Digital transformation has been a common theme throughout our blog posts. Over the past few weeks we have emphasized the importance for a business to undergo this transformation in the new age of technology. However, undergoing such change is easier said than done. Businesses, even ones as large as Google face barriers to digital transformation. We have explored the miscommunication between IT departments and their business as a common barrier that companies face. In this blog post we are going to explore another, the cost of digital transformation.
Why are Costs So Important?
The process of digital transformation does not necessarily have an end goal, rather a constant state of opportunity that businesses need to capitalize on. It is important to recognize that the digital atmosphere around us is changing customer experience. Working professionals understand that customer experience is the sole most important driving factor for their business. Poor experience ultimately leads to a loss of customers and overall revenue. Digital innovation means faster response from the business, which keeps it competitive and keeps customer experiences positive. Keeping customers satisfied is going to cost money. The International Data Corporation’s Worldwide Semiannual Digital Transformation Spending Guide estimates that spending for digital transformation will reach over $2.1 trillion next year worldwide. However large this number is, it is essential that business undergo digital transformation to ensure positive customer experiences because the potential cost of not reaching customers is incalculable. While having a budget for digital transformation is necessary, it also acts as a barrier for businesses that either do not plan an effective budget, or simply do not have enough money.
Why is Cost a Barrier?
So what do these costs look like? Businesses undergoing digital transformation spend money on all things digital. This includes multi-cloud migration, network analytics, social media costs, or improving/updating their technologies. Migrating application servers from one cloud to another costs an organization on average $3,000 a server, according to Mark Shirman, the CEO and president of RiverMeadow Software Inc. Migrating to multi-cloud can save businesses significant costs when a business has short-term computing needs, but can end up costing more than saving if the business is too small or does not a fast-growing online customer base for it to be effective. The decision to migrate to multi-cloud or not will rely heavily on that particular company’s business model. A network analytics application could cost thousands as well, depending on the quality and quantity of the product. Social media costs can differ, and rely on the amount of involvement the business wants to have. Social media essentially is a free exposure platform, however there are expenses to hiring an individual to run it. Improving/updating technology can get expensive depending on the size and needs of the business. Updating may seem like an easy fix, however the business needs to consider the fact that networks could have been designed in a pre-digital time and are therefore not set up for connectivity. Therefore, updating may be more difficult than originally planned.
Another essential digital expenditure is hiring the right digitally skilled IT professional to guide the business through transformation. The beginning of a digital era is often a culture change for the industry. A recent study in the UK found that 46% of business leaders feel they lack the skills or expertise to drive digital transformation projects. IT technical skills may be siloed for years, causing the need for new training for the adapting digital age.
Cost is not, and will not be just monetary. While monetary cost plays a role in digital transformation, it is not the only resource being used. Time and attention are costs that can easily be overlooked. Time and energy need to be considered when creating a budget with the addition of monetary resources.
How Much are We Talking?
Many businesses struggle to create an effective long term budget. But what needs to go into a budget for digital transformation? How much money are we talking about? The answer is not simple, and ranges depending on the business. Adam Kruszynski in his article “What is the REAL COST of Digital Transformation?” suggests the business look at two variables. One being the percentage of operating costs. He advises that the organization start at 5% operating costs. This is not only a safe amount to work with, but also practical. A 5% operating cost budget could seem expensive, but it’s worth it. Network outages are a real threat to businesses, particularly ones that have not begun digital transformation. If a business experiences an outage, they on average lose $100,000 an hour. With this being said, that 5% operating cost budget is beginning to look a lot more practical. Business should not be concerned with the budget for digital transformation, rather the costs if they do not transform. Investing in a solid digital future will ultimately cut company costs overall.
Digital transformation is essentially a continuous state of opportunity. Companies that do not exploit these opportunities will experience unsatisfied customers who have already entered the new era, and ultimately fall behind their competition. It is essential for businesses to get ahead of their competition to be successful and make strides in their industry. With this being said, a business that is too ambitious with their digital transformation goals coupled with an inefficient budget is likely to be disastrous. Reckless decisions will hurt the organization in the long run, delaying overall transformation. To ensure customer satisfaction and reduce the risks of potential costs, a business must create an affordable yet competitive budget in order to continue seizing the opportunities provided by digital transformation.
Kruszynski, “What is the REAL COST of Digital Transformation?”, 2017
Virtulytix, “Business Leaders Unprepared for Digital Transformation”, 2015
Canton, “When Digital Transformation Needn’t Come At A Huge Cost”, 2017