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IMA Executive News & Views Blog

Digitization and digital transformation for the middle market

RSM US LLP is an IMA Member

Since the dawn of commerce, business infrastructure has existed in a state of constant innovation and improvement, changing and maturing at such a breakneck pace that over the course of a few centuries, tasks originally fueled by steam and water are now executed in a matter of milliseconds. With data now traveling seamlessly between physical and virtual environments, today’s technology infrastructure enables all companies to achieve previously unimagined operational capacities and expand into broader territories—geographic and otherwise.

Yet within this history where technology has continually evolved and improved over time to drive greater efficiencies in virtually all types of businesses, there remains something fundamentally unique about this precise moment in time. Digitization and digital transformation are enabling a wide variety of types and magnitudes of business improvements.

Past advances in technology have largely been leveraged to solve discrete business challenges—often using individual technologies, or a small set of technologies working together. By contrast—as the name implies—digital transformation is about using a connected and interwoven set of digital technologies to fundamentally transform the entire way a business works and operates—holistically, from the core outward.

One might say that the promise of digital transformation—what makes this phenomenon so distinct and powerful—is that businesses can leverage technology to, in effect, make two plus two equal five. Rather than facilitating traditional incremental improvements in individual areas of the organization with individual technologies (or sets of technologies), digitization is enabling the organization to transform itself into a whole that is greater than the sum of its parts.

And perhaps counterintuitively, the driver for such transformation is not technology itself; rather, the catalyst appears to be the comprehensive strategy that lays out this digitally reimagined, transformed enterprise and the connected technologies required to support that goal across every facet of the enterprise. This is alongside a culture that embraces—from the top down—the ongoing nimbleness and risk-taking required for an organization to redefine and ultimately achieve lasting competitive advantage.

To fully discern their meaning, salience, and ultimately, their application to the middle market, it’s helpful to take a closer look at them to learn—in addition to their working definitions—specifically how they apply to the middle-market sector. It’s also important to understand how they can be put into practice to help bring about the dynamic organizational change that promises competitive advantage and a path to sustainable future growth.

Making the move: The opportunity of digitization

While the terms look and sound similar, digitization and digital transformation are two separate—though tightly related—concepts, both describing an organization’s progressive evolution toward more technology-centric current and future operations. Specifically, digitization is the movement away from traditional, paper-based business models in favor of more automated, computer-supported processes that harness the unparalleled power and potential of online technologies. The primary purpose of this shift to digitization is to standardize and integrate both business systems and data onto a connected network that drives real-time decision-making and operations.

In addition to clearing employee work areas as stacks of documents and file-based systems are morphed into their virtual counterparts, digitization also enables exponentially faster business operations. Employees enjoy both near-instant access to the data they need and greater accuracy of that data as previously manual and error-prone operations are reduced or eliminated. Yet, for the middle market, digitization means more than simply overhauling existing processes and inserting technology into every possible business component.

To achieve its potential, digitization requires a thoughtful analysis of not only the available tools themselves, but of an organization’s often unique business operations, use cases and corporate objectives. Only then can an assessment take place that identifies which tools and processes may prove most likely to yield the highest business value in the given environment.   

Setting the stage: A focus on digital transformation

Yet before the full promise of digitization can become reality, a successful digital transformation must occur, defined less as a movement itself and more as a company commitment to focus future planning projects and investments strategically toward integrating new and innovative technology.

This type of cohesive coordination helps ensure that even as individual employees or even entire departments move toward a more automated environment, their efforts are directly tied to greater organizational goals for operational excellence. The ultimate objective:  Every integration should contribute to generating and sustaining company value. In essence, while digitization is the distinct process of integrating technology into daily work and best practices, digital transformation is the behind-the-scenes planning, team coordination, strategy and executive governance required to ensure such actions are optimized and sustainable.

Digital transformation is distinct from other IT initiatives, as the focus is strictly on digital technologies and how they can be used to power business growth. It is an undertaking that requires the full support and participation of teams across the enterprise—from back-office to front-line—as well as a solid financial focus designed to direct current and future spending.

For the middle market, this increasingly means investing in areas designed to optimize business operations and production. The National Center for the Middle Market (NCMM) estimates that one in five digitization dollars is directed toward improving innovation, analytics and business strategy development. Key investments include technologies such as e-commerce platforms, computer-aided design, open innovation platforms and digital tools designed to facilitate new product and service development.

How it applies: Initiatives for the middle-market sector

In addition to catalyzing improved business functions, digitization and digital transformation initiatives also allow middle-market leaders to keep pace with the competition and to stand out to core audiences. They help companies distinguish themselves as up-to-speed with new and emerging tools and technologies, many of which are designed solely to improve the customer experience and provide more streamlined sales and marketing communications.

From social media networking to online customer support tools, capabilities around data collection and analytics are at an all-time high. These enable companies who utilize them to achieve a single, 360-degree view of the customer—connecting with existing clients and attracting new prospects at a faster pace and more effective rate of engagement than with traditional outreach methods.

In fact, according to an NCMM survey of 500 C-level middle market executives, 67 percent of firms currently deploy customer relationship management and customer experience management tools for their sales and marketing teams. Other top digitization applications noted include cybersecurity systems, deployed by 73 percent of firms; real-time warehousing and inventory management tools designed to streamline distribution and logistics, deployed by 67 percent of firms; and electronic invoicing and other automated financial functions, deployed by 65 percent of firms.

A look ahead: Translations for business success

It should go without saying that the radical business shift from manual, traditional methods and models to their automated, online technology-driven counterparts is not an overnight process. In fact, the NCMM estimates it can take up to three years before individual digitization efforts fully align to create a universal, company-wide strategy for technology use and adoption.

While the two key terms used to describe such efforts—digitization and digital transformation—are distinct yet intricately intertwined, it is clear that one cannot successfully exist without the other. To facilitate long-term success, middle-market companies need to ensure that both digitization and digital transformation efforts are synchronously approached and applied, fueling efficiency, teamwork, performance—and the revolutionary change capable of providing competitive advantage and sustainable growth.

If you would like to learn more about this topic or speak with RSM please contact Linda Peddle.

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