How Midsize Companies Can Drive Digital Transformation
While the scale of technology investment can vary greatly across middle market companies of different sizes as well as industries, there are still common issues prevalent for mid-market leaders across the spectrum as they consider making a move toward an increasingly digital future. Perhaps most notably, resources — capital, people, time — are always an issue. Resources are typically more constrained in mid-size companies than in a larger enterprise where digital transformation is often strategically managed by a dedicated department or team. So how should middle market leadership teams think about navigating technological changes given the very real limitations they face? This article covers five keys for mid-market companies to achieve a successful digital transformation.
The last few years have brought unprecedented challenges, opportunities, and evolution for companies of all sizes. The middle market is no exception. In fact, the pandemic served as an accelerator for a number of initiatives that were perhaps just wishes and dreams for mid-sized companies a handful of years ago, but are now very much the reality for these businesses today. By far, no other force is driving more significant change, and subsequent ramifications, than digital transformation.
Digital Transformation Is Different in the Middle
The National Center for the Middle Market (NCMM) actively monitors the state of technology implementation and digital change at mid-size companies — a focus that began in 2019 even before the pandemic hit. We define the middle market as companies with revenues between $10 million and $1 billion annually, a wide range, for sure, but representative of the middle-third of the U.S. private sector in terms of GDP and employment. While the scale of technology investment can vary greatly across middle-market companies of different sizes as well as industries, there are still common issues prevalent for mid-market leaders across the spectrum as they consider making a move toward an increasingly digital future.
Perhaps most notably, resources — capital, people, time — are always an issue. Resources are typically more constrained in mid-size companies than in a larger enterprise where digital transformation is often strategically managed by a dedicated department or team. On the other end of the spectrum, small businesses aren’t typically in a position to even need such platforms, so the resource challenge is unique to the middle market. Another challenge is the reality that, in most cases, the “trendy” digital systems and tools are either (1) too expensive, (2) not scaled appropriately for current needs, and/or (3) require a great deal of support to implement (and possibly maintain).
5 Keys for Planning Successful Change
So how should middle-market leadership teams think about navigating technological changes given the very real limitations they face? Our research suggests that whether your business is just starting to think about becoming more digital, or is already somewhere down the path, there are some important considerations to keep in mind to help ensure a better fit and return on investment:
- Platform: Are you investing in something entirely new? Or are you bolting on new capabilities to a system already in place? Either way, allocating more budget to innovation, strategic development, and business analytics over daily management of the business will generate greater long-term return.
- Budget: With limited resources for investment, and possible financial barriers with access to capital being difficult given rising interest rates, are sufficient budgets being allocated in the right ways? Depending on the system(s) involved, return on investment can take longer to achieve. Consider what tradeoffs might be required based on the most pressing priorities — security, efficiency, productivity, analytics, and so forth.
- Processes: Are the investments being considered compatible with customers and suppliers? A secondary benefit of technology implementation is streamlining connectivity and creating end-to-end visibility in the supply chain, for instance. Picking a system based solely on cost or provider might not be the right approach if your upstream and downstream partners are doing something different. Think about what might need to change by process-mapping key functions.
- People: Does your company have the right digitally skilled workers to not only help implement but subsequently support and run the technology? In the latest NCMM Middle Market Indicator survey, over 90% of companies said they currently have a slight to significant digital skills gap. In the short-term, using implementation partners and consultants can help fill the void, but take time to think through the longer-term talent plan.
- Risk Management: With new technology comes the potential for new exposures. Have you evaluated the key risks and developed the proper security measures to protect your most vital digital assets? Using a trusted partner can be very helpful in identifying blind spots or new threats that might not have existed in the old set-up.
Make Sure It All Ties Back to Strategy
These five considerations and their implications will invariably differ across organizations. But regardless of the nuances for any individual middle-market company, leadership should also take a step back to consider some broader questions as the company navigates its own digital journey. These strategic questions include:
- To what extent do we aspire to be among the leaders in our industry in creating business value from digital technologies?
- In which areas of the business are we leaders in our industry? In which areas are we lagging behind our peers?
- Does our company have a digital vision that is clear and comprehensive; widely understood internally and externally by employees, customers, and partners; and used to guide strategic decisions?
- Does our company have a strategy to use digital technologies to achieve competitive advantage, increase revenue, and use capital more effectively?
Careful consideration and alignment across the organization on these underlying premises can lead to remarkable results. For instance, in the NCMM Report The Case for Digital Transformation, companies with self-described highly strategic digital transformation processes grew at notably faster rates than their peers. In the same study, we learned that larger companies ($100 million or more in annual revenue) are generally farther along in their digital journey, which is reasonable given their scale and access to resources when compared to lower middle-market organizations.
The Promise of Digital Transformation Makes Change Management a Must
Make no mistake — navigating technological change and implementation can be daunting, even for large enterprise companies. However, with the right mindset, strategic approach, and willingness to leverage outside resources as needed, middle-market companies can lean into change with eyes wide open, primed to extract most if not all of the benefits of digital transformation to drive greater efficiency, collaboration, and growth in an increasingly competitive world.