- What is the payback period for your digital and big data technology investments?
- How much of your digital strategy is supported by C-suite and shareholders?
- Do you understand where the gaps are in your portfolio, and how do you fill them?
- Do you have access to sufficient capital, or do you need to raise?
Successful digital transformation — one that produces growth and opens doors to new opportunities — requires a business model supported by an adaptable and agile capital strategy, driven by the C-suite.
Most respondents say they have an established digital transformation function in place (85%) and understand that success means mapping their digital needs together with the company’s vision (76%). In addition, 59% say digital is embedded in the major decisions they make.
While it is evident that companies realize the importance of a digital strategy, one of the major challenges is that many of them, particularly those in more traditional sectors, are playing catch up and do not have a clear understanding of digital’s role in their business. This leads to an inability to drive funding.
So, while 87% of respondents in our survey say they are explicitly considering digital transformation needs in their capital allocation planning for the next two to three years, only 55% have a sophisticated method in place to quantify the capital needed to pursue digital transformation — and the results may be telling them that they do not have enough capital to do so.
Capital is king
Digital is not a one-time investment, and appropriate funding is paramount. Yet our findings reveal that most businesses still rely too heavily on organic growth to build their digital capabilities. This is more than likely due to constraints on capital; indeed, nearly two-thirds of respondents (64%) stated they would only be allocating up to 10% of their capital budget on digital in the next two to three years.
This lack of capital is constraining growth. Many companies are not thinking about the disruptive forces at play. Capital management and digital strategy are often misaligned. Companies need to embed a digital strategy in their Capital Agenda (the strategic priorities assigned to the life cycle of their capital).
A digital Capital Agenda that is also robust will help prioritize investment, and provide the sustained spending on digital needed to drive long-term growth. To that end, companies need to explore alternative capital-raising strategies, potentially through IPOs, alliances or rebalancing their existing portfolios via divestments.
Buy or build? Do both
To successfully drive a digital transformation, companies need to review their current portfolio to understand gaps and combine inorganic M&A strategies or alliances with their organic investment plans. And to do that effectively, businesses need the capital. Those companies that are too capital constrained to undertake traditional M&A will need to broker alliances and partnerships to drive the new digital world. And these will not just be with vendors and suppliers, but also competitors.
Those who choose to build through internally driven, organic initiatives will need strong in-house innovation capabilities to rival the nimblest start-up. Should internal technology officers be more comfortable at a slower pace, the company can consider a bi-modal approach: maintaining a traditional IT office, alongside an entrepreneurial IT-innovation team.
Who is executing the strategy?
The lack of understanding around digital can lead to a lack of leadership focus, and this can muddy the digital transformation waters and limit the effectiveness of any digital strategy. A significant number of respondents (44%) report a lack of clarity around accountability when it comes to the digital transformation process, with responsibility fragmented across the organization. Our survey reveals that clarity is desperately needed around ownership and accountability.
Even those with clear accountability view their digital strategy to be the responsibility of several executives. Few respondents see the CEO or even the CFO as responsible for the strategic aspects of digital transformation.
Instead, the chief digital officer, the chief technology officer (or similar) or the chief marketing officer are most often identified as being responsible, while the board and the shareholders are cited as the real decision-makers. It is unlikely that these various roles will produce a coherent picture needed to implement a successful front- and back-end transformation. Digital strategy drives capital allocation, and businesses need to be crystal clear on who is allocating that capital.