BDO Digital: The state of digital transformation in the mid-market

08 June 2020 4 min. read
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Digitalization is no longer just a competitive edge for the corporate elite. According to a new report by BDO, rapid advancements in emerging technologies has paved the way for businesses of all sizes to tap into the power of digital, enabling them to unlock a string of benefits.

Together with Rabin Research, BDO Digital conducted a survey among C-suite executives of middle market companies across the globe, finding that digital is shifting from being a luxury only tool afforded by the largest and wealthiest firms alone, to an affordable and essential tool for the mid-market tiers of the economy.

Firms surveyed by the global accounting and consulting firm have an annual revenue pool between $250 million and $3 billion, with companies representing six major sectors, namely retail, energy, manufacturing, healthcare, technology and financial services.

Rate of succes

The study highlights that midmarket businesses have been quick to recognize digital opportunities in their arena, and most appear to have invested in developing a robust IT infrastructure. This is what BDO terms the ‘digital backbone’ of a business, referring to the IT foundation that underpins other aspects of the broader digital transformation agenda.

Many have made the investment in this first step, while the next priority appears to be improving customer service. Be it automated bots or customer analytics, digital tools have tremendous potential in customer-facing business functions, and many have been investing to this end. Similarly, digitally enhancing marketing & sales has also been a priority in the first stages.

Meanwhile, BDO notes a shift when it comes to projects that are likely to draw investments over the next year. Projects aimed at improving core business operations as well as risk management & compliance already make up a big share of digital transformation efforts, but in the next 12 months this area will become the top segment for digital investments.

Challenges to digital transformation

Most of these investments will be put specifically towards diversifying the revenue model, improving market differentiation and increasing operational efficiencies.  Another area that is to become a core priority for businesses in the near future is cyber security – a trend that has been further intensified by market conditions under Covid-19.

Main digital threats

When asked about the biggest digital threat over the next 12 months, most respondents cited cyber attacks as a major concern. BDO reports that there have been nearly 40% more cyber attacks during Covid-19 months, accompanied by a staggering 600% increase in Covid-19 related phishing scams.

Another major concern is tech disruption, which might come about from competitors or from outsiders. Going forth, the biggest challenges that businesses anticipate are developing cyber security frameworks, and developing the right metrics for digitalization. As always, holistic digital transformation requires considerable investment, making budget constraints another key challenge among businesses.

Last 12 months

As businesses navigate these challenges, it is easy to lose sight of the actual value being generated by digital transformation. The survey sought to determine what success looks like to businesses looking to invest in digital, judging by their experiences over the last 12 months.

The key metrics realized are increases in revenue and profitability. The authors highlight that more than 60% of mid-market companies rate their digital transformation journey as moderately successful, while an additional 23% view it to be overwhelmingly successful. These businesses report marked revenue and profitability increases, in some cases of more than 10%.

“While spending precious resources on digital initiatives can be challenging in a time of tightened budgets, these investments can enable greater efficiencies in both the near term and the long term. Implementing digital initiatives as part of an overarching digital strategy helps protect capital and drive revenue,” concluded the BDO and Rabin Research report.