Organizations are spending more on digital transformation -- but where’s the impact?

New study examines the "digital maturity" of enterprises and how they can close gaps between investments and results.
Written by Bob Violino, Contributor

Organizations are significantly speeding up their investment in digital transformation efforts in 2019, but the majority still have a long way to go in bridging the gap between spending and impact of these initiatives, according to a new report from consulting firm Deloitte.

Also: Digital Transformation: A CXO's Guide

As part of its research, the firm in November 2018 surveyed 1,200 US-based senior executives knowledgeable about their organizations' digital transformation efforts, including using data and technology to continuously evolve all aspects of the business.

The average digital transformation budget has increased by 25 percent over the past year, from $11 million to $13.6 million, with more than half of mid-sized and large companies spending more than $10 million on these efforts. Some big spenders (19 percent of the respondents) plan to invest at least $20 million on transformation in 2019, twice as many as those who invested at that level in 2018.

Despite the increased spending, 59 percent of the organizations that have put the most effort behind their digital transformation have still only reached median digital maturity, which Deloitte defines as the extent to which an organization's digital transformation efforts are delivering business benefit.

The survey quantified a substantial incentive for digitally mature organizations. About half of the higher-maturity organizations reported that their net profit margin and revenues were significantly above average for their industry, compared with 17 percent and 19 percent, respectively, of lower-maturity organizations.

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The study does not cover other possible factors involved in digitally mature companies reporting above-average profits and revenues, however.

Digital transformation requires more than investments in technology, noted Ragu Gurumurthy, chief innovation officer and chief digital officer at Deloitte. "Transformation entails reimagining entire business processes and enabling change across the 'business system,'" he said.

To bridge the gap between investments and impact, Deloitte identified seven technology-related capabilities needed to propel an organization to digital maturity.

These "digital pivots" include: Flexible, secure infrastructure; data mastery; digitally savvy, open talent network; ecosystem engagement; intelligent workflows; unified customer experience; and business model adaptability.

The survey found that higher-maturity organizations execute an average of 40 total pivot applications, efforts to apply pivots to specific business functions. That compares with lower-maturity organizations that execute an average of 19.

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As essential as the digital pivots are 59 percent of the organizations that have put the most effort behind them have still reached only median digital maturity. This shows that additional "soft" factors play a key role in digital transformation success, the report said.

As for barriers organizations face in transformation, nearly half of those surveyed (49 percent) cited legacy operating models and structures as a top challenge. That was followed by a lack of prioritization (45 percent). In addition, about one-third of the respondents noted a talent skills deficit (36 percent) and culture resistant to change (32 percent) among the top challenges affecting their digital ambitions.

Respondents at higher-maturity organizations were much more likely than those at lower-maturity companies to cite strong leadership as a way to overcome digital transformation challenges.

Is your organization seeing significant results from digital transformation efforts?

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