Companies involved in business services, which includes information technology firms, and healthcare are more in tune with digital strategies than their peers in other industries, a new study finds.

These companies are the most likely to rate their digital systems as “very advanced” and report a faster pace of digitization than other businesses, according to a recent study, “How Digital Are You?” based on an October 2015 survey of senior executives from several industries.

While companies involved in business services and healthcare expressed confidence in their digital strategies, however, businesses operating in the retail or wholesale industries more often rated themselves as “somewhat or far behind” in digitization compared with other companies.

The study measured companies’ rate of digitization, or how companies take manual, paper-based or other offline business processes and convert them to online systems. The goal of digitization is to standardize, automate, and integrate systems and data so as to create a fast and transparent operating and decision-making environment, the report says.

The report was issued by The National Center for the Middle Market and Magento Inc., the provider of Magento Commerce e-commerce software. Ralph Greco of the Fisher College of Business at The Ohio State University, and Kati Suominen, CEO of research and advisory firm Nextrade Group LLC, designed the survey, which polled 500 senior executives involved in strategy and business process implementation at U.S.-based companies with annual revenue between $10 million and $1 billion. Businesses in the survey operate in such industries as: business services and technology; manufacturing; retail and wholesale trade; financial, insurance and real estate; and health products and services.  

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The study found that 44% of the funds that middle-market companies spend on digitalization goes toward projects in business management, back-office functions like financial and inventory management, and logistics operations. When asked to predict changes to future spending on digital projects, 42% of firms said they expected to spend more on business analytics, strategy and current sales support through 2016.

87% of companies said that their latest digitization effort succeeded in terms of cost, time savings, and return on investment. They reported average ROI for digital projects of 27.5%, a rate that was even higher—38.5%—for companies with annual sales growth of at least 10%. Companies with growth rates of under 10% reported an average ROI on digital projects of 22%.

“The study validates that improving digitization is important to every industry in the digital age and that technology is rewriting the rules of the game. Businesses that are complacent or just average in this area will get left behind,” says Peter Sheldon, head of strategy at Magento. “To keep pace, companies must take necessary steps to address key digitization barriers and move quickly to successfully adopt next-era digital tools. In doing so, these businesses secure not only continued relevance, but also superior returns and growth.”

Following are the percentages of companies in each industry that ranked their digitization efforts as “very advanced”/“somewhat or far behind” their peers:

  • Business Services and Technology, 50%/12%
  • Health Products and Services, 47%/12%
  • Financial, Insurance and Real Estate industries, 36%/15%
  • Manufacturing, 26%/21%
  • Retail or Wholesale Trade, 20%/35%

Some types of firms are more likely to put themselves in the digital leadership position than others. 49% of companies growing at an annual rate of 10% or more consider themselves to be “very advanced” when it comes to digital versus the market average of 36%. Additionally, business services and technology and health products and services were found to be the industries with the fastest rate of digitization.

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The following percentages of companies in each industry said they plan to increase/decrease their spending on digitization over the next 12 months:

  • Business Services and Technology, 35%/6%
  • Retail or Wholesale Trade, 29%/2%
  • Manufacturing, 28%/5%
  • Health Products and Services, 26%/12%
  • Financial, Insurance and Real Estate industries, 20%/2%

Spending on digital projects increases along with a company’s size. 37% of businesses earning between $50 million to $100 million in annual revenue said they plan to increase digitization spending during the next 12 months, compared with less spending on digitization than smaller and larger companies.  Across the board, the majority of spending on digitization will support current sales efforts and such future business functions as business analytics.

 The following percentages were listed as significant obstacles to companies’ digitization:

  • Lack of management support, 36%
  • “Too expensive” technology or strategy initiatives, 25%
  • Lack of employee buy-in or incompatible corporate culture, 19%
  • Getting senior management support, 17%
  • Deploying technology that is too hard to use, incompatible staff, 14%
  • Making a persuasive business case/ Digitalization is not a priority in the company/ unable to find the right talent, 13%
  • Not enough knowledge inside the organization of what tools would be best, 12%
  • Vendor management, 9%

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