Just How Digital Is the Middle Market Anyway?
In this post, we explain what digitization looks like in the middle market; the pace of digitization, the obstacles, and what digital leaders look like. You can learn more in the full report: How Digital Are You?
Digitization—or the process of converting manual, paper-based, or offline business processes to online, networked, computer-supported processes—is essential to sustainable growth for firms of all sizes. While digitization of the back office has been around for generations, new digital processes facilitate a real-time operating and decision-making environment, and indeed, digital companies are more efficient and productive than their less technology-inclined peers. More and more, digital companies are also better able to connect with and serve their customers and even more adept at planning for future innovations and strategic growth.
Given the advantages of digitization, it’s not surprising that most middle market leaders (63%) rank digitization as very or extremely important compared to their other business priorities. Furthermore, the majority of middle market companies have successfully deployed, or are in the process of deploying, a wide range of digital tools and techniques across all aspects of their businesses, from customer relationship management tools to real-time warehouse or inventory management technology, to automating finance, workflow, training and development, and cybersecurity functions.
Despite placing a premium on digitization and taking the steps to digitize operations, only a handful of middle market leaders consider themselves digital leaders. Specifically, just 36% of middle market firms say they are very advanced or ahead of other companies in their industry when it comes to being digital. About two in 10 middle market companies say they lag behind their peers, and 43% of mid-sized businesses consider themselves digitally average.
The pace of digitization is slow in the middle market.
What’s holding middle market firms back in the digital arena? For one thing, many middle market businesses find digital transformation to be a slow-going process.. Only one in five leaders say the rate of digitization at their companies is fast, while the majority (55%) report it as moderate, and a quarter of leaders say digitization happens. On average, digitization projects take three years to pay off, and many middle companies say it takes even longer to realize a return on investment. For many mid-sized organizations, digitization progress is impeded by limited resources and cumbersome legacy systems.
Many companies lack internal buy-in and expertise.
Three-quarters of middle market companies say a lack of management support is at least somewhat of an obstacle to digitization efforts. Furthermore, a majority of companies (65%) say that staffing issues can delay digitization progress, while 55% say they don’t have enough knowledge about the best digital tools. Despite these issues, 70% of middle market digitization spending is directed internally, and few middle market companies choose to outsource projects to consultants or technology providers.
What do digital leaders look like?
Although middle market companies clearly contend with obstacles to digitization, some businesses find ways to lead in the digital arena. These digital experts tend to be:
- Large—45% of middle market companies with revenues between $100 million and $1 billion consider themselves digitally-ready.
- Tech-oriented—47% of middle market healthcare firms and 50% of business services/technology companies rank themselves as digitally advanced.
- Fast-growing—49% of companies growing at an annual rate of 10% or more consider themselves to be digitally advanced, showing a strong correlation between digital excellence and top-line growth.
- Digitally-focused—62% of middle market companies that rate digitization as extremely important consider themselves to be digital leaders.
Companies in the above categories tend to have a pattern in their responses. For example, rapidly-growing firms and those in the healthcare and technology fields are also the most likely to consider digitization extremely important to their success. These companies also enjoy a faster pace of digitization and achieve a greater ROI from their digitization efforts. The data suggest that simply by emphasizing and prioritizing digitization, middle market firms may be able to remove some of the obstacles to digitization and gain a stronger digital edge as a result.
To learn more about digitization practices in the middle market and what sets digital leaders apart, see the Center’s full research report, How Digital Are You?