Digital transformation is a hot topic among CIOs and business leaders, as those companies that become digital organizations will become market leaders. And those that don’t make the shift, will struggle to survive.
If one needs proof, look at what’s happened over the past five years: Many big brands that were once staples of the American economy have shrunk significantly, with many of them disappearing.
Service provider Masergy provided a lay of the land recently in its state of the digital transformation survey, conducted by Webtorials, so see how well companies are handling their transformations.
The study confirms how important digital transformation is today, with 78% of the respondents agreeing that if their industry is changing, digital transformation is needed for survival. The important phrase in the question is “needed for survival” – digital transformation isn’t viewed as something to help a business keep up with the Joneses; it’s now life or death for many companies.
Long-term value preferred over short-term gains
When considering expectations for ROI, the results were a bit surprising. The lion’s share of the respondents, 61%, said the ROI is long term and strategic rather than based on short-term results. That leaves only 39% trying to get a quick payback on their digital transformation investments.
Those wanting a quick payback are looking at digital transformation the wrong way. It’s not about a quick-hit project here and there. Instead, digital transformation is a cultural shift based on sustained long-term market leadership, so it was good to see the bulk of respondents sharing that opinion.
Improving customer experience the top digital initiative
The study also touched on what benefits respondents are looking for. The top response: enhanced customer experience, which shouldn’t be a surprise because improving customer experience is top of mind with most executives. In fact, in 2015, Walker predicted that in 2020 customer experience would overtake price and all other factors for brand differentiation. The prediction was half correct: Customer experience did become the number one differentiator – but it happened in 2018.
Businesses need to focus on customer experience now or fall behind the competition. An interesting proof point to this comes from ZK Research, which found that in 2018, two-thirds of millennials switched away from a brand because of a bad experience. (Note: I am an employee of ZK Research.) Digital initiatives should revolve around customer experience, and the survey certainly supported that.
The next three benefits to digital transformation were close enough in percentage terms that I’ll call them all number two. They are: remaining competitive, streamlining business process, and enabling new business models. The response “remaining competitive” seems a bit vague, but I believe that refers to using digital technology to catch up to peers, whereas new processes would refer to getting a step up on the competition.
Another positive from the survey is that cost savings was well down the list at number six. It’s good to see business and IT leaders focusing on improving the business instead of stagnating the business by trying to suck cost out of it.
Top areas of technology investment: cloud, security, and analytics
An interesting aspect of the survey results is what businesses would invest in to support digital transformation. Below are the top five projected areas of IT spend (combined first and second most important).
- 37% Cloud migration
- 35% Security
- 33% Data analytics/artificial intelligence (AI)
- 26% Mobility and unified communications
- 22% Emerging technologies such as IoT, virtual reality, etc.
It’s somewhat surprising that emerging technologies are fifth on the list given the hype around some of them. I believe the areas of spend are prioritized around where respondents are feeling the most pain. For example, modernizing applications and infrastructure can be a long and expensive process, but moving to the cloud can enable that to happen quickly.
Security has been and continues to be a top care about for business and IT leaders, as every breach can cause serious legal and customer problems. Also, data analytics and AI enables companies to find insights in the massive amount of information being created today. People can’t connect the dots using manual methods, making AI-based analytics mandatory.
Businesses need better budget commitment and executive buy-in
The survey also looked at the challenges that hold companies back from a successful transition to digital. The top response was budget commitment followed by executive support. This is an interesting set of data points because in the early part of the survey, the majority of respondents said digital transformation is core to survival, but this data shows it’s tough to get budget and executive buy-in.
A couple of data points from ZK Research can shed some light on this dichotomy. First, 55% of CxOs admit they don’t know what their industry will look like in three years. Second, 70% have seen new competitors emerge in the past five years. Consider the complexity in trying to build a go-forward plan when it’s unclear as to the direction of the industry or who you are competing with. Even if there’s an understanding of how important digital transformation is, planning and budgeting is a bit of a leap of faith.
Skills gap exists and respondents are leaning towards smaller, agile service providers for help
Complicating things is the skills gap. The Masergy – Webtorials survey revealed that only 39% of respondents feel they have the necessary in-house talent, so building the “leap of faith” plan requires a skill set that most companies don’t have.
An obvious choice is to seek help from an outside service provider, but attitudes are changing as to who businesses prefer to partner with. Several years ago, the big service providers were the partner of choice, as “one never gets fired for buying X” where X is your favorite market leader.
The survey found, however, that 57% prefer smaller, agile service providers compared to only 43% that prefer the larger incumbent carriers. I believe that’s because people understand that agility and speed matter, and typically big, established service providers don’t move fast enough, which holds customers back.