IDC: The Next Steps in Digital Transformation

An IDC InfoBrief, sponsored by SAP | January 2017
How small and midsize companies are applying technology to meet key business goals
The Next Steps in Digital Transformation

An IDC InfoBrief, sponsored by SAP
pg 2
The Next Steps in Digital Transformation: Outline
» Introduction, page 3
» Key Findings, page 4
» Takeaways, page 16
» Appendix, country by country findings, page 19
Outline
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pg 3
An IDC InfoBrief, sponsored by SAPThe Next Steps in Digital Transformation: Introduction
Digital transformation is directly related to the changing digital economy with individuals,
businesses, and society becoming interconnected in real-time, supported by technology.
Think of the advanced capabilities that are changing the nature of business:
What is digital transformation?
Almost all small businesses (firms with 10-99 employees) and midsize firms (with 100-999 employ-
ees) have some of these digital transformation resources in place: collaboration software, power-
ful computing and communications resources, cloud computing. But effective deployment and
integration are needed to bring your firm to the next level of business performance.
» Hyper-connectivity — the result of anytime/anywhere communications
» Unlimited computing power available though diverse platforms
» Cloud computing, with easy access to hosted software and services
» The proliferation of sensors and mobile devices, providing new and continuous
streams of information as well as ways of accessing them
» Advances in cybersecurity that support reliable access and use of key information,
minimizing internal and external vulnerability
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pg 4
An IDC InfoBrief, sponsored by SAPThe Next Steps in Digital Transformation: Key findings
Around the world, small and midsize
firms of different sizes and from various
industries identify similar business priorities
as most important. Looking in detail at
faster-growing firms (those with 10%+
annual revenue growth) shows them to be
especially ambitious in identifying multiple
priorities such as driving revenue growth,
improving productivity, and, above all,
getting new customers. Many of these goals
are interrelated and many are supported
through advanced technology. The
natural question is: What approach to the
acquisition and use of technology can best
support business objectives?
Customer acquisition, revenue growth, and efficiency
are top priorities for small and midsize firms worldwide
Top business priorities for next 12 months
of small and midsize firms in Germany and
Brazil view customer acquisition as the top
priority. See Appendix 1 for country details.
Customer acquisition/
acquire new customers
Improve revenue growth
Improve efficiency/ productivity
Reduce costs/ expenses
Become more innovative
Grow our business
while maintaining quality
Improve staff retention/
development
n Fast-growing companies n All other small and midsize companies
48%
63%
46%
39%
40%
43%
32%
40%
54%
39%
40%
29%
32%
24%
2/3
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The investments made by small and midsize
firms in advanced software resources have been
considerable and continue to grow. In just one
year the average firm surveyed added a new
application, with ecommerce and
HR/Talent management showing the greatest
increase in penetration. Larger firms and fast-
growing ones tend to use more applications, but
even the smallest firms are adding resources.
Collaboration, CRM, and ecommerce all help
internal productivity and efficiency. And
when information in one application is shared
and updated across others throughout the
organization, significant performance gains can
be achieved – the goal of digital transformation.
Growing use of software resources – 2016 versus 2017
In 2016, survey respondents
indicated that they were using an
average of 3.8 solutions; in 2017,
the number was 4.8.
See Appendix 3 for country details.
Top capabilities utilized
Collaboration software for employees to
share documents and calendars
Customer relationship management software (CRM)
Commerce/ecommerce, including
online order taking and billing
HR/Talent management software
Enterprise resource planning software (ERP)
Business analytics/Business intelligence
software (BI) for data analysis
Social media analytics and marketing
tracking tools for campaigns
Planning/coordination solutions used with partners/
suppliers (to communicate and coordinate activities)
Advanced business networks
Internet of Things technologies to connect
sensors to business systems
n Jan. 2016 n Jan. 2017
50%
38%
35%
38%
55%
44%
35%
33%
26%
23%
54%
45%
48%
51%
60%
47%
46%
42%
40%
38%
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The most widely used software applications are also the ones both small and midsize firms implement
first: collaboration, CRM, ecommerce. The drivers behind selection are obvious: the greatest need and
the most immediate impact. Midsize firms are more likely to note partner or customer influence. While
the basic forces for technology investment are typically internal in nature, outside encouragement
is important as well. Keeping an eye on the needs and demands of the changing competitive
environment is always a good idea as you refine your technology investment plans.
Practicality drives resource choice for
small and midsize businesses
Over half of small and midsize
firms in Korea and Brazil indicate
“where need is greatest.” See
Appendix 4 for details by country.
1/2
n Total n 10-99 n 100-499 n 500-999 employees
Drivers for implementing software applications
Where need was
greatest
Driven by IT
department
independently
Quickest/
highest ROI
Driven by software
vendor, VAR, etc.
Easiest/quickest to
implement
Directed by CEO,
President
Driven by
customer/
partner need
Driven by
IT dept.
Part of expansion
of current
technology
45%
21%
29%
14%
35%
20%
27%
20%
12%
48%
23%
31%
16%
37%
18%
31%
23%
13%
49%
15%
22%
8%
33%
17%
26%
12% 14%
48%
20%
27%
13%
35%
18%
28%
18%
13%
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Between 73% and 87% of small and midsize
businesses surveyed indicate that their
expectations regarding technology investments
were met or exceeded. This high level of success
naturally paves the way for additional investment.
In theory, building a successful portfolio of
different technology components implies slightly
lower marginal improvement for each additional
investment. In reality, the effective coordination
of new resources can bring greater performance
impact than the sum of the parts: providing
greater customer insight to bear on ecommerce
engagement, for example.
Exceptional results: 70%+ say expectations met
or exceeded for key technology investments
Benefits achieved by key technology investments
Coordination and consolidation
of internal processes and
external customer and partner
engagement can help leverage the
impact of technology investment.
Provide ease of information access
Enhance portability within the office environment
Manage regulatory compliance
Offer employees more flexibility
Improve field service response time
Improve/enhance worker productivity
Improve customer service
Speed the sales process
Provide perception of advanced company
Reduce paperwork
Sharpen promotional practices/customer
outreach
Increased sales/revenue
Decreased costs
Improve customer loyalty
Improve competitive advantage/market share
86%
78%
81%
77%
83%
78%
79%
76%
82%
78%
78%
72%
74%
72%
72%
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Influence on technology acquisition decisions is divided between senior/LOB management and IT, with the influence of IT staff
growing with company size. The real takeaway is the collaborative nature of the process, at least for more successful outcomes.
Delivering near-term tactical benefits makes building consensus for acquisition easier. Ensuring that purchases meet the needs of
multiple constituencies is also key to success. Being attentive to outside advice – from software vendors, cloud service providers, or
other technology partners – can be an additional source of guidance when used with care.
Senior management and IT management lead in
initiating technology purchases
Groups influencing technology purchases by company size
Corporate: CEO/
President/Board
Software vendorsIT CIO/VIP Channel partners:
VARs, systems
integrators
LOB Managers Network
infrastructure/Cloud
service providers
IT Managers
and staff
26%
16%
26%
13%
16% 16%
29%
24%
18%
29%
14%
18% 18%
29%
27%
13%
19%
8%
14% 13%
22%
25%
16%
24%
12%
16% 16%
27%
External influences
increase with
company size
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pg 9
Numbers may add to more than 100 due to rounding
Companies prefer to move
forward cautiously with
new solutions. Effective
integration with current
operations is key.
Half of firms lean toward
off the shelf rather than
customized solutions. Modest
fine tuning helps achieve
performance objectives.
Investing in small,
quick impact projects
sets stage for more
ambitious and
demanding projects.
Firms accept disruptions
but are cautious
Solutions combining
bundles with some
customization are preferred
Firms favor quick and
easy projects with impact
Deployment preferences reflect caution,
convenience, and impact
25%
21%
11%
5%
26%
29% 36%
44% 50%
54%
Minimum disruption
– gradual adoption
of new tech despite
benefits delay
Bundled solutions
(different hardware,
software, etc.), single
product/single source
Incremental (easy
implementation/
modest potential)
Timely adoption of
new tech for maximum
benefit despite
significant disruption
Solution assembles best
hardware, software, etc.
to meet our requirements
Major transformative projects
(high potential performance
improvement/payback)
Some disruption –
cautious adoption of
new tech despite slowed
improvements
Incremental (near
term/modest return)
and major impact
(longer term/greater
cost, return)
Timely adoption
of new tech for
maximum benefit
despite some
disruption
Bundled product/
custom options
in a customizable
solution
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pg 10
Cloud resources, which are hosted and accessed online, are an increasingly important part of how small and midsize
businesses obtain technology. Over half of small businesses and three quarters of midsize firms worldwide use at least one
cloud-based resource, and cloud engagements continue to grow. Fast-growing firms show the same level of cloud interest
as small and midsize firms in general – all find cloud resources increasingly appealing.
On-premise versus cloud preferences evenly divided
Preferred application platform by company size
Prefer on-premises
solutions in general
Prefer cloud solutions
in general
No preference
44%
40%
16%
40%
46%
14%
42% 40%
18%
42% 42%
16%
Cloud is of interest to
firms in developed and
developing countries,
with greatest interest in
China, India, and Brazil.
See Appendix 5 for
country details.
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pg 11
While cost savings drew initial interest in the cloud 5-10 years ago, the key reasons for using cloud capabilities
today are convenience and ease of integration. Security is still a concern but less so than in the past. Management,
control, and performance issues are all potential concerns whether firms are fast growing or not.
Cloud drivers and inhibitors are in transition
Fast-growing firms are more likely
to note multiple cloud benefits and
multiple cloud concerns.
Fast growing All others
35.8% 28.0%

30.3% 34.3%

33.9% 24.7%

33.5% 26.0%

32.6% 25.0%

29.6% 23.9%

Ability to integrate
into current apps/IT
environment
Expand IT resources
without adding staff
Add new users
without difficulty
Have everyone use
latest software
Remote management/
coordination
Pay only for what’s
used
Key Factors/Benefits Encouraging Cloud Use
Fast growing All others
44.9% 43.3%
31.1% 27.0%
29.8% 25.9%

27.4% 24.2%

25.2% 21.2%

24.9% 19.8%
Data security
Service reliability
Recurring cost of
ownership
Don’t want to be
locked in to using
single service provider
Loss of IT department
control over apps
Potential regulatory/
compliance issues
Key Factors/Concerns Discouraging Cloud Use
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The majority of small and midsize firms say they are on the road to digital transformation,
although for many the acquisition of key resources and their coordination is still at an early stage.
For most firms, the awareness of the opportunity in aligning and leveraging technology assets is
where real benefit can be found. Coordinating and updating customer information across CRM,
financial, and other applications can improve internal efficiency and the quality of a customer’s
experience, for example.
of small and midsize firms say
they are well underway or better.
This increases to 40% among fast
growing firms. There is a clear
association between business
success (revenue growth) and
technology engagement and
coordination, which is at the heart
of digital transformation. See
Appendix 2 for country details.
Midsize firms more likely to indicate
transformation progress, but there’s
work ahead
We have done little to no work
in applying technology as
part of digital transformation
and participation in the
Digital Economy.
We are at an early stage in
coordinating and automating
different activities within
operating areas but have
more work to do.
We are beginning to
automate different
functions but not in a
coordinated fashion.
We are well underway in
applying technology to
connect people, devices,
and businesses in the way
we conduct business in
the Digital Economy.
We have gone beyond
integration and now derive
real-time insights to drive
optimizations in processes
and workflows to yield
business results.
11%
33%
20%
29%
7%11%
31%
21%
27%
9%
19%
30%
26%
22%
5%
14%
31%
22%
26%
7%
1/3
Digital transformation progress by company size
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pg 13
Compared to almost a year ago, the share of small to midsize companies that see themselves as well along in digital transformation
is actually lower: while 43% considered themselves well underway or better a year ago, only 35% make that assessment today. IDC
doesn’t think firms have actually lost ground, but rather that they have a more realistic view of where they are and what they still have
to do. After all, the use of different technology solutions has grown significantly. The increase in firms saying they are beginning the
transformation journey reflects recognition of the complexity and continuing nature of the process.
Firms don’t feel further along in digital
transformation despite technology use
in applying technology as part
of digital transformation and
participation in the Digital
Economy.
We are at an early stage
in coordinating and
automating different
activities within
operating areas but have
more work to do.
We are beginning to
automate different
functions but not in a
applying technology to
connect people, devices,
and businesses in the way
we conduct business in
the Digital Economy.
We have gone beyond
optimizations in processes
and workflows to yield
business results.
14%
25%
18%
33%
10%
13%
30%
22%
27%
8%
of all small and midsize firms say
they are at the early stages of
digital transformation.
2/3Digital transformation stage by company size
n Jan. 2016 n Jan. 2017
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Small and midsize businesses, independent of size and region, are remarkably consistent regarding the areas they consider
the greatest potential beneficiaries of digital transformation. Sales and marketing are most often identified as areas that
could benefit from technology updating, especially by fast-growing companies. Every major industry group, from services
to manufacturing, also named sales and marketing as the top potential beneficiaries, especially wholesale and retail firms.
While internal processes may be considered sufficient and even exceptional by many, external-facing sales and marketing
are considered real opportunity areas for new investment.
Customer-facing teams most likely seen to
benefit from digital transformation
Independent of size, half of
firms say sales or marketing
could benefit from
technology updating.
Areas that benefit from leveraging
technology by company size
Sales Customer service/
call center
Production/
operations
Supply chain
management
Marketing FinanceCommerce/
ecommerce
Manfacturing Strategic planning HR
33%
20%
22%
12%
27%
13%
18%
10% 10%
6%
30%
20%
21%
13%
26%
13%
20%
12%
10% 8%
28%
21%22%
15%
25%
14%
22%
14%
9% 9%
27%
19%20%
14%
27%
14%
21%
12%
10% 9%
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In keeping with the high levels of success (70%+) in achieving performance goals of technology investments, 4 out of 5 small
and midsize firms also note that technology acquisition and deployment were no harder than anticipated. The implication? Firms
tended to overestimate potential challenges in moving forward with new technology. Of course, preparation is critical. And in the
future, most firms expect their past experiences to be helpful. Funding can be seen as the greatest challenge by those moving
ahead with new technology; in retrospect, firms are more likely to call out training and execution timetables rather than budget as
requiring more attention. Implementation may take longer and involve more staff training than anticipated.
Lessons from past technology deployments
will help in the future – up to a point
Next time:
» More training
» More time
» More budget
Impact of past lessons on future deployments by company
These lessons will greatly
help in planning and
implementing future
applications
Specifically, will allocate
greater budget
Specifically, will involve
greater user training
Lessons not really
applicable
These lessons will be
helpful but each case has
its unique issues
Specifically, will work with
third party/involve third
party more
Specifically, will allocate
more time
38%
22%
30%
14%
37%
22%
30%
40%
27%
34%
17%
38%
25%
31%
40%
30%
36%
17%
39%
26%
32%
41%
28%
35%
19%
40%
27%
31%
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1. Leveraging technology to improve efficiency and
competitive position is not enough. New technology should
be integrated effectively, leveraging and contributing to key
internal databases for maximum impact.
2. Digital transformation is a process, not a destination. It
supports company business objectives at the highest level.
3. Direct and continuing participation of senior
management and line-of-business executives as well as IT
management is key. Flexibility and agility in technology
investment is good, but it should contribute to digital
transformation objectives.
How to manage your digital transformation
Three takeaways
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pg 17
Benchmark your performance and get regular feedback from
internal and external stakeholders. Given the pace of competitive
change, customers and business partners may be aware of potential
opportunities (or problems) before you are. Do you know where you
are falling short compared to competitors?
Business best practices are now table stakes for successful small and
midsize firms. Do you have a technology investment road map in
support of digital transformation to enable business strategy?
High levels of satisfaction and performance gains are associated with
digital transformation efforts – and concerns about potential difficulties
were generally overestimated.
Key questions to ask about your firm’s
transformation efforts
Small and midsize firms see clear results of their
technology investments, with continued progress
on the path to transformation.
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pg 18
An IDC InfoBrief, sponsored by SAPThe Next Steps in Digital Transformation: Methodology
» For this report, IDC conducted a worldwide survey of 3,904 small and midsize business decision makers.
» The survey included companies with between 10 and 999 employees.
» The online survey was completed in November 2016.
» Countries in the survey include Australia/New Zealand, Brazil, China, France, Germany, India, Japan, Korea,
Mexico, Singapore, South Africa, U.K., and the U.S.
Methodology
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pg 19
An IDC InfoBrief, sponsored by SAPThe Next Steps in Digital Transformation: Appendix
» Top priorities for small and midsize businesses worldwide by country
» Digital transformation self-assessment
» Use of different software resources
» Key reasons for adding advanced technology solutions
» Cloud versus on-premise deployment preferences
Appendix: Details by country
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Australia/
New Zealand Brazil China France Germany India Japan Korea Mexico Singapore South Africa U.K. U.S.
52.0 65.8 53.3 57.0 66.0 59.7 44.7 47.7 60.3 53.3 58.5 58.3 54.0

37.3 44.5 42.7 30.7 39.0 49.3 38.7 41.7 40.7 44.0 47.5 44.7 41.7

39.7 48.5 45.7 37.0 35.0 43.3 28.7 37.3 43.7 40.3 44.9 44.7 40.1

39.0 50.2 31.3 38.3 36.3 38.7 41.0 31.7 43.0 42.0 39.5 44.3 41.4

33.7 37.2 47.0 25.0 35.7 35.7 26.0 28.7 40.0 27.7 37.5 39.0 37.1

32.0 33.9 51.0 26.3 18.0 46.0 13.3 28.7 40.0 29.0 41.2 26.0 27.8

27.7 36.9 35.3 26.7 31.7 42.7 13.0 14.7 23.0 25.0 36.9 30.3 24.5

27.0 29.6 25.7 15.0 20.0 35.0 16.0 19.3 28.7 29.7 37.9 32.7 26.8
28.0 18.6 37.7 13.3 20.0 33.0 26.0 35.7 24.3 24.7 28.9 29.0 20.2

21.3 26.6 30.3 18.3 18.3 30.0 17.7 21.7 29.0 22.3 27.6 20.7 20.2
1. Top priorities for small and midsize
businesses worldwide by country (%)
Customer acquisition
OR acquire new
customers
Improve revenue
growth
Improve efficiency/
productivity
Reduce costs/
expenses
Grow our business
while maintaining the
same level of quality
Become more
innovative
Improve customer
loyalty
Improve cash flow
Improve staff
retention/
development
Improve competitive
position with regard to
larger competitors
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2. Digital transformation self assessment by country (%)
Australia/
15.0 16.6 9.0 11.7 16.0 15.3 16.0 13.3 13.0 13.0 16.3 12.7 11.9
23.3 22.9 20.0 27.7 21.3 21.7 18.0 25.0 23.0 28.3 18.9 22.7 17.2
33.7 29.9 31.7 23.0 30.0 27.3 30.7 38.3 34.7 35.0 26.9 29.0 34.8
23.0 24.6 20.7 33.0 28.7 28.0 29.7 20.0 24.3 18.0 29.9 30.0 26.8
5.0 6.0 18.7 4.7 4.0 7.7 5.7 3.3 5.0 5.7 8.0 5.7 9.3
in applying technology as part
of digital transformation and
participation in the Digital
Economy.
We are beginning to automate
different functions but not in a
We are at an early stage in
coordinating and automating
different activities within
operating areas but have more
work to do.
applying technology to connect
people, devices, and businesses
in the way we conduct business
in the Digital Economy.
We have gone beyond
optimizations in processes and
workflows to yield business
results.
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3. Small and midsize businesses use of different
software by country (%)
Australia/
26.3 32.2 35.0 30.0 27.7 35.0 27.7 34.0 31.3 30.7 23.6 24.0 18.9
31.7 34.9 37.7 28.3 27.7 29.0 25.7 35.0 34.3 31.7 35.2 25.0 25.2
28.0 25.9 27.3 27.7 25.7 28.3 28.0 31.0 30.7 35.0 28.9 27.0 21.2
32.3 31.2 25.3 33.7 26.0 29.3 30.0 32.7 34.3 33.3 36.9 30.3 25.8
36.3 31.2 35.7 33.3 25.0 33.7 29.7 32.0 35.3 33.7 36.9 34.3 18.9
33.7 41.9 38.0 29.7 33.7 32.0 38.0 45.3 43.3 37.7 32.9 31.0 26.2
29.7 32.6 44.0 33.7 26.3 31.7 26.7 43.3 41.7 34.7 27.9 30.3 27.8
34.0 35.5 48.7 34.3 29.0 37.7 29.0 41.3 41.0 40.7 35.5 31.7 26.8
37.7 34.2 45.7 35.7 35.0 42.7 28.3 45.3 39.3 34.0 35.5 33.3 29.1
29.7 33.9 43.7 32.3 32.0 37.7 32.7 45.0 38.0 36.0 33.9 36.3 28.8
Collaboration software
Customer relationship
management (CRM)
Commerce/ecommerce
including online order
taking
HR/Talent management
Enterprise resource
planning (ERP)
Business analytics/BI
Social media analytics
Planning/coordination
solutions with partners/
suppliers
Advanced business
networks
Internet of Things
technololgies
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pg 23
4. Reasons for initial technology choice by country (%)
Australia/
43.0 55.9 51.4 44.9 48.2 49.3 43.5 56.6 43.4 43.2 48.4 48.6 41.4
34.8 28.7 41.2 31.9 29.4 41.4 33.5 34.7 37.5 36.8 39.3 36.8 31.4
24.1 21.9 50.3 31.2 12.5 41.1 17.6 27.0 23.5 23.3 27.4 28.6 23.1
27.4 22.2 43.6 18.5 16.1 40.1 24.7 28.1 26.8 34.2 32.3 20.4 25.5
17.4 16.5 30.4 14.9 9.4 33.6 18.8 21.2 18.8 17.7 19.3 17.5 16.2
19.3 13.3 25.0 18.8 14.5 30.1 10.5 17.2 16.9 19.5 18.2 17.5 15.2
9.3 9.0 21.3 8.0 6.3 27.4 8.8 12.4 13.2 10.9 14.0 9.6 9.7
15.2 17.2 16.2 10.9 11.8 34.6 16.7 13.1 14.3 14.3 24.6 23.9 20.3
11.1 11.8 24.0 6.5 5.9 15.1 9.2 14.2 19.5 13.9 5.1 9.6 9.7
Where need was greatest
Easiest/quickest to
implement
Quickest/highest ROI
Driven by customer/
partner need
Driven by department or
group independently
Directed by CEO, President
Driven by software vendor,
VAR, etc.
Driven by IT department
Part of expansion/upgrade
of current technology
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pg 24
5. Cloud versus on-premise application
deployment preferences by country (%)
Australia/
40.3 37.2 28.7 38.3 58.3 44.0 33.3 43.0 45.3 40.3 46.5 47.0 42.4
42.0 51.5 56.0 40.0 27.0 53.7 35.3 42.7 41.7 42.3 43.9 35.7 36.8
17.7 11.3 15.3 21.7 14.7 2.3 31.3 14.3 13.0 17.3 9.6 17.3 20.9
Prefer on- premises
Prefer cloud
No preference
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