Survey: Middle Market Companies Falling Short of Own Digitization Expectations

Zach Brooke
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Key Takeaways

What? A new survey by the National Center for the Middle Market and 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.

So what? Companies that are more digitized tend to be faster growing than less digital savvy competitors.

Now what? Managers can use this report to fuel their digitization efforts with data.

Report looks at the growing importance of digitization to middle market companies

A new survey by the National Center for the Middle Market and 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.


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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, barely a third view their organizations as digitization leaders. 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, businesses services and health care providers were the most eager to be digitized while retail/whole trade and manufacturing were the least likely to say digitization was very or extremely important.



Asked to rate their companies on digital performance, the majority of respondents awarded themselves a C+. 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 into a broader plans of digital business transformation. 



Other findings include:

1. Companies that are more digitized tend to be faster growing than less digital 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 engage with customers better. 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 up 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 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. Individual digitization projects are not always incorporated into an overall digitized business strategy. Even though respondents rate one-off digitization projects as successful, they can be frustrated by the lack of progress in overall digitization transformation. Asked to rate their organizations on a scale to 0 to 4, the average response was 2.8, or the equivalent of a C+. Only 1 in 5 respondents say the rate of digitization implementation is fast, as “workflow challenges, such as cumbersome legacy systems, combined with a failure to prioritize the implementation of digitization efforts contribute to the problem.”

 
 

5. Digitization efforts are managed largely in-house. Seventy percent of all digitized spending is directed internally, even though 65% of executives site 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.


Author Bio:

 
Zach Brooke
Zach Brooke is a staff writer at the American Marketing Association. He can be reached at zbrooke@ama.org.
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