Digital transformation beat expectations, but profits lag

Digital transformation beat expectations, but profits lag

On the one hand, more than half of business technology leaders say their digital transformation efforts have exceeded their expectations. On the other, many say this has not translated into higher performance and profit. 

Those are among the findings of a recent survey by KPMG of 400 technology executives in the U.S. The survey found that 51% of respondents on average have not seen an increase in performance or profitability from digital transformation investments. At the same time, 56% of executives say that ROI for digital transformation initiatives has exceeded expectations in terms of improving efficiency and cost cutting; increasing employee productivity; and enhancing customer engagement.

Explaining these seemingly contradictory statements is the difference between long-term investments in emerging technologies and short-term purchases of contemporary ones, each of which have different time horizons.

Barry Brunsman, principal of CIO advisory at KPMG, said investments in the latter might yield short-term benefits of increased efficiency and productivity, but that does not necessarily translate into higher profits and performance right away. 

“Emerging technology has a long-term payoff, and people have lower expectations for emerging technologies versus digital transformation fueled by investment in contemporary technologies and expecting a more immediate return,” he said. “Our general interpretation is that there is an increased appetite for investments in emerging technologies, largely driven by the current focus on AI.” 

Take cloud computing, which used to be an emerging technology. At one time there were a lot of investments in cloud infrastructure to move things away from local computing. While people saw improvements in the short term, it would take a few years before they fully utilized it for profit and performance improvements. 

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“If you went back five years, we were still calling cloud an emerging technology and I would say, in some sense, the jury was out as to whether it was generating the returns,” Brunsman said, noting that these initiatives can sometimes take years to complete. “Over the course of five years, the cloud stopped being an emerging technology. … If you look at the stats on the public cloud, people were no longer talking about migrations coming. Now it’s substantially complete. People still have work to do, but you see lots of confidence in seeing results.” 

There might be a similar situation in AI, according to Brunsman, where there is a long tail between implementation and return. Poll respondents, though, don’t seem to be viewing it this way, as 52% of respondents say that artificial intelligence and machine learning are the most important technology to fulfill their short-term goals. Part of this could be because the AI landscape changes so rapidly, especially over the past year, forcing companies to rethink their stances toward it. Having a long-term plan for AI can be difficult in such an environment. 

“So much has changed over the last eight to 10 months, they have to rewrite their playbook … AI is fascinating because it is behaving similar to other technologies from five or six years ago [in terms of business impact], but it’s moving so fast people have to say ‘wait a second, we need to think of this differently,'” he said. 

Beyond emerging technologies, Brunsman said another thing the poll found was that “trusted transformations are faster transformations.” That is, those who built their technology infrastructure from the beginning to account for cybersecurity, privacy and regulatory compliance will, according to 64% of respondents, significantly increases the success rate of their transformation programs. This is part of a shifting mindset of looking at things like cybersecurity not as cost centers but as investments in the future. 

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“Focusing on these sorts of outcomes, in addition to the other outcomes underneath the transformational objective, you achieve faster transformation,” said Brunsman. “This seems counterintuitive because you add to the scope of the transformations … but building those things into the transformation, you avoid the pitfalls that slow it. Maybe your cyber practices were lax and then you caught something later, and now you have to train up and fix it.”