The Long Road to Digital Transformation

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Give middle market executives extra money to invest, and they will direct more of it to information technology than anything else: 18¢ on the dollar—24¢ if the company falls in the core middle market with revenue between $50-100 million. An increasing portion of the IT budget is going into cybersecurity, now the number-one technology priority for the middle market. But a rapidly growing portion is going toward the transformation of business by digitalization.

Transformation is more than automation; it implies moving digital from a support function to the front line of what companies offer, how they produce it, how they market, sell, and distribute it, and how they manage the business; it has profound implications for strategy, talent, and productivity.

More than half—54%—of middle market companies say digital transformation is extremely or very important. In the financial and business services industries, the number approaches two-thirds. Laggards that “are using digitization to improve the company, but not to transform how we do business” account for about a quarter of the middle market. They are mostly smaller firms.

Fewer than 10% claim to be leaders. But those companies grew 10.2% in the last 12 months, nearly four full percentage points faster than the laggards. (See chart.)