The hidden cost of inaction

89% of board directors say digital initiatives are embedded in their growth strategies, but only 35% have achieved or are on track to achieve their digital transformation goals.

If investments in technology help businesses grow exponentially, why are so many organizations waiting?

There are many reasons why organizations are apprehensive about investing in new technology, but when it comes to achieving a successful digital transformation, they are most often faced with the following barriers:

• Resistance to change from employees
• Lack of budget
• Insufficient business case to display value to stakeholders/competing business priorities
• Lack of clear strategy and objectives/seems too difficult to take on
• Information and option overload
• Concerns about data privacy and security
• Processes aren’t broken enough to warrant new technology

Digital transformation is critical in preparing your business for what comes next. The “digital imperative” urges companies to modernize and optimize, using technology to do more with less, while differentiating and building resilience. Transforming your organization to think digitally forward is the difference between standing still and thriving in the new digital era.

The cost of inaction

Organizations need to consider ways of working differently as new technologies, such as artificial intelligence, cloud computing, Internet of Things (IoT) and big data, become the new way of operating. Threats to current business models and human capital needs are two areas that display the cost of inaction that organizations are starting to face.

Business model threats

In 2007, BlackBerry was generating over $3 billion in revenue and controlled 50% of the U.S. cell phone market. They were slow to change with the arrival of the smartphone and focused on slowly iterating their original product, which resulted in their global market share dropping to 5% by 2012. This failure to adapt led to them going out of business.

Investing in new technology can help your organization avoid the following threats to your current business:

1. Becoming a competitive laggard: Don’t assume your competition isn’t embracing digital transformation. You need to be a digital transformation leader, not a laggard, in order to outperform the competition on key financial measures.
2. Operational inefficiencies: Access to data is key. Data enables leadership to make better decisions on a daily basis and the ability to access that data quickly allows them to react to key changes and find solutions more efficiently.
3. Low quality customer experiences: Being nimble, easy to work with, accessible and allowing customers to drive their own ordering experience is vital to retaining customers.
4. Higher IT and maintenance costs: Keeping outdated technology increases the threat of data breaches and ultimately total costs.
5. Missed revenue: U.S. businesses lose up to $1.8 billion each year in wasted productivity due to obsolete technology.

Human capital threats

Coming out of the pandemic has produced a shift in the demographics of the workforce, making it difficult for organizations to fill their open positions. There are 1.97 million fewer workers in America today compared to February of 2020. As people are no longer limited to living in a specific geography in the digital era, we have created a more transient workforce with people moving all over the country to find jobs that are a better fit.

Other human capital threats to consider are:

1. Attracting talent: Gen Z employees are looking for jobs that utilize modern technology efficiently and effectively.
2. Retaining talent: 91% of employees reported being frustrated by inadequate workplace technology. Employees have high expectations of workplace technology and expect fewer manual processes, more automation, collaboration between departments and sufficient training to learn new software, to ensure they’re maximizing their time and productivity.

A more recent example of the cost of inaction is in December of 2022, Southwest Airlines cancelled over 15,000 flights, wreaking havoc for holiday travelers and costing the company millions of dollars. Representatives indicated that outdated technology unsuitable to match the airline’s growth was the contributing factor, with some operations dating back to the 1990s. This lack of action in updating technology cost the company a Q4 2022 net loss of $220 million.

Bias to action

Digital transformation is not a one and done effort, it’s a journey that takes time, durability and certain skills and capabilities.

The pace of change continues to accelerate over time. It took almost 90 years for the automobile to be fully adopted in the U.S., but Chat GPT reached 100 million users in the first two months on the market. New technologies are adopted exponentially faster and will continue to do so.

Becoming an early adopter on the technology adoption curve helps organizations reap the benefits of change and ensure that when new technologies come out, they won’t fall behind the competition and become a laggard.

So how do you keep up with all the moving pieces?

Organizations largely invest in new technologies for three reasons: cost reduction, increased revenue and risk avoidance (mainly cybersecurity threats). Investing in digital initiatives holds those threats at bay. It also helps to create and manage a portfolio to balance these objectives and ensure one is not being prioritized over another.

The ambidextrous organization

Ambidextrous organizations are companies that can build innovation on top of a solid foundation. They are pioneers in the digital age and can outperform their competition with two concepts: enterprise foundations and enterprise innovations.

1. Enterprise foundations

Enterprise foundations encompass the fundamental structures and processes the form the basis of a robust and scalable business model, enabling efficient operations and facilitating growth. They include:

• Digital DNA: This is the strategy and culture surrounding becoming a digital-first organization and how you build that culture around the worldview of being agile, experimental and able to move forward in the digital age.
• Governance: Companies need to manage their portfolio effectively and have built-in off ramps when investments don’t succeed as intended. You also need to manage your data governance, understanding what data you have, what the purpose is and how it applies to your customers.
• Core modernization: Some opportunities for modernizing your technology include upgrading legacy ERP or HR systems with high cost of ownership, moving to SaaS/subscription-based model offerings and re-factoring older custom applications that you’ve built.
• Big data: You must create a modern data infrastructure, bringing together all your disparate systems to unlock digital innovation.

Foundation challenges and solutions

Some questions you may be asking:

How do we fund a digital transformation project?

• To be digitally relevant, commit to a balanced portfolio approach over time and establish an appropriate governance around it.

How do we move past using legacy anchors?

• Put intentionality behind change management. Actively manage change throughout your organization at all times. Create communication programs that give clarity around your vision for the future and an understanding of why change is needed. Find people that can be the champions of change within your organization.

Where do we start?

• Try to make sure one area of the business doesn’t have more influence than another. Come up with a systematic process to objectively look at effort to value as you’re balancing decisions around which digital initiatives to prioritize.

2. Enterprise innovations

Enterprise innovations encompasses the implementation of new ideas, technologies and strategies to drive transformative change, improve efficiency and create new opportunities for growth and competitive advantage. They include:

• Digital experiences: To continue to thrive in the digital age, you must be able to engage customers across a variety of channels and personalize each individual experience. You need to invest in technology to be able to achieve hyper personalization for both your customers and your employees’ workplace experiences.
• Enterprise insights: Bring modern data infrastructure into your business to understand all your different data sources. This can help you target your business, become more efficient and eliminate waste.
• New offerings: Reimagine your products, markets and value chain by innovating with new and different digital capabilities.
• Automation: Implement business process automation, artificial intelligence, machine learning and use technology like Chat GPT to heighten human capital with higher value work and increase efficiencies.

Innovation challenges and solutions

Some questions you may be asking:

How do we avoid the tyranny of the urgent?

• Democratize innovation by taking innovation to where the work is happening. Help each team member understand how they are part of the organization’s digital DNA and what areas of innovation they should focus on. This way everyone is part of the innovation and can help own and drive it forward.

How do we better align IT with the business?

• As organizations develop in the digital age, they start to take a different shape and function differently. Keeping IT separate from the rest of the business functions will cause inefficiencies, so bonding them together can help increase innovative ideas and digital intelligence, or digital IQ. Let them know it’s okay to experiment and to fail from time to time as part of that innovation process.

How do we fill the skills gap?

• Pick what technology you want to own and innovate in, to differentiate you from the competition. Then, lean into talent ecosystems and make sure you have the right talent in place to guide that innovation and also manage associated risks.

How we can help

When standing still is no longer an option, Baker Tilly's digital team can help assess and deploy the right business technology solutions for your organization, no matter where you are in your digital transformation journey.

This article was derived from “The hidden cost of inaction” webinar, watch the full recording below.