Study: Middle Market Companies Lag Behind In Digitization

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A new survey by the National Center for the Middle Market and branding agency Magneto found that middle market managers are giving lackluster evaluations to their organization’s efforts to digitize despite placing great emphasis on the importance of digitization.

 “How Digital Are You? Middle Market Digitization Trends and How Your Firm Measures Up” incorporates responses from 500 C-level middle market executives surveyed in October 2015. Middle market refers to companies with annual revenues between $10 million and $1 billion while digitization is defined as the process of converting manual, paper-based or offline business processes to online, networked, computer-supported processes that facilitate a real-time operating and decision-making environment. For the back end, that means things like invoices and HR enrollment documents, while the front end pertains to customer-facing interaction such as websites, apps software and analytics.
The reports looks at the pace at which middle market companies are digitizing their workload. While the survey found that 63% of respondents say digitization is very or extremely important relative to other business activities, only a third view their organizations as digitization leaders. Asked to rate their companies on digital performance, the majority of respondents awarded themselves a C+.

“I did not expect to see a high digital grade point average. …I was surprised by the across-the-board mediocrity, however,” says Thomas Stewart, executive director for Center for the Middle Market. “I would have expected more, particularly in those back-office functions where people have been digitizing for 50 years.”

The higher the company’s annual revenue, the more focused it is on digitization, with companies having annual revenues between $100 million and $1 billion placing the most importance on digitization. Across industries, business services and health care providers were the most eager to digitize while retail and whole trade and manufacturing were the least likely to say digitization was very or extremely important.

The survey identifies the causes of the digitization lag as twofold: first, efforts to digitize are being outpaced by business change, making digitization projects reactionary and not anticipatory; second, digitization initiatives are not designed to link to broader plans of digital business transformation.

Stewart says the companies have suffered from leaving digitization to IT experts and other employees who don’t get a seat at the boardroom table drawing up corporate strategy. This explains why, even though respondents rate one-off digitization projects as successful, they can be frustrated by the lack of progress in overall digitization transformation.

Key Findings:

 1. Companies that are more digitized tend to grow faster than less digitally savvy competitors. Companies with annual revenue growth at or above 10% are more likely to consider digitization as extremely important and consider themselves digitization leaders.

2. Digitization investment is shifting from nuts-and-bolts business operations to corporate strategy. Increasingly, businesses are spending their digitizing dollars in areas that directly affect future growth. While half of all digitization efforts are currently going toward improving efficiency and cutting costs, about 30% are being implemented to increase revenue and better engage with customers. Middle market organizations are spending roughly one-fifth of their digitization budget on front line efforts like accounting and human resources. Forty-two percent of respondents indicated they anticipate to increase their organization’s digitization spending for business analytics and strategic development, and 39% expect higher budgets for innovation projects moving forward.

3. Digitization brings a sizable ROI, though not quite in line with company expectations. Ninety percent of middle market companies describe their last digitization project as a success, though overall measured ROI (27.5%) falls a bit short of expectations (30%). ROI was higher for organizations with high levels of growth (38%) or that were faster to digitize (37%). Companies that spend 10% or more of their annual revenue on digitization efforts garner the highest level of ROI at 39% while expecting an ROI of 44%.

4. Digitization efforts are managed largely in-house. Seventy percent of all digitized spending is directed internally, even though 65% of executives cite in-house skills shortages as hindrances to digitization initiatives. The study’s authors suggest investing more in training employees in digitization or partnering with outside organizations can increase digitization speed and satisfaction rates.

We are also conducing our own survey on Marketing Technology. Click Here to view the results so far!

 

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Posted by Zach Brooke on American Marketing Association 

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