The rush for digital transformation is driving strong double digit growth rates among many technology service providers. According to those service providers, the demand for transformation shows little signs of slowing down – even as inflation and concerns about recession loom.
Usually when someone says ‘there are no signs that X will ever slow down’ whatever X has already begun to slow down. Understanding the drivers behind digital transformation provides insight into when and how demand might slow. One of those drivers is the observation that it is better to be either digital or not digital rather than something in between.
Demand for Digital Transformation should be broad
Digital transformation is a process for leveraging digital technologies to improve business capability performance or create new capabilities or change business models. Successful digital companies match their revenue and internal processes. Based on Gartner’s 2022 CIO survey, there should be broad demand across industries.
This figure looks at the average percentage of revenue and processes leveraging digital technology. It is an admittedly crude way of looking at digital transformation demand, but it does indicate the scope and focus for digital transformation demand.
Digital Revenue > Digital Process – the worst of both worlds
Based on the figure above, every industry expects to generate a higher percentage of their revenues digitally than the percentage of digitally enabled business processes. This puts just about every company in a bind as digital revenues are served by non-digital processes.
Cost, flexibility, and adaptability can be come issues when customer transactions and experiences occur digitally, but they are fulfilled by pre-digital applications and processes. The same applies for interactions between divisions/functions within a company.
Resolving the mismatch between revenue and process is a driver for digital transformation as being half digital is the worst possible position – the digital wasteland.
Crossing the Digital Wasteland
The business drives digital transformation, more than IT. Right now, organizations are rushing to complete their digital transformations often transforming multiple parts of their business simultaneously as opposed to a more measured approach.
Business leaders seek to get across a ‘digital transformation wasteland’ that exists between limited digitalization and being fully digitally transformed. The figure below highlights this wasteland.
Warning – the digital transformation cliff
Business demand to cross through the digital wasteland as quickly as possible has multiple implications on business and technology. These include:
- Hyper demand for transformation services with pricing rising in the face of fully booked service providers. The limited capacity of technology services companies actually raises demand and companies compete to transform.
- Revenue increases for most service providers as rising demand lifts all boats. Be careful however, while many are reporting record quarterly growth most are losing market share. It is important the growth be compared year over peer more than year over year.
- Transformation is a transaction not a service. When a company completes its transformation it exits the market for transformation. When multiple companies complete their own transformation demand suddenly falls off – the transformation cliff
Digital Transformation – making hay while the sun shines
Current hyper demand for digital transformation represents an immediate market and growth opportunity for technology service providers. Businesses need transformation to remain competitive. More than that, they need to complete transformation as being half digital is an unsustainable position.
Getting through the digital wasteland leads businesses to invest more, transform multiple operations and be willing to pay a premium. Demand today does not equate to demand tomorrow or forever. Navigating current high demand requires business leaders and technology service providers to understand that it is better —
To be or not to be digital – anything in the middle is a waste
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