Pandemic Spurs Accelerated Digital Transformation — Is Tech Ready?

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The pandemic and its related effects have impacted every industry, altering short- and long-term plans alike. However, some progress was spurred by the crisis, with organizations realizing that certain COVID-19-driven business trends would endure and subsequently allocating resources and developing plans accordingly. Acceleration of digital transformation is one common theme as businesses have realized that enabling remote access and flexibility while maintaining security and privacy will be a lasting trend.   

BDO recently released new data on the topic from its survey of 600 middle-market CFOs — including 100 technology CFOs — providing insights into finance leaders’ outlook for 2021. The survey revealed that many companies across a variety of industries accelerated their digital transformation plans in 2020 due to pressures and new needs brought upon by the pandemic such as transitioning to the cloud, upgrading IT systems, enabling remote work and more. 

This urgent need has significant implications for tech. On a quarterly earnings call back in April 2020, Microsoft CEO Satya Nadella even noted that the company saw two years’ worth of digital transformation in the prior two months — a clear and dramatic shift in priorities. 

This urgent need for digital transformation has significant implications for the tech industry. Demands for many services are increasing; ranging from expanded remote-work tools to automation of repetitive manual processes to digital security needs and more. With an increase in R&D spending in recent years, innovative technology solutions continue to be developed regularly and rapidly. As customer adoption of these solutions accelerates, the industry will need to work diligently to keep pace with the surging demand for digital solutions.

 

Investment in digital transformation pays off

Despite many organizations looking to cut costs across the board, 39 percent of CFOs said the pandemic actually accelerated their organization’s digital transformation, and another 50 percent plan to pursue digital transformation in 2021. In fact, many middle-market organizations had already been increasing their investments in digital transformation prior to the pandemic. 

Those organizations committing to digital initiatives prior to 2020 benefited from greater agility during a time of extended crisis. Leaders saw that those investments enabled more resilience and increased business continuity, so they are eager to continue investing in digital initiatives during 2021 and beyond. 

Although digital transformation is a complex undertaking, the return on digital investments is clearer than ever. Moving forward, leaders should plan to focus on building the right technology infrastructure to meet increased customer needs for reliability and consistency, as well as to power their businesses forward for better growth, increased profitability and enhanced security. 

As the challenges of the pandemic have proven, building robust digital capabilities is no longer a choice; it is a necessity when shifting to remote work can happen unexpectedly and the stability of IT systems is tested at every turn. CFOs have been quick to respond, and they are already applying it to their financial plans: 59 percent of CFOs will increase IT spending in 2021, and 27 percent said investing in technology or infrastructure is their top business priority.

Executing a tailored digital strategy that incorporates data-driven decision-making and analysis will be critical to any organization’s ongoing ability to plan with precision, mitigate emerging risks and enhance profitability.

 

Technology reacts to digital demand 

Although digital transformation is not necessarily synonymous with investment in technology, any significant increase in digital transformation plans is bound to impact the tech industry. With CFOs focusing on IT and overall tech investment to help overcome the pandemic’s lasting effects, tech leaders are preparing themselves for rising demand.

Unlike many other industries that struggled during 2020, technology companies saw a sharp rise in demand during the pandemic as organizations looked to go digital, and the need for strong technology capabilities will only increase in the months and years ahead. As noted by 42 percent of technology CFOs, they expect tech valuations to increase in 2021, a sign that the industry is anticipating even more demand for its products, services and solutions, which is likely driven in part by the increasing need among organizations in all industries to expand their digital capabilities. 

To meet this demand and maintain the growth they saw throughout 2020, a majority of tech CFOs plan to spend more on research and development in the next year, which will help enhance the tools and services they offer to their customers in a highly competitive market. 

Not surprisingly, reliability and consistency emerged as key customer needs in 2020, and tech leaders should expect those needs to be a priority for the foreseeable future. Having solid tech-based infrastructure they can rely on has never been more critical as business leaders work steadily to accelerate their digital transformation, enable ongoing remote work plans, improve their IT capabilities, and more.

With increased demand comes more pressure to be the go-to resource for both existing and new customers. The market is filling up with entrepreneurs seeking to take advantage of new opportunities or capture market share, creating new competitive considerations for existing tech leaders. As digital transformation continues to be a top priority for organizations across industries, technology leaders should ensure they are carefully plotting their own strategy to win out over the competition. 

 

The road ahead 

As we continue into 2021, more uncertainty persists around market shifts, legislative shifts, consumer behavior shifts, and more. However, with optimism high for economic recovery, business leaders are keeping an eye on the future and investing with long-term plans in mind.

Technology investment is only one area of digital transformation. Organizations that are committed to the process and its success will go beyond technology investment, and move forward with updating processes and integrating changes into the organization’s culture. 

In the short term, leaders of technology companies must ensure that they are prepared for rising demand from customers who are looking for a reliable partner to help them achieve the next step in their digital transformation process.


Doug Hart is the National Co-Leader of BDO’s Technology Practice.