FACT CHECKED
Alongside the provision of a robust digital transformation (DX) strategy, delivering solutions that help maximize returns on investments is emerging as a top priority for organizations in 2022 and beyond.
According to the EY-Parthenon 2022 Digital Investment Index (DII), organizations are making record-breaking investments in technology this year—up 65% from 2020. However, business and IT leaders frequently have difficulty determining a clear digital strategy to measure digital investment outcomes of their digital investments.
Scaling technology solutions across all sectors is critical so that companies may invest in high-priority projects while still maintaining benefits. 72% of executives surveyed in the EY-Partheon Index say they must radically transform their operations during the next two years to compete effectively.
However, organizations may easily rush to procure as many new technologies in a misguided attempt to outpace the competition. This can ultimately result in disparate spending because IT leaders become over-responsible for critical decision-making due to top-down leaders lacking the organizational vision regarding digital transformation.
Spend optimization is key in technology investments if they’re to be beneficial. The best route to success is driving the digital adoption of efficient technologies to enhance returns and helping your employees adapt to digital transformation.
Current and Future Digital Investments Trends
Many companies are spending more and investing in digital transformation to try and improve their business. It can be difficult to measure whether or not these changes are working. As pressure to quickly bring technology-enabled products and services to market and achieve efficiencies increases, global digital transformation investments are expected to exceed 3 trillion U.S. dollars by 2026, according to the IDC 2022 Spending Guide.
The largest digital transformation investments will enhance scalability and innovation for large-scale operations and core business functions, accounting for 20% of all digital transformation investments. Additionally, the securities and investment services industry will experience the fastest growth in digital transformation spending, registering a five-year CAGR of 20.6%.
Businesses have yet to recover from the social and economic fallout caused by COVID-19 and concurrently face additional economic challenges spurred on by the Russian war with Ukraine. In fact, 97% of respondents in a Statista survey measuring the global COVID-19 impact on digital transformation reported digital investment outcomes were bolstered by the pandemic, which sped up digital transformation processes in their organization.
If businesses want to stay afloat, they need to start implementing current and future strategies that serve as a resource for driving business agility in times of severe economic uncertainty. In the next two years, there are four main areas that businesses plan on digitally transforming: Customer Experience (CX), Data & Analytics, Cloud Computing, and Mobility.
The Importance Of Sustained Technology Investments
Technology investments are a no-brainer for any organization wishing to maintain marketplace perpetuity and achieve operational efficiencies in this digital-driven age.
Naturally, businesses that invest in technological advancements reap the rewards of a more flexible workforce, reduced costs, enhanced profitability, and the ability to deliver better products and services to their customers.
Increasing demand for technology investments was undoubtedly exacerbated due to recent changes in work habits (e.g., remote and hybrid work).
Some businesses deploy technology to compensate for lost time after a decrease in activity during the pandemic. Where employees were furloughed, or operations reduced, the impact of new software was minimized. Companies could reduce staff costs and invest in other business areas by using technology to automate processes.
Technology investments are the key to enabling companies to keep pace and transform at scale—making it especially important that businesses sustain investments in burgeoning technology areas, such as AI, cloud solutions, and blockchain, to increase core internal operational efficiencies.
Total global spending on information technology (IT) reached 4.26 trillion U.S. dollars in 2021 and is expected to increase to around 4.43 trillion U.S. dollars as of 2022, according to Statista.
Businesses should aim to create an environment that encourages innovation through technology and champion digital projects requiring more scrutiny. This requires investments on behalf of stakeholders and business leaders.
Investing In Cybersecurity Fortifies Returns
Digital transformation is difficult to achieve without cybersecurity. The fallout that can occur after a cyber breach can result in a loss of customer trust, sky-high recovery costs, and significant damage control. The median price of an attack costs up to 18 thousand U.S. dollars in 2022.
Gartner reports that by “2025, 70% of CEOs will mandate a culture of organizational resilience to survive coinciding threats from cybercrime, severe weather events, civil unrest, and political instabilities.”
Gartner also reports that attacks on operational technology (OT) have become more common, including hardware and software that monitors or controls equipment, assets, and processes.
As such, companies must invest in the right digital solutions, cybersecurity strategies, and risk management processes to protect their data, customer information, intellectual property, and other assets from malicious online actors.
Additionally, organizations should be aware of the latest threats and vulnerabilities that they might face or have already faced. By taking these steps and staying informed about the emerging security landscape, businesses can protect themselves against cyberattacks and ensure their technology stack is fortified, and digital investments generate healthy returns.
Smart Investments Can Counterbalance Increasing Costs
Businesses gradually realize that digital transformation is crucial for their success in the long run. Many have already started to feel the consequences of not having made this change sooner, with employees becoming aware of their worth and demanding higher salaries or moving on to better positions.
This new paradigm has been dubbed the ‘Great Resignation,’ a phenomenon backed up by McKinsey, who found that 40% of workers were considering quitting their jobs in the next three to six months—a figure unchanged since 2021.
Money spent on high employee turnover, training new staff, and talent retention are some of the many costs for businesses. As a result, companies have begun investing in automated artificial intelligence (AI), machine learning (ML), and cloud technologies to complete tasks and fast-track operational processes.
Automation is the future; if you want your business to be successful, you’ll automate it. Automation software can help reduce human error, often leading to unintended spending to fix the mistake. When you leverage software and allow it to rely on artificial intelligence, it can manage various things for you, such as your inbox, information sharing, data entry, and even payments or invoices. Keeping your business processes efficient will not only save you money, but it will also give you an edge over the competition.
Many organizations that can retain their employees have entered hybrid, and remote work models due to COVID-19 and the subsequent economic fallout felt across all global sectors. This resulted in a strong demand for remote resources and system access for millions of workers needing the required tools to fulfill work obligations from home.
Cloud computing arose as one of many solutions for solving this issue. By transferring business data to the cloud, the need for in-house IT teams, software training and maintenance, legacy infrastructure, and physical utilities was dramatically reduced—enhancing costs as an unintended result. For example, Adobe switched from traditional physical software versions to the entirely online Creative Cloud in 2013.
Despite the risks, Adobe’s executives knew they needed to change their business model drastically. Instead of increasing prices year after year, the company decided to move to the cloud to help businesses with digital transformation. This decision certainly paid off, and the company has continued reaping the rewards. In 2020, Adobe hit a record annual revenue of $12.87 billion.
With new digital technologies delivering both cost and time savings, smart investments will help offset rising business costs and could be the solution for sustaining agility.
Enhance Costs By Reporting Digital Investment Outcomes
Once a digital strategy is in place, tracking and reporting on investment outcomes is vital. This can be done by collecting data on customer satisfaction, employee engagement, and expenditure. Reporting on developments can help you identify areas of improvement and take action to optimize results.
Championing successful digital projects that enhance investments requires an agile approach. This requires an organizational structure to be put in place to support agile projects, including creating teams or a department dedicated to digital transformation uniquely responsible for driving the process and encouraging collaboration.
Innovation operating models should be employed to create an environment where ideas can be tested and iterated quickly. This includes customer feedback, data analysis, prototyping, and experimentation to continuously improve products or services.
Digital innovation should also be a priority within the organization. Encourage employees to develop digital skills, challenge ideas, and push boundaries. Advanced initiatives aimed at digital transformation should be supported and rewarded.
A Business Case For Funding Financial Economics
By investing in digital transformation, businesses can experience significant benefits beyond the company itself. Not only do investments in digitalization lead to more productivity, but it also has the potential to bring about lasting economic success. For example, take the UK government’s “Help to Grow: Digital” initiative, which gives businesses a 50% discount on software costs of up to £5,000.
This scheme is designed to make small businesses more adaptable by allowing them to invest in digital technology. By identifying a viable technological investment and comprehending the business model and wider plans, it will be possible to establish how much needs to be spent for an anticipated ROI or positive outcome.
By the year 2025, global spending on digital transformation is projected to reach 2.8 trillion U.S. dollars, according to Statista. Companies make digital investments for many reasons, one of the most important being that it gives them a competitive advantage. But benefits such as this are not the only ones resulting from transformation. It can also help appeal to customers in different areas and geographies for new or alternative revenue sources.
Creating and Maintaining a Healthy Workplace Culture
An organization must clearly understand its work culture and ethics before fully realizing the benefits of investing in digital. Some factors that organizations should consider when going digital include how adaptable employees will be to technological change and how much user acceptance testing, training, and management workshops may be required.
With many operations going virtual due to digital transformation, staff must be open to change so the business can stay ahead of its competition and excel in the market. Organizations must invest in training and development programs to foster healthy workplace culture and team engagement to ensure employees are up-to-date on new technologies.
Organizations also need to consider how they measure employee performance. Traditional metrics such as productivity may no longer be relevant in a digitally transformed business environment; instead, it is important to focus more on customer handling, problem-solving and creative thinking.
This also includes expressing the value of change to employees and customers to gain support for digital projects and initiatives. Companies must create an environment conducive to innovation and encourage employees to take risks to develop new ideas and solutions.
Change resistance can be minimized by providing regular updates, clear communications, and working closely with employees to ensure they understand their roles and digital transformation goals. Creating a healthy workplace culture can ultimately enhance returns by empowering employees to develop their ideas and contribute positively to the organization.
Planning your Digital Investment Strategy
A roadmap is a basis for any planning process, and this becomes more important as we trend toward the Internet of Things (IoT), Artificial intelligence (AI), and E-commerce. This should be tailored to fit the digital needs of your business strategy.
It is important to think through the long-term impact of digital transformation and how it will affect the organization’s operations, budgeting, staffing, and customer service. Organizations should also consider how technology can improve efficiency and cost savings.
When planning your digital strategy and spearheading digital initiatives, keep in mind current industry trends such as cloud computing, mobility solutions, big data analytics, and cybersecurity. A close eye should also be kept on other emerging technologies, such as 5G and blockchain, that may be useful for different applications.
Invest In Value Creation—Not Just Technology
Past studies have not shown a significant effect of IT investments on profitability. However, recent research from MIT suggests that information technologies deployed since the mid-90s have positively impacted profitability.
It is crucial for businesses to closely monitor their technology investments and make sure that they are conferring with other shareholders often to ensure money-saving benefits. Furthermore, these investments should always be linked to the organization’s desired outcomes.
By utilizing digital transformation, businesses open themselves to top-tier technology that can improve their function and daily productivity.
Technology investments don’t always have a linear correlation to long-term cost savings. Not every technology upgrade will immediately save money. IT investments were more effective in boosting profitability by increasing revenue rather than decreasing operating expenditure.
Businesses must also use strategic alignment to ensure that technology spending initiatives align with the organization’s overall business objectives. Deploying technology without considering its potential implications for customer experience or its impact on employee engagement can lead to costly misfires and missed opportunities. It’s essential to manage implementation risks robustly to ensure the initiative’s success.
Business objectives should extend beyond simply procuring cost-saving tech but instead redirect focus on ensuring technology investments fastrack overall business effectiveness. From a wider perspective, any technology that helps accelerate business speed and efficiency will ultimately result in enhanced costs—whether directly or indirectly.
