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How executives can make more effective innovation investments

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A comprehensive digital strategy is critical to the ongoing success of middle market businesses, and generally, company executives understand the importance of innovation. However, leadership can sometimes struggle with making the right investments, now that many technology solutions are more affordable, and customer and employee expectations quickly evolve. To get the most out of digital transformation, executives must effectively move beyond where investments previously stopped, leverage the right foundational technology to layer on enhanced innovation and understand where to take advantage of new opportunities.  

For example, many companies are utilizing the cloud, and it has become a fundamental technology tool for middle market organizations. In fact, in RSM’s recent Digital Transformation Survey, 96% of chief financial officers stated that cloud computing is extremely or very important to their digital strategies. The same percentage of CFOs recognized the importance of content management technology, while marketing automation and customer relationship management (CRM) were cited by 95% of surveyed finance executives.

Historically, obstacles to new innovative technologies have been great, but with the growing cloud-based offerings coming to the market, the middle market is now starting to set its sights on new technology investments.

Evolving needs in the middle market

At the core of any business, there is a digital hierarchy of needs in order to first run the business, then optimize it. At the bottom rung, companies are moving away from traditional on-premises hardware investments, and into cloud and web-based applications as a foundational technology standard.

The middle market then tends to stagnate on the middle rungs, typically focusing on the core productivity suites, including enterprise resource planning (ERP), human resources and CRM. Many middle market companies are starting to buck that trend, however, and increase the depth of their technology investments.

The improved economy has led more organizations to consider upgrades, as the cost of technology is becoming less prohibitive, and a new age of employees and consumers demand more digital processes and operations. These new investments are opening up the highest rungs of the hierarchy of needs around data analytics and process automation.

The middle market is focusing investments on each of the three core areas of digital technology: the customer experience, the employee experience and digital operations. Most organizations are spending more on digital operations, with the potential to see a quicker return on investment (ROI) through applications that can enhance areas, including enhanced workflows and improved analytics capabilities. 

Focus on the foundation

However, implementing advanced technology does not come without risks. In today’s environment, everyone wants more access, insight and automation, but before you move to the next tier of digital investments, whether it’s predictive analytics, process automation, big data or e-commerce, you must first ensure that your foundation is sound. Advanced solutions simply will not work, or will not reach their full potential, without effective foundational technology in place.

For most organizations, foundational technology starts with internet, email, data storage and basic desktop technology. Following these basics, we start talking about the basic enterprise technology every business needs to run which include finance systems, payroll systems and operational systems.

Technology innovation is cyclical. Typically, companies can count on foundational applications such as core systems, CRM and ERP platforms to last seven to 10 years before new technology emerges and forces companies to change or upgrade, or get left behind. Newer web-based platforms can work better in concert with advanced technology applications to provide a better ROI.

In the last 12 months, we have seen more middle market companies investing in new foundational technology, because they have their sights set on taking advantage of a higher level of innovation. With the early transformers now completing the foundational work, we are seeing a significant rise in interest in the higher rung of technology to add more agility and efficiency to the organization.  

Underutilized technology can create opportunities

Some digital solutions are not yet widely understood in the middle market, but can make a significant impact. For example, many companies have heard of blockchain because of the buzz around its potential, and the media coverage around it, but not many companies know about robotic process automation (RPA) and its potential depth of applications.

RPA tools can automate any repetitive or manual operations, increasing efficiency and reducing errors while allowing employees to focus on more strategic tasks within the business. Any redundant or time-consuming tasks that don’t require a significant amount of human decision-making can be automated, such as functions within accounts payable and accounts receivable. In addition, RPA can be implemented quickly at a fairly low cost, with most solutions operational within a month.

In addition, artificial intelligence (AI) can bring a higher level of insight to several key tasks. While many companies think of AI as large-scale applications such as Watson or Cortana, AI can also be leveraged in many more manageable situations such as gathering information, projecting customer behavior and implementing more effective quality control processes. More and more technology companies are offering more point solutions with AI, using such technologies as computer vision or natural language processing.

Despite the benefits that RPA and AI can provide, they are not yet widely accepted in the middle market. In RSM’s survey, less than 10% of CFOs indicated that they currently use RPA or AI, representing a significant opportunity for many organizations. However, we believe this amount will quickly increase in the coming 12 to 24 months.

Understanding time to value

When making digital investments, many companies expect an immediate impact. While that may happen with some new digital applications, other more extensive platforms may take time, as employees become accustomed to new solutions, and processes are adjusted to take advantage of new capabilities. Patience and flexibility are the keys to success for many digital investments, driving enhanced value in the short run, and more importantly, the long term.  

At the very core, time to value is the amount of time between the initial investments and the value the organization sees from that investment. When evaluating a portfolio of potential digital investments, it is critical to understand this key metric, along with the traditional ROI calculations.

Conclusion

Ultimately, you need to be smart about how you adopt and implement technology, weighing the potential benefits, as well as how innovation will affect the company’s operations and objectives. Many companies are hesitant to implement new technology, but a low-cost and low-risk proof of concept can provide a better understanding of common solutions and a base from which to make better digital decisions.

While digital transformation initiatives are increasing in the middle market, the term can still be daunting for many companies. There is so much technology coming at you at any given time, and you may not understand the depth of available solutions, or you may miss potential opportunities. Partnering with experienced advisors and developing an effective innovation team can steer you in the right direction to become more digitally mature and develop a competitive advantage within your industry.   

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