In 2021, BDO conducted a large-scale survey of business leaders and executives to understand how medium-sized enterprises are prioritizing their digital strategy and modernization budgets.
Across over 1,000 respondents, our Midmarket Outlook Report uncovered that almost two-thirds (64%) of medium-sized enterprises plan to increase their spending on digital initiatives over the next year. This figure rises to 77% for companies that have developed and implemented, or completed, a high-priority digital project.
Our research revealed that leaders across all major Canadian industries are putting investment in digital priorities high on the agenda. On the flip side, we see that firms who aren't adequately prioritizing technology modernization find themselves at a competitive disadvantage relative to their peers. But how much is the right amount to invest?
How much should my company be spending on digital initiatives?
When properly vetted and applied, the benefits of digital tools and platforms can drive a major competitive edge for businesses in any sector. According to Gartner, organizations that have increased their funding of digital innovation are 2.7 times more likely to be a top performer than a trailing one. However, despite what may feel like enormous investments devoted to digital technology and modernization, businesses may be underestimating how high the competitive bar for digital investment has become.
According to research from Statista, the benchmark spend on business technology in Canada was between 3% and 7% of top-line revenue in 2021. Small and mid-sized enterprises are on the higher end of the range, with $100 million to $250 million-revenue firms spending approximately 6.2% of their revenue on business technology.
This spend is expected to increase over the next five years as digital technologies continue to redefine competitiveness across the market. Individual organizations' success will come to depend more than ever on having the right strategic plans in place to recognize and capitalize on potential technological advantages, and ultimately to keep up with high-investment competitors.
What parts of the business are driving investment?
The top drivers for digital investments among mid-sized businesses are:
Assessing your organization's digital investment governance maturity
Midmarket companies are spread across the spectrum of digital maturity and capability. Our findings indicate that:
As companies move along the digital maturity journey, they are better equipped to mitigate risk, create value, and stimulate innovation. Those that continue to rely on a legacy approach to digital strategy face, at best, an uncoordinated digital portfolio with unrealized synergies. At worst, your business could be hampered by competing investments with project teams working against each other to claim responsibility for any measurable improvements.
Where does your company fall on the digital investment scale?
How effective has the digital transformation been?
As many as 67% of the mid-sized firms we surveyed say they have been able to extract the expected return on investment (ROI) from the technology and automation investments they have made to date. However, a 2020 study from BCG found that only 30% of digital transformation initiatives actually meet their objectives.
This contradiction underscores one of the most profound challenges facing leaders in managing their digital investment responsibly and productively: The lack of measurable, transparent, and appropriate program KPIs, aligned with longer-term strategic objectives of the business. This is just one of many pitfalls of impulsive investment.
Why do digital modernization efforts fail or fall short?
Flawed transformation projects can all be traced back to a lack of a holistic, analytical strategy in determining where—and how much—to invest. Three primary deficiencies stand out:
- Lack of alignment: Digital modernization is about synergy, not silos. Organizations often treat digital as a standalone enterprise function and may not be linking it with their broader business objectives. This fragmented approach can result in misspending, missed opportunities to improve performance, and productivity loss across the organization.
- Lack of expertise: Companies often lack qualified talent to drive innovative approaches with digital technologies and platforms—but there are ways of finding the specialists you need.
- Lack of quantitative and qualitative metrics: Companies can lack clarity when articulating their unique strategy into the capabilities they need to build or acquire along the way. The business case is often not developed to a level of precision that would allow management to compare the expected ROI with other strategic options and trade-offs.
Like any compelling business strategy, digital investments must be linked to clear and ambitious targets, aligned to system-wide outcomes, and planned according to their contribution to business performance.
For more details on why enterprise projects fail, read our article, Enterprise transformation: How to avoid the 7 most common project fails.
What defines thoughtful investment in digital strategy?
Under pressure to demonstrate progress or replicate another company's success? It's tempting to get caught up in the hype surrounding specific digital tools without critically assessing whether they are the best fit for your business and your unique strategic objectives. But throwing money at the digital gap or the current tech du jour seldom results in real progress.
Formalizing a digital strategy roadmap to prioritize and enable your business objectives is a critical differentiator in modernizing your business successfully. Your roadmap is the foundation for how you grow, innovate, adapt, and compete in a fast-changing marketplace.
The most effective investments in digital strategy are closely aligned with your business' broader objectives and long-term performance goals, which is a philosophical departure from ad-hoc approvals at the business-unit level (often based on narrowly defined use-cases).
Digital strategy as a driver of competitive advantage
Despite a company's determined efforts to entrench technology throughout its operations, our research shows that even a thoughtful digital portfolio isn't enough to guarantee success against the savviest competitors. Leaders need to also think critically about how they're measuring the success of those digital investments to ensure they're rewarding the right behaviours.
For example, if your intention is to invest in technology to support the growth of your business, it's worth spending the time up-front to ensure your project metrics are tied to real improvement in your company's leading growth indicators, which are likely not the revenue itself.
Failure to carefully map your digital investments to strategic leading indicators may result in auspicious initiatives that ultimately fail to move the needle or, maybe worse, discarding promising early-stage ideas before they've had a chance to translate into overt performance metrics.
To help your company meet its targets, consider the influence of the following four factors when evaluating digital investment options, or engage an experienced digital strategy consultant to help you:
- Uncover your pain points. The way forward starts with thoroughly understanding your business environment, challenges, objectives, and change management plan.
- Evaluate innovative options. Consider how solutions work in favour of resources, departments, and objectives.
- Develop a justifiable budget that minimizes frictional costs across disparate teams and projects.
- Measure, refine, repeat. The scale and velocity of the post-pandemic digital shift are massive. Use milestones and metrics, such as operational efficiency and customer experience feedback, to redefine how you measure success and evaluate new opportunities.
Your digital strategy starts here
To start your digital strategy discussion, contact our Digital Strategy consulting team. Our methodology has helped numerous organizations identify and eliminate conflicting investments and costly technologies, clearing the path for digital strategy as a competitive advantage and driving sustainable performance.
Move your corporate objectives from intent to impact—contact us:
Eric Aubailly
Partner, Digital Strategies Lead
[email protected]
Darryl Stock
Sr. Manager, Digital Strategies Lead
[email protected]
Jennifer Kardynal
Sr. Manager, Digital Strategies Lead
[email protected]
Helping our clients achieve purposeful digital strategy
Our digital strategy and transformation consultants develop digital roadmaps for companies of all sizes, operating in all sectors, and facing unique challenges, helping them identify, align, prioritize their technology investments to improve ROI. With our tailored services, our clients can shape their digital mission and form sound digital investment budgets that yield long-term results.
Here are three examples of digital strategy solutions we've developed for Canadian midmarket companies:
A Canadian mining company
With short-term standardized growth aspirations, this organization began to assess what needs to be done, from a technology perspective, to enable their scalable growth. Without a full enterprise-wide view of its digital landscape and investment processes, this company faced fragmented systems, decentralized decision-making, and a lack of governance structure. These challenges limited its ability to make real-time decisions resulting in a heavy reliance on manual processes.
Our digital strategy team helped this company identify priority focus areas and created an integrated three-year plan that acted as a blueprint for their growth ambitions, which is anticipated to generate an estimated 10X return on investment.
A global natural resources company
Our client was on an exciting growth trajectory, but hampered by disparate data management systems. They required a streamlined development process for their expansion plans that would cut costs and reduce the time to market.
Our team used automation tools to formalize a consolidated, consistent way of organizing and interpreting data, empowering the organization to make informed decisions at a rapid pace. With a robust set of standardized and controlled development processes, the company was able to increase productivity, make better projections, and simplify highly complex procedures.
A Vancouver-based not-for-profit
A fragmented digital landscape, laborious manual processes, inconsistent standardization, and limited operational agility were serious obstacles for this global brand.
We developed a digital strategy roadmap that outlined a holistic set of recommendations based on a thorough understanding of the organization’s key challenges across people, process, technology, and governance. The result: A renewed sense of confidence and informed decision-making at the executive level. This logical, rationalized roadmap helps the organization realize its longer-term vision and objectives, based on a rigorous exercise of due diligence and analysis.