More enterprises are deepening their commitment to digital transformation as CIOs turn the corner from chasing efficiency gains to tackling innovation.
That shift began to take hold in 2021. Many IT organizations in the early days of the pandemic ramped up digital transformation amid economic dislocation. Those 2020 projects often emphasized cost savings or streamlined operations. But last year's crop of transformational efforts started taking on a more forward-looking flair. Digital was less about stabilization and more about positioning for anticipated future growth and building competitive differentiation.
Those patterns appear poised to continue in 2022. A recent Enterprise Strategy Group (ESG) report pointed to higher levels of digital transformation maturity and suggested that digitally mature companies lead the pack when it comes to planned IT investment. ESG, a division of TechTarget, polled 706 senior IT managers for its "2022 Technology Spending Intentions Survey."
Digitally mature companies on the double
The ESG research showed that the portion of enterprises citing digital maturity has doubled over the past four years -- 26% of the respondents, which included executives based in North America, Western Europe and the Asia-Pacific region, described their digital transformation initiatives as mature, having implemented and optimized several such projects. That slice compares with 13% of the IT managers who declared digital maturity in ESG's 2018 poll. As for the project pipeline, about half of the respondents reported digital transformation initiatives underway versus 38% in 2018.
Most companies with mature transformation projects plan to expand tech spending this year: 69% of organizations in the mature category expected to boost spending above 2021 levels. That portion dropped to 59% for companies in the project planning phase and 18% for companies yet to embark on digital transformation.
The ESG survey also suggested shifting motivations behind digital transformation projects. Respondents rated becoming "operationally more efficient" as the top transformation objective in the poll, but the percentage doing so declined to 52% from 56% in the previous year's survey. That result could reflect the completion of some stopgap transformation projects designed to trim expenses in the first 18 months of the pandemic.
Transformation objectives involving customer service and innovation saw gains, however. Goals such as providing a better customer experience, developing data-centric products and services, developing innovative products and services, and developing new business models all saw an uptick in ESG's 2022 survey.
Bill LundellDirector of syndicated research, ESG
"Customer experience made a pretty significant year-over-year jump, both in terms of percentage of respondents and overall relative position," said Bill Lundell, director of syndicated research at ESG. Customer experience trailed only operational efficiency in the survey results.
Lundell said digitally mature companies were more likely to cite goals such as providing a differentiated customer experience, which emerged as the most commonly selected transformation objective among those organizations. Businesses higher on the maturity curve were also slightly less likely to cite operational efficiency, he added.
"[It's] definitely fair to say organizations with more digital transformation experience -- and success -- are looking to build upon the foundation they've established," Lundell noted.
Who's spending on what?
Industries have experienced a range of effects in the COVID-19 economy. Heading into 2022, the ESG survey pointed to healthcare, higher education and retail/wholesale as the leading sectors with regard to IT purchasing intent.
In healthcare, 74% of IT managers said they expect a year-over-year budget increase. The ESG report cited a "sharp ramp-up in ransomware attacks" as a likely source of spending impetus at healthcare organizations.
Higher education ranked second in the poll, with 71% of respondents predicting an IT budget increase. Colleges and universities have been boosting spending to bolster hybrid learning for the long haul and to toughen security.
Retail/wholesale placed third: 70% of the IT managers surveyed were looking forward to a budget boost. That spending uptick may seem a bit surprising, given the battering many retailers have taken during the pandemic. But the spending increase could reflect digital laggards attempting to close the gap with rivals equipped with more advanced e-commerce setups. Alternatively, retail's digital leaders may be spending to solidify their advantage.
Lundell said retail's resurgence may be down to digital transformation. "Retail has been the sector with the greatest concentration of mature digital transformation organizations," he said, noting that 41% of retailers identified themselves as mature in this year's survey versus 34% in 2021. "Given the commitment to digital transformation, it is not surprising that there is a connection to actual technology spending."
Other top vertical markets included financial services and the public sector, with 65% of the IT managers in those industries anticipating a bigger budget in 2022. Spending plans, however, emerged as relatively strong across industries. More than half of the survey respondents in every industry covered expected higher IT investment.
The projected spending will target technologies such as cybersecurity, cloud computing and AI. Of the IT managers polled, 69% cited cybersecurity as a sector for increased investment in 2022, with public cloud applications following at 65%, and AI and machine learning rounding out the top three at 62%.
Security also topped the list of considerations for justifying IT investment, according to ESG's 2022 report, where 44% of IT managers selected improving cybersecurity as the basis for spending. Improving security and risk management became the No. 1 consideration in ESG's 2015 spending intentions report and has remained in that position ever since. High-profile security breaches in 2014, including the Sony Pictures Entertainment cyber attack in November of that year, compelled C-suites and boards of directors to take more notice, Lundell said.
Overall, ESG's numbers reflect the changing face of digital transformation as CIOs respond to pandemic-born business model changes that seem likely to endure. The rapid pace of change and continuing unpredictability favor IT managers who can move quickly to adjust their digital operations and seize opportunities.