The shift to digital business is finally under way.
After a few years filled with debates about the financial and organizational advantages of digital transformation, new research from Stamford, Conn.-based Gartner suggests the C-Suite is finally taking action.
The conclusion comes from two new reports which examine private sector CEO priorities and public sector CIO spending trends.
According to the reports, government CIOs only spend 21 percent of their budgets on digital initiatives as opposed to 33 percent of top performing private and public organizations.
They also predict that by 2018, top performing organizations will increase their spend on digital initiatives to 43 percent of their budgets, with only 28 percent of government CIOs doing the same.
Bringing IT Back In-House
The digital transformation initiatives in the private sector are being driven by the need to grow business. Growth is a top business priority for 58 percent of CEOs. Mark Raskino, vice president and Gartner Fellow explained in a statement about the research:
"IT-related priorities, cited by 31 percent of CEOs, have never been this high in the history of the CEO survey. Almost twice as many CEOs are intent on building up in-house technology and digital capabilities as those who plan on outsourcing it (57 percent and 29 percent, respectively). We refer to this trend as the reinternalization of IT,” he said.
The analyst firm released both annual reports over the past week. It based the findings for the private and public enterprise research on a survey of 388 CEOs and senior business leaders in user organizations worldwide in the fourth quarter of 2016. Most responding organizations reported annual revenues of $1 billion.
The CIO Agenda survey (PDF) represents the views of 2,598 CIOs across 93 countries, representing approximately $9.4 trillion in revenue/public-sector budgets and $292 billion in IT spending.
Combined, the reports offer a view into where public and private sector enterprises, as well as government bodies are in their digital transformation initiatives.
Progress, But More Ground to Cover
The overall conclusion was that while efforts have been made towards digital transformation, with more work in the pipeline, enterprises still have a long way to go.
In response to the reports, Paul Appleby, EVP of Digital Transformation at Houston, Texas-based BMC told CMSWire:
“2017 is the year of digital tenacity for CEOs. As we watch traditional industries like manufacturing, banking, retail and automotive become substantially or entirely transformed by digital, it is starkly apparent that company leaders must embrace and accelerate digital transformation to find relevant, innovative ways of growing their business, or get left behind.
“Digital solutions for automation, analytics and multi-cloud management are supporting the rapid evolution that is reshaping our global business environment.”
The reports pointed out some noteworthy trends in digital transformation development:
According to the “2017 CEO Survey: CIOs Must Scale Up Digital Business" (subscription required), 47 percent of CEOs say they are being pushed by their board of directors to demonstrate progress in implementing digital initiatives.
To understand why, it is worth noting that 56 percent of CEOs who have introduced these initiatives are already showing demonstrable improvements in the bottom line.
While the idea of shifting toward digital business was speculative for most CEOs a few years ago, it has become a reality for many in 2017.
"CEO understanding of the benefits of a digital business strategy is improving. They can describe it more specifically. Although a significant number of CEOs still mention ecommerce or digital marketing, more of them align it to advanced business ideas, such as digital product and service innovation, the Internet of Things, or digital platforms and ecosystems,” Raskino added.
What is striking about this, which has major implications for digital transformation strategies globally, is that 20 percent of CEOs are now thinking about business change with a "digital-first approach."
All is not smooth sailing however. More than half of the CEOs surveyed have no way of assessing the effectiveness of their initiatives. For those that do, 33 percent are using digital revenues as a metric, which could indicate a lack of maturity around digital initiatives.
“What stands out for me is the disconnect between the fact that almost half of all CEOs have board pressure around digital transformation, but measures, diagnostics and benchmarks on digital capability are scarce," Paul Miller CEO and Founder of the Digital Workplace Group (DWG) told CMSWire.
“How can organizations of any size progress with seismic digital innovations without clear robust baselines on where they are now — and therefore points to compare with in the future to track progress? The status and appetite for digital business improvements is ramping up, but the need for strong data and metrics in a world of opinion is a clear and present need."
The problems are a little more complicated for government CIOs. Among the 2,598 CIOs surveyed in the CIO Agenda survey, 377 were government CIOs.
The single biggest common denominator to explain for the modest showing across public bodies in digital transformation tables is budget and budgetary constraints
The research shows that government CIOs, despite the massive budgets available to their respective departments or agencies, are anticipating a 1.4 percent increase in IT spending compared with a 2.2 percent average increase across all industries. Top performing enterprises are looking at IT budget increases of 4.6 percent.
Govenrment spending on IT, though, is not miserly. IT spending for state and local governments in 2016 was 9.4 percent of operating expenses up from 8.6 percent in 2015.
This year’s budgets will be spent on:
- Advanced analytics (79 percent of government respondents)
- Digital security (57 percent of government respondents)
- Defense and intelligence (74 percent of government respondents)
This possibly indicates that many departments are looking to catch up on the private sector in terms of technology after years of low budgets and economic recession, before looking at digital initiatives.
Barriers to the development of digital initiatives are much the same as the private sector:
- Skills and human resources (26 percent).
- Funding or budgets (19 percent).
- Culture or structure of the organization (12 percent).
Even taking that into account, there is pressure on government departments to offer its customers good digital experiences, in much the same way that the public sector offers those experiences. Jeff Rubenstein is VP of learning and collaboration at New York City-based video management vendor Kaltura. He told us:
“Every business needs to understand how its customers want to engage, including how they learn about a product, purchase it, and get support.
“Consumer expectations are increasingly tending toward the assumption that they are provided a rich, high-touch and multi-modal digital experience. This requires not only good digital technologies but also that every function of the business (marketing, sales, service) operate with digital technologies to drive a positive customer experience.”
For Paul Appleby of BMC, the onus is on enterprise leaders to take the initiative on these projects. It needs to be driven from the top down.
“As more companies lean on digital strategies for future business success, one thing many CEOs have not considered is how to lead responsibly during this period of massive and disruptive change. Many employees are starting to fear that their skills will fall short to meet the demands of digital business,” he said.
“When planning and implementing digital change, leaders must also understand how it is perceived by the workforce too. Consider creating new learning environments to train labor forces to acquire new skills that will benefit both the employee and the organization long term. Businesses that take the initiative to lead today will be those that others follow tomorrow.”