Digitization moves beyond the back office.
This post takes a look at the digitization efforts middle market companies are taking to do more than automate how their businesses are run, including digitizing functions like customer service, business analytics and strategy development. For the full research report, see How Digital Are You?
These days, most middle market companies are digitally adept when it comes to automating how they run their businesses. Recent research by the National Center for the Middle Market shows that 65% of middle market firms have digitized, or are in the process of digitizing, core financial functions. Similarly, 64% are successfully using digital tools for training, learning, and development efforts with their staffs, and 64% are taking advantage of automated workflow management techniques to streamline operations. In fact, only 1% of middle market businesses have not automated their back office functions or daily management activities at all.
But making the business run more smoothly isn’t the only impetus for digitization. Many middle market companies, and especially the largest middle market firms, see digitization as an important tool for improving customer service and customer interactions—activities that have a direct impact on revenue growth. The largest middle market firms are also more likely to feel that digitization is a key to enhancing business analytics and strategy development, functions that will impact the company’s ability to compete and grow into the future.
For these businesses and their executives, digitization is more than a means of improving efficiency and cutting costs. They view technology as a catalyst for transforming all aspects of the way the company operates, interacts with its customers, and generates sustainable growth.
One in five digitization dollars goes toward future state-of-business initiatives.
Middle market companies currently allocate 39% of their digitization spend to housekeeping and back office functions. Another 42% goes toward sales, service, marketing, and logistics activities that facilitate current business. However, 19% of spending—or nearly one if five dollars—is invested in digitizing business analytics, strategy development, and innovation initiatives that will drive future growth and profitability for the companies. Examples of these initiatives include the development and deployment of e-commerce platforms, computer-aided design techniques, open innovation platforms, and digital tools for new product and service development.
The largest digitization spending increases will be directed toward future business growth.
Over the next 12 months, the vast majority (90%) of middle market companies intend to maintain or increase their spending on digitization projects—currently about 12% of total revenues. The 31% of firms expecting to spend more anticipate a sizable spending increase of 16.6%. Core and large middle market firms are most likely to invest more in digitization this year, with over a third of companies in these categories indicating plans to increase the digitization budget.
Spending increases will happen across all business functions. However, executives are most likely to plan on increasing their digitization spend on initiatives related to sales, business analytics and strategy development, and innovation. Clearly, middle market businesses view digitization as playing an essential role in fueling their future successes.
Digital business transformation may be a lengthy journey.
As digitization initiatives move beyond automating individual core office functions and begin to have a greater impact on how middle market companies work with their customers and set the stage for their futures, more and more middle market businesses will begin to evolve into efficient, profitable, and connected digitized enterprises. But such transformation will not come without challenges. Middle market companies will have to find ways to overcome obstacles to digitization—such as cumbersome legacy systems, lack of internal expertise, and resistance to outsourcing—in order to expedite the process take advantage of the many benefits of digitization.
To learn more about digitization efforts and trends in the middle market and how some companies are beginning their digital transformation, see the Center’s full research report, How Digital Are You?