Digital transformation spending rides on CX, AI

Spending on digital transformation could get an increase this year from businesses seeking to improve customer experience and boost efficiency through automation and AI.

Digital transformation is poised for a rebound in 2024 after many enterprises delayed projects or decreased their scope last year amid economic uncertainty.

In particular, recent market research reports point to growing interest in digital transformation initiatives that harness automation and generative AI (GenAI) to boost customer experience and operational efficiency. Digitally mature companies will lead the way in transformation spending, although some signs point to laggards beginning to close the gap.

A digital transformation uptick would be a welcome development for IT services companies. Many service providers geared up to capture an expected increase in digital deals during the COVID-19 pandemic only to encounter sluggish demand and customer dissatisfaction with slow-to-deliver projects in 2023.

Consider the following data points:

  • TEKsystems Global Services' "State of Digital Transformation" report, released today, said 64% of surveyed technology and business decision-makers planned to increase technology spending in 2024 compared with 54% last year. On the other end of the spectrum, 8% of the respondents planned to decrease spending versus 15% in 2023. TEKsystems, a technology and business solutions provider based in Hanover, Md., surveyed 855 decision-makers for this year's report.
  • Info-Tech Research Group revealed an "emphasis on customer-centric areas" in its "CIO Priorities 2024" report, which the market research firm published last month. The poll conducted for the report found 60% of the 684 respondents planned to focus on customer relations and 59% on customer service in their digital transformation efforts this year. AI is likely to play a role in those projects: CIOs recognize the technology's potential to "significantly improve customer interactions," according to the report.
  • Organizations that have moved beyond the planning stage of digital transformation are more likely than those trailing behind to increase IT spending this year, according to the "2024 Technology Spending Intentions Survey" report, published last month by TechTarget's Enterprise Strategy Group. The report found 53% of technology and business leaders with both in-progress digital transformation projects and formalized plans for initiatives were looking to increase IT spending this year. In contrast, 37% of the respondents just starting to plan digital transformation projects and 34% of those with no plans for transformation expect to increase IT spending in 2024. In the survey, 715 technology and business leaders responded to questions on digital transformation.

Leaders, laggards increase transformation spend

The TEKsystems survey showed more digital leaders and laggards expecting to boost their technology investments this year. Seventy-two percent of the leader group plans to increase spending in 2024. In the 2023 survey, 65% of the leaders said they were planning to ramp up spending. TEKsystems defined leaders as businesses with a mature transformation plan and ingrained digital processes.

Meanwhile, 50% of digital laggards reported plans to increase technology spending this year versus 46% in 2023. Digital laggards are companies with tentative digital plans and limited initiatives, according to TEKsystems.

Although the investment gap persists, Ricardo Madan, senior vice president at TEKsystems, said he finds increased spending plans among the laggards encouraging. The uptick demonstrates that even historically reticent enterprises feel competitive pressure to grow revenue and improve efficiency through technology investment and modernization, he noted.

The digital laggards' spending is also notable for running counter to the typical pattern, Madan added.

"Anecdotally, when economic times are volatile, as they are now, the old-school-style laggards usually spend less and lean heavier on legacy tech," he said.

While market pressure serves as a transformation incentive, strategic partnering might help companies trailing the digital pack to catch up. That could prove to be the case in the emerging AI field, noted Greg Sarafin, global managing partner, EY Partner Ecosystem. Collaboration candidates include AI service providers, technology companies and startups.

Such partners could help an enterprise monetize its data assets and take on the digital leaders, he noted. In this scenario, partners could employ AI to convert a business' data into valuable products and also provide access to potential customers.

"Laggards sitting on valuable data could very quickly become leaders if they deploy the right AI and partner with the right counterparties to get to end customers," Sarafin said. "There's a huge opportunity right now for any company to rethink its strategy."

An explanation of relationships among digital transformation trends.
Agile projects and AI-based transformation are among the expected trends in 2024.

Digital transformation projects: Getting bigger?

Some CIOs last year pointed to smaller, shorter-timespan projects as the evolution of digital transformation. An unsettled economy and disaffection with unwieldy initiatives contributed to that trend.

The TEKsystems report, however, points to a shift toward larger projects. Thirty percent of the organizations surveyed said they plan to spend $10 million or more per digital transformation project in 2024 compared to the 21% of respondents forecasting projects in that range in the company's 2023 survey. The latest survey suggests the proportion of enterprises investing in digital transformation at the $10 million-plus tier -- the highest bracket in the survey -- is returning to 2022 levels. That year, 34% of the companies TEKsystems polled reported projects of that size on their drawing boards.

Some signs point to bigger projects emerging in the second half of 2024. In Accenture's December 2023 earnings call, CFO KC McClure said the IT services company has its "revenue positioned in the back half of our year from these larger transformation deals."

Not everyone sees bigger initiatives in the offing. Rajesh Rajappan, head of strategy at Hitachi Digital Services, the technology services subsidiary of Hitachi Ltd., said ongoing cost and time-to-value pressures favor smaller, iterative projects. He said he expects customers to prioritize projects based on market conditions and their ability to hire or retrain talent on newer technologies.

Smaller projects will lead customers to look at "best-of-breed vendors" that specialize in specific digital transformation domains, Rajappan added. He cited industrial customers dividing initiatives and tapping providers that focus on IT and operational technology (OT) convergence as an example.

Digital transformation opportunities

Customer urgency around automation and hyperautomation, which includes older technologies such as robotic process automation and new ones such as generative AI, will fuel the larger-scale digital transformation initiatives, Madan noted. The TEKsystems report cited "reducing operational inefficiencies through automation" among the top digital transformation drivers in 2024.

Rajappan also noted efficiency as a key transformation goal this year, as it was in 2023.

"Companies are still uncertain about the market and the impact of geopolitical events," he said.

AI, meanwhile, is also expected to spark digital projects.

There's a huge opportunity right now for any company to rethink its strategy.
Greg SarafinGlobal managing partner, EY Partner Ecosystem

"Last year, enterprises were in R&D mode with GenAI technologies, creating the hype," Rajappan said. "This year, we will see organizations start to adopt AI technologies, including GenAI, for transforming businesses across enterprise functions and enhancing customer experience."

Other AI use cases include "enhancing productivity across IT and OT systems," he added.

The TEKsystems survey found 75% of digital leaders plan to increase their AI-related expenditures in 2024; 47% of digital laggards plan to do the same. The report said customers will harness AI to improve customer experience, which respondents identified as their No. 1 digital transformation objective this year.

The generative AI landscape ranges from user-oriented automation tools, such as Microsoft Copilot, to applications for heavy enterprise workloads, such as transforming call centers, Madan noted. He said technology leaders are wary of the zone between those deployment types where generative AI "fluff" offers dubious value.

"There's a soup of things that has to get sorted out and that is keeping a lot of CIOs and CTOs up at night," he said.

John Moore is a writer for TechTarget Editorial covering the CIO role, economic trends and the IT services industry.

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