How to Fund Digital Transformation
- July 09, 2018
Digital Transformation: Leaders vs. Laggards
No doubt about it. In today’s digital universe the stakes are high. Leading digital companies generate better gross margins, better earnings and better net income than organizations in the bottom quarter of digital adopters. According to a study reported in Harvard Business School., digital leaders post a three-year average gross margin of 55%, compared to just 37% for digital laggards.
Bain & Company recently surveyed 1,000 companies around the world to gauge their level of digital readiness. According to the study, the payoff from digital transformation can be impressively high. Revenues at digital leaders grew more than twice as fast as those at companies slower with digital adoption. Profit followed a similar pattern—leaders were nearly twice as likely as followers to increase profit. These findings leave little doubt that digital transformation can yield significant results. Regrettably, the study also revealed a high rate of failure for digital projects, with lack of sufficient funding playing a significant role.
According to Gartner's 2017 CEO survey, 42% of CEOs are now taking a digital-first approach to business change or taking digital to the core of their enterprise model. As reported by CIO, IDC estimates that all 40% of all technology spending will go toward digital transformations, with enterprises spending in excess of $2 trillion in 2019.
So, where are digital investments being made? According to IDC, the following three areas are expected to receive the most funding in 2018:
- $662 billion will go toward technologies that support new or expanded operating models as organizations seek to make their operations more effective and responsive by leveraging digitally connected products/services, assets, people, and trading partners.
- $326 billion will be spent on technologies supporting omni-experience innovations that transform how customers, partners, employees, and things communicate with each other and the products and services created to meet unique and individualized demand.
- $240 billion will be spent on information as organizations strive to obtain and leverage information for competitive advantage through better decisions, optimized operations, and new products and services.
Show me the money!
Sustained innovation is by definition, a journey. Corporations must clearly articulate their digital strategy and provide support, both in investment dollars and in human capital, to execute on it. Talk is cheap. Until business leaders take the time to develop a thoughtful strategy backed with meaningful funding, the chances of digital projects bearing fruit will remained limited.
At NTT DATA, we see funding digital transformation as a three-fold challenge: establishing initial funding, planning for perennial or annual funding, and developing and applying principles for administering the digital fund now and moving forward.
Almost every company we deal with has some seed funding available, but it typically isn’t enough to create a complete initial fund. In these situations, NTT DATA works closely with our clients on drawing additional funding from the following five areas:
- Freeing funds through automation
- Migrating to an on-demand cloud and reducing total on-premise spend
- Revisiting reshoring / outsourcing options
- Eliminating anachronistic/non-critical services better handled by new, digital processes now possible via SAP Leonardo
- Cost and efficiency savings through enterprise application portfolio rationalization and migrating to S/4HANA
Regardless of where the funding comes from, closely tracking outcomes and reinvesting positive gains is absolutely vital to keeping your digital program on track and moving forward.
On this score, we’ve worked with clients to keep funding for digital projects flowing by reinvesting gains from completed projects -- such as better-than-planned-for savings, labor savings, maintenance savings and a percentage of new revenue.
By approaching transformation in a strategic, incremental manner and ‘paying forward’ measurable gains, confidence grows as positive outcomes mount up and your organizations’ transformation progress never stalls.
5 guiding principles for digital fund allocation:
Once funding is established, clients must decide how best to manage spending and prioritize projects over the short- and long-term. On this score, NTT DATA advises following five guiding principles.
- Assess and prioritize digital initiatives strictly based on business needs.
- Adhere to a ‘No-code / Lo-code’ policy – avoid making customizations that make future changes difficult.
- Ensure easy maintenance by embracing COTS, PaaS, SaaS.
- Maintain a customer-first/enterprise-wide perspective – all digital initiatives must improve the customer experience and, as a rule, will extend across organizational boundaries.
- Adopt a cloud-first strategy – put as much as you can as fast as you can in the cloud.
NTT DATA’s comprehensive services portfolio, provides our clients a tailored digital journey, combining industry experience across industry leading platforms and software technologies. Our experience is deep, or methodology is proven and for our SAP clients, the meaningful and measurable results speak for themselves:
- Yaskawa America Inc. gives employees and suppliers real-time insight into a global supply chain with an innovative portal that connects silos, automates workflows and speeds development by 50%.
- Greene, Tweed & Co. improves quality by synchronizing inspection data across separate production systems and automating data collection.
Providing the full spectrum of digital services, from strategic guidance, business case development to full scale implementations, NTT DATA is a preferred digital transformation partner.
Contact NTT DATA today learn more how our experts can help you fund your digital program and identify high-value initiatives that deliver outcomes that matter.