Deloitte Survey Reveals That Companies Need to Bridge the Gap Between Investment and Impact of Digital Transformation

Digital transformation budgets increased by 25 percent in 2019, led by the technology, media and telecommunications industry, as digitally-mature companies report above-average profits and revenues

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Deloitte

Mar 13, 2019, 09:02 ET

NEW YORK, March 13, 2019 /PRNewswire/ -- According to a new Deloitte survey, organizations are significantly accelerating their investment in digital transformation efforts in 2019 but the majority still have a long way to go. Average digital transformation budgets increased by 25 percent this year, from $11 million to $13.6 million, with more than half of mid- and large-sized companies spending more than $10 million on these efforts. Meanwhile, 19 percent of respondents plan to invest at least $20 million in 2019, which is twice as many as those who invested at that level in 2018 (10 percent).

The survey also quantified a substantial incentive for digitally mature organizations. About 50 percent of higher-maturity organizations reported that their net profit margin and revenues were significantly above average for their industry, compared to 17 and 19 percent respectively of lower-maturity organizations. Aggressive investment numbers aside, transformation initiatives are only as valuable as their business impacts and maximized business impact depends on effective execution.

"This year companies are redoubling their efforts on digital transformation as results from early investments are positive and the potential value of transformation is clearer," said Ragu Gurumurthy, chief innovation officer and chief digital officer, Deloitte LLP. "Our survey and experience with clients reveal that digital transformation requires more than investments in technology: It is not just a tech upgrade. Transformation entails reimagining entire business processes and enabling change across the 'business system.' This is best done by investing in foundational capabilities and working to transform of specific functions holistically." Deloitte CEO Cathy Engelbert added, "The role of leadership in digital transformation is crucial. This isn't just about investing in the new and emerging technologies but also the future of work and talent transformation too."

In its journey to uncover the factors that drive digital transformation success, Deloitte surveyed 1,200 U.S.-based senior executives knowledgeable about their organizations' digital transformation efforts. Digital transformation is about becoming a digital enterprise: an organization that uses data and technology to evolve continuously all aspects of its business models. Digital maturity in this survey is defined as the extent to which respondents said an organization's digital transformation efforts are delivering business benefit. Digital transformation is a continuous process, and digital maturity is a moving target; for this analysis levels of digital maturity are presented as relative rather than absolute classifications.

Prioritizing seven tech capabilities – and beyond
To bridge the gap between investment and impact, Deloitte identified seven tech-related capabilities – or "digital pivots" – required to propel an organization to digital maturity. Specifically, the digital pivots are: flexible, secure infrastructure; data mastery; digitally savvy, open talent network; ecosystem engagement; intelligent workflows; unified customer experience; and business model adaptability.

While each pivot is explored in greater detail in the full report, the survey found that higher-maturity organizations execute an average of 40 total pivot applications – efforts to apply pivots to specific business functions – compared to lower-maturity organizations that execute an average of 19. As essential as the digital pivots are, 59 percent of the organizations who have put the most effort behind them have still reached only median digital maturity. This signals that additional, "soft" factors play a key role in digital transformation success.

Barriers to adoption: Legacy operating structures and lack of focus
Per the survey, half (49 percent) of respondents cited legacy operating models and structures as a top challenge, followed by a lack of prioritization (45 percent). Additionally, approximately one-third of survey respondents noted a talent skills deficit (36 percent) and culture resistant to change (32 percent) among the top challenges impacting digital ambitions.

To overcome these challenges, higher-maturity organizations tend to be distinguished by the presence of complementary "soft" factors beyond the tech-driven pivots. Respondents at higher-maturity organizations were much more likely than those at lower-maturity organizations to cite strong leadership as a top tactic for overcoming digital transformation challenges (62 percent versus 45 percent). Similarly, higher-maturity organizations were nearly four times more likely than lower-maturity companies to strongly agree that their organization and incentives encourage smart risk-taking to innovate and grow.

Transformation by industry: technology/media/telecommunications lead the digital pack
Deloitte's study found that a greater percentage of respondents in technology, media and telecommunications (TMT) companies hail from median- and higher-maturity organizations than those from other industries. Specifically, 34 percent of TMT respondents came from companies classified as higher maturity, while respondents in life sciences and health care were three times as likely to work at lower-maturity organizations than those of higher maturity (40 percent versus 13 percent).

A third (33 percent) of respondents at TMT companies say their company is planning to invest $20 million or more on digital transformation this year. Just 13 percent of life sciences and health care company respondents say their company is planning to spend at that level. Also, at that level: 17 percent of respondents from financial services and insurance companies and consumer products companies; and 18 percent of respondents at energy resources, and industrials companies.

About the survey
This survey, conducted in November 2018, asked 1,200 U.S.-based executives to assess their organization's approach to digital transformation. The respondents included in the analysis were those who reported that they were somewhat or highly knowledgeable about their organization's efforts, and who were from organizations of at least 500 people and US$250 million in annual global revenue. This sample included an equal number of respondents from key industries.

About Deloitte
Deloitte provides industry-leading audit, consulting, tax and advisory services to many of the world's most admired brands, including nearly 90 percent of the Fortune 500 and more than 5,000 private and middle market companies. Our people work across the industry sectors that drive and shape today's marketplace to make an impact that matters — delivering measurable and lasting results that help reinforce public trust in our capital markets, inspire clients to see challenges as opportunities to transform and thrive, and help lead the way toward a stronger economy and a healthy society. Deloitte is proud to be part of the largest global professional services network serving our clients in the markets that are most important to them.

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SOURCE Deloitte