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Economic conditions are forcing companies to adopt a cautious stance with their budgets. While wise, this is also coming at a cost to digital transformation projects, which are being paused or delayed until there's more clarity in the markets.
A recent KPMG survey of 400 technology executives at US companies with revenues of $100 million or above found half (51%) had not yet seen an increase in performance or profitability as a result of their digital transformation investments — and nearly two-thirds (65%) said they are expected to do more with less budget.
According to the research, corporate IT spending has tightened with increased inflation and interest rates hampering the development of new projects. And after an influx of investments toward upgrading tech stacks over the past few years, US organizations' digital transformation initiatives are increasingly being moved from "strategic imperative" to "over-budget, underwhelming IT projects."
Meanwhile, companies that have forged ahead with their digital transformation timeline are now entering the later stages of their transformation and looking at how emerging technologies such as generative AI can further complete their stack. This is giving them a significant edge to capture market share and render some competitors obsolete.
“The most successful businesses are likely to be those that focus on harnessing value from their investments," Steve Chase, KPMG’s vice chair of AI and digital innovation, said in a statement about the report. "If they get it right, near-term savings can effectively fuel and sustain future investments.”
When Budget Drives Strategy
In a difficult environment, companies typically look to spending and capital allocation as the main areas where tweaks can be implemented to maintain profitability. While fine-tuning the budget is a critical step, Allen Drennan, co-founder and CTO of video collaboration company Cordoniq, says it should not determine whether digital transformation projects get done or not.
“For digital transformation to be successful, companies must foster a culture of innovation, no matter what their technology budget,” he said. And that can mean finding new, more budget-friendly ways of doing things.
For instance, Drennan noted, companies can take advantage of today's wide breadth of remote work capabilities, such as advanced video conferencing and collaboration platforms, or the increasing number of gig and contract workers to expand their workforce beyond the usual geographical barriers. The result, he said, goes beyond cost to include a cross-cultural environment, diverse points of view and a broader perspective for product and service idea generation — all crucial components of digital innovation.
Then, he said, there are also free, online resources that can help companies and their teams take the technological leap.
“Without fostering the necessary culture of innovation and supporting it with an open-minded approach, businesses can easily miss out on creating the next big thing that could give them the competitive and financial advantage they need,” Drennan said.
Related Article: Anything-as-a-Service Moves the Needle on Digital Transformation
The Power of Cloud for Budget-Conscious Companies
Cloud computing has been one of the principal drivers of digital transformation initiatives, long before the pandemic and the emergence of new work models. And according to David Pumphrey, CEO of Riveraxe, a company that works with the public sector to build digital transformation strategies, it remains the main enabler of organizations looking to transform on a budget.
Companies can achieve economies of scale, he said, by using cloud computing to reduce their infrastructure and hardware cost while enhancing data accessibility and security. For organizations on a tight budget, this may mean redirecting funds that would normally go toward maintaining an infrastructure that would quickly become outdated into cloud technologies that can be scaled over time.
Like Drennan, he says companies that require expert skills may want to consider outsourcing to developers in regions with lower operational costs, which bypasses the high recruitment and training costs usually associated with in-house teams.
Cloud platforms have allowed organizations to spend smarter by allocating budgets to critical areas rather than redundant infrastructure, he said, and outsourcing played a crucial role in minimizing related expenses.
There is another advantage to the cloud: It makes it possible for companies to connect legacy software with new, cloud-based technologies, thereby helping them avoid having to replace entire systems and forego large investments into fast-depreciating assets.
“By prioritizing essential features and avoiding unnecessary bells and whistles, it is possible to maintain high functionality without overspending, ultimately achieving digital transformation within a constrained budget,” he said.
Related Article: How Do You Measure the Success of a Digital Transformation Strategy?
Five Steps to Staying the Course With Digital Transformation
Implementing a comprehensive digital transformation strategy on a tight budget can be challenging, but it is possible. Vaibhav Malik, global partner and solutions architect leader at Cloudflare, a California-based connectivity cloud company, offers five key steps to making it work and delivering the most value.
- Prioritizing: Identify the most critical areas where digital transformation can have the greatest impact on your business, and prioritize initiatives that align with your strategic goals and have the potential to deliver significant returns on investment.
- Start small: Instead of attempting a massive, all-encompassing digital transformation, he said, start with smaller, targeted projects. This allows organizations to evaluate and validate ideas, learn from the results and gradually scale successful initiatives over time.
- Use existing resources: Organizations need to assess their current technology stack and identify opportunities to optimize or repurpose existing resources.
- Cloud computing: Make use of available cloud-based solutions, which can provide cost-effective access to advanced technologies, scalability and flexibility.
- Measure and iterate. Organizations need to establish clear metrics to measure the success and impact of their digital transformation initiatives. He advisers leaders regularly assess progress, gather feedback and make data-driven decisions to optimize efforts. Be prepared to iterate and adjust your approach based on insights gained along the way.
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“If budget constraints make a full-scale digital transformation unfeasible, organizations can still take incremental steps towards digitalization,” he said.