination of product and process. You can automate the test coverage itself, and build, test, and deploy in one step, automating the pipeline based on triggers.
These process automations replace manual testing efforts and inefficiencies, increasing speed by 20x.
There’s also a benefit to adding automation at earlier stages of the pipeline, because it allows teams to catch and solve problems proactively, instead of reacting much later in the process and having to delay releases to fix things.
Kim, what are you seeing here from a business perspective?
KIM:
I honestly believe testing is under appreciated when it comes to EBITDA. Leaders aren’t necessarily thinking about testing as this goldmine of profitability, but it can have a HUGE impact on the business – not only on the product! Testing organizations should be positioning themselves as key drivers of EBITDA. They have a huge impact on the business.
Testing leaders should be advocating for themselves and claiming a seat at this table because they can impact the bottom line. So, if you’re a CTO, and involved in these conversations about EBITDA, advocate for the potential benefits of automated testing. If the executive team sees the value, they’re more likely to invest in automation that further increases profitability. Automation becomes a multiplier of benefits!
DAVID:
That’s a really interesting perspective. We see that automation can drive so much value for EBITDA, but executive teams may not even be aware of that opportunity. If executives see the value, they can provide the investment and the resources for the testing organization.
Given that, what are some of the other benefits of test automation? How can CTOs and testing teams talk about those benefits in a way that executive teams will understand?
KIM:
Sure thing, David. There are three which are most top-of-mind to me:
- Reduced Time-to-Market: Automated testing speeds up the testing process, allowing software products to be released faster. This can lead to quicker monetization of products and services, positively impacting EBITDA.
- Improved Quality: Automated testing ensures consistent and thorough testing of software, reducing the likelihood of defects and errors. Higher-quality products lead to fewer customer complaints, returns, and warranty claims, ultimately improving profitability and EBITDA.
- Predictability: Increasing predictability to ensure the products that go out to market work as intended is huge for accurate forecasting.
Nilesh I’m sure you have a few ideas from your side as well.
NILESH:
Sure thing, I’d say:
- Cost Savings: Automated testing reduces the need for manual testing efforts, resulting in lower labor costs. Additionally, it helps identify defects earlier in the development cycle when they are less expensive to fix. These cost savings contribute directly to EBITDA.
- Scalability: Automated testing and use of AI can easily scale to accommodate larger and more complex software systems. As the business grows, automation allows testing efforts to keep pace without a proportional increase in resources, thus improving efficiency and EBITDA margins.
- Resource Optimization: By automating repetitive and time-consuming testing tasks, resources can be reallocated to more strategic activities, such as innovation and product development. This optimized resource allocation can lead to increased productivity and higher EBITDA.
KIM:
I couldn’t agree more. The adage comes to mind, “You cannot validate what you cannot measure.”
One last piece of this is ensuring that testing teams are measuring their results. Leaders need to start thinking about which KPIs can show how the business is impacted. How can leaders present this and assert themselves as key drivers of EBITDA?
Testing is not a task. It is also not only about the product. It is much bigger than both of these. It is about the overall success of an organization – and pulls way beyond the product!
Testing is not just a cost center but a revenue generator.
DAVID:
That’s a great way to think about testing and a great question to throw out to our audience. Leaders need to start thinking about measuring the impact of automation to demonstrate how testing can drive EBITDA. It’s going to be a hot topic across every board room, and testing organizations have an opportunity to grab a seat at the table.
