Middle market approach to digital transformation still coming into focus

A solid foundation is necessary before true transformation can occur

Nov 08, 2023

Key takeaways

Many companies struggle with their technology foundation, which can limit transformation success. 

The network is the most critical element, with advanced data and bandwidth requirements.

Staffing requirements are changing, with people who understand business and IT now necessary. 

Companies must ensure current tech is optimized, identify any gaps and know where to go for help. 

Digital transformation

Technology solutions continue to evolve rapidly, and middle market companies are constantly evaluating the relevance of new technology and scrutinizing what their peers are using, while considering their own IT strategies and goals. An effective digital transformation approach is a competitive differentiator across all industries, with the potential to deliver more insight, productivity and efficiency. But many companies must address foundational challenges before meaningful transformation can occur.

Data from a recent RSM US Middle Market Business Index Digital Transformation Special Report emphasized the importance business leaders are placing on technology initiatives. For instance, 77% of respondents surveyed for the report indicated they plan to increase IT budgets in the coming year and 74% said digital transformation is their most important investment area or among their most important areas. Security is a significant concern among respondents, with 65% listing cybersecurity as the top motivation for increasing IT spending.  

Crawl before you can walk

The ongoing importance of digital transformation cannot be overstated, but many middle market companies struggle with foundational technology elements that can limit the potential of transformation strategies. Some wonder why they are not seeing the expected impact from some technology investments, while others know they might be ready for new investments, but may not know where to begin.

“When you start thinking about an IT hierarchy of needs, you can’t get to the really impactful technology until you have a solid foundation,” says Chris Wetmore, a principal at RSM US LLP. 

The network has become the most critical infrastructure element for companies—and one that is frequently lacking. If companies cannot support bandwidth and data requirements, they will struggle—they can’t get to the cloud, or even reliably get to the internet or send and receive email. Companies need to deploy technology in an efficient manner with effective edge computing capabilities. Basic security and identity verification with multifactor authentication are also necessary to enable user productivity with chosen office technology tools.

Consider that, in the past, an office only needed a server with enough space for everyone to save files. Now, companies need cloud solutions like OneDrive or Dropbox to store files, but an appropriate network must be in place first. That means more than a single line coming into the office. Instead, a redundant, aggregated, secure connection is required. 

Connectivity is key when everything is outside of your walls. You just can’t get by with residential-grade internet anymore. You need some guaranteed throughput.
Aaron Donaldson, principal, RSM US LLP

“Connectivity is key when everything is outside of your walls,” says Aaron Donaldson, an RSM US principal. “You just can’t get by with residential-grade internet anymore. You need some guaranteed throughput. Technologies like SD-WAN and always-on VPN technologies are really coming to the forefront to strengthen the experience for staff. In addition, with a more mobile workforce, companies need to make sure protection and accessibility are not affected. Everything must be automatic to drive results.”

Technology must be viewed as having the reliability of a utility. Users expect it to work and be available—otherwise, they won’t fully trust it. That said, most organizations cannot achieve that reliability alone; they need help along the way. With many levels of specialization developing within technology, even the largest companies cannot go it alone. And small to midsize companies often have an even greater need to outsource to a trusted provider.

A changing of the guard

Along with technology solutions, the desired attributes for IT staffing are also evolving. With companies transitioning away from heavy IT infrastructure and toward the cloud, a new type of IT professional is sought-after in the middle market. Organizations need people who understand the cloud and the related application stack, often only focusing on the network and cybersecurity while letting cloud providers manage the infrastructure. 

“The days of the system admin becoming the CIO or the vice president of IT are gone,” says Donaldson. “The current shift is toward those who can manage technology partners, as opposed to in the past when there was more emphasis on those who could deploy technology. People with a business background that can talk to the business and explain the technology are becoming more important.”

Wetmore believes this IT talent evolution is mixed news for the middle market. “This changing of the guard is good for the middle market from a business perspective,” he says. “There is greater alignment and transparency, and IT is focused on more value-added technology, rather than solutions that just ‘keep the lights on.’ But the bad thing is that there is a limited amount of talent with the necessary skill set.”

Now, more of the technical aspects of IT are performed by external providers. But many companies are missing the crucial business systems analysts that speak the language of both business and IT, who can get the most value out of existing and future investments.  

Where to focus and how to find help

Companies need to determine whether they are getting the most value out of existing investments before implementing new technology applications. An effective approach considers a combination of people, process and technology. Organizations cannot just buy technology and expect people and processes to adapt to it. Instead, companies need to establish whether their people know how to use the technology, are open to change, and have the ability to learn and grow.

From a process perspective, companies cannot do the same things they did three, five or 10 years ago and buy technology to fit outdated processes. It’s a recipe for not realizing value from investments, and it can create skepticism in leadership and stakeholders who approve ongoing investments. 

At the end of the day, an organization typically knows if they are not hitting the mark on foundational technology items. Users feel it, and that has an impact on productivity.
Chris Wetmore, principal, RSM US LLP

“At the end of the day, an organization typically knows if they are not hitting the mark on foundational technology items,” says Wetmore. “Users feel it, and that has an impact on productivity. That’s when they need to think about reaching out to an advisor to help solidify that foundation. User experience will improve dramatically just by taking care of some of those key building blocks. Desktops, email and productivity, internet connectivity, disk space and storage, and cybersecurity—those need to work before you can move to the next level of transformation.” 

To determine where to start, companies should undergo an IT assessment to understand where they have gaps and deficiencies, and where to focus potential value-added activities. Ultimately, the results of that assessment provide a road map for technology improvements that can increase the speed and effectiveness of digital transformation. Beyond the assessment, organizations can take advantage of several additional solutions to strengthen digital transformation efforts, including:

  • Managed IT services: With effective IT staffing in high demand, companies can leverage the insight and experience they need when they need it. Chief information officer support services and virtual chief information security officer solutions provide executive-level support to guide technology strategies.
  • IT cost optimization: An analysis of technology spending can determine the effectiveness of investments and identify where resources may be better directed.

Preparing for the road ahead

Companies need to leverage evolving innovation to remain competitive moving forward. For example, organizations as a whole have a strong desire to automate processes and point solutions for functions such as accounts payable, travel management and expense reimbursement to make employees’ lives easier.

In addition, there is a major push for companies to become data-driven. CEOs and chief financial officers are more in touch with data than ever before, and this new wave of leaders wants to see, report, and measure data and run the business by those insights.

However, if your company is lacking any of the key foundational elements mentioned earlier, digital transformation strategies involving automation, enhanced data analytics or the next wave of innovation such as artificial intelligence are unlikely to deliver on their expected value. To get the most return on investment and impact from digital transformation, you need to be ready, you need to have a plan and you need the right support.

RSM contributors

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