Middle market companies — revenues of $10 million to $1 billion a year — annually put about 12 percent of IT dollars into digitization. And the cost is rising; on average, executives plan to increase this spending by 16.6 percent in 2016.
They’re spending because it’s important. IT helps cut costs, keep track of the business, reduce errors, manage customer relationships and control operations. Increasingly, digitization is used to manage today’s business and also to invent tomorrow’s. Analytics shape strategy, 3-D printing reinvents factories and sophisticated technologies speed up innovation, from discovering new cures to reimagining service design.
It’s no wonder nearly two out of three middle market leaders say digitization is extremely or very important.
Bang for your buck
But are they getting their money’s worth? We have doubts. The National Center for the Middle Market released a new study, “How Digital Are You?,” developed with Ralph Greco, Fisher College of Business, The Ohio State University, Magento and NexTrade Group. Among the findings:
- Twenty percent of executives are digitizing at a rapid clip, while 25 percent say progress is slow.
- Companies get solid returns on individual IT projects but struggle to turn those into large-scale change.
- Less than one-third of executives are extremely or very satisfied with their progress.
- Two out of three executives feel they don’t have enough talent to drive their efforts.
Overall, executives award themselves a Digital Grade Point Average of 2.8, a mediocre C+.
Inspired by others
There are bright spots. Health care, and financial and business services companies are doing a better job — managers might study and benchmark there. They should also look at fast-growing companies. In our survey, companies growing at 10 percent or more are half again as likely to be digital leaders.
It’s one thing to deploy IT to run a tighter ship. Building a digital enterprise is something else. In these businesses, a digital mindset is pervasive. All functions, all aspects are involved. Digital transformation manifests itself in at least three ways:
How customers are handled. Is there constant customer feedback, and how do you improve or maintain their experience? Do you have one view of your customer, or do you find information in multiple places? A digital enterprise has a single view and is able to track and maintain that view from the first lead through ordering and feedback.
In innovation, renewal and change. Innovation happens at every point of the value chain. Data and analytics drive new product or service ideas, and internal processes improve at an accelerated pace.
Digital enterprises move quicker because of a willingness to embrace this. They use A/B testing and 3-D printers for rapid prototyping, and constantly improve their customer-facing websites. Their products are what customers look forward to receiving.
In talent. Digital enterprises constantly look for and find talent that provides a competitive advantage; experts are grown from within or brought in from the outside, including other industries. They also have a clear understanding of how to connect talent to capabilities outside — cloud-service providers and other shops to which some functions are outsourced.
Thomas A. Stewart is the executive director of the National Center for the Middle Market, the leading source for knowledge, leadership and research on midsized companies, based at the Fisher College of Business, in collaboration with The Ohio State University and GE Capital. Thomas is an influential thought leader on global management issues and ideas — an internationally recognized editor and publisher, authority on intellectual capital and knowledge management and a best-selling author.