Private companies to focus on digital investments in 2021

The pressure to enhance digital strategies and realize a return on digital investments has never been greater. Strong plans for implementing and evaluating digital initiatives are necessary to survive and thrive in today’s rapid digital transformation era.

While private company leaders have been allocating significant parts of their budgets to technology over the last few years, in this extremely fluid pandemic economy they are now being pressured to realize the return on their digital investments (RODI). CEOs, chief digital officers and other top-level executives are being forced to assess current strategies both in terms of effectiveness and value to the bottom line—a big ask during these challenging times. Just how do these leaders go about building a sound digital strategy that drives overall growth?

The EY Digital Investment Index provides a peek at how 1,001 executives with technology decision-making responsibility across industries worldwide are recalibrating strategies in response to the pandemic. The survey, which was conducted in the third quarter of last year, provides valuable insights on how leading organizations are achieving higher returns from their digital investment.

Practical planning

The survey revealed that digital leaders—around 9% of those polled - are achieving greater returns on their technology spend (about six percentage points more than non-leaders), and have experienced stronger revenue growth over the last two years (49% report growth over 6% vs. 29% of non-leaders). How are they doing so? With more mature, clearly defined digital strategies and plans for executing them. These leaders have wisely shifted focus from in-house technology development to M&A and partnerships to accelerate digital growth, as well as prioritized initiatives with immediate cash returns. They also assess their efforts, discontinuing unnecessary digital initiatives and accelerating new digital products, services and business models to drive RODI.

Embracing emerging technologies and analytics

Sixty-two percent of those surveyed noted that companies must radically transform the organization’s operations over the next two years. To do so, they are embracing emerging technologies such as the internet of things, artificial intelligence, and cloud computing. More important than simply pursuing these technologies, perhaps, is that private company executives can learn from the digital leaders in the survey who recognized that the right talent, a sufficient budget and strong data analytics are key to any successful technology strategy. These leaders simultaneously focus on short-term value where data is available now as well as building a data infrastructure for the future.

The right investments to accelerate digital

While executives seem to know which technologies they need, according to the survey there is a disconnect when it comes to the investment vehicles to acquire those technologies. The key to driving value is for private company executives to be aligned on investment strategy so that goals can be met across the enterprise. It appears that an optimal strategy incorporates patents, M&A, CVC and partnerships.

Overcoming obstacles

A well-defined digital strategy identifies the barriers to realizing the full benefits of an organization’s digital efforts and includes a plan for overcoming them. The top three barriers blocking good RODI are:

• Lack of skills/talent
• Lack of budget/funding
• Lack of operating model

Only by recognizing weaknesses and shortfalls can a private company properly scale its digital initiatives.

Governance and KPIs are imperative

Measuring RODI can actually lead to higher returns. Companies that measure RODI were 50% more likely to achieve 5%+ RODI in 2019. Unfortunately, less than 25% of those surveyed said they actively assess these numbers. Wise private company leaders will hire the right mix of talent and will devise data collection systems to effectively promote digital initiatives and meet goals.

Private company leaders’ digital to do list for 2021

To improve digital investments and accurately measure the payoff, executives should:

1. Create a well-defined strategy that outlines spend and technology requirements.
2. Align leadership on a plan that incorporates the right mix of investment vehicles.
3. Consider utilizing M&A and partnerships to achieve digital success.
4. Focus on acquiring the right talent, securing funding, and improving operating models.
5. Accurately measure RODI and recalculate strategy based on identified weaknesses.
6. Rebalance initiatives portfolio.

For more detailed information on the survey findings and further recommendations for enhancing your return on digital investments, read Will your digital investment strategy go from virtual to reality?