Digital transformation can affect all aspects of a business, and middle market firms are taking it seriously, according to the RSM US Middle Market Business Index (MMBI) Digital Transformation Special Report, presented by RSM US LLP ("RSM") in partnership with the U.S. Chamber of Commerce. In the second quarter of 2023, 77% of surveyed executives said they plan to increase their IT budgets in 2024, and 74% stated digital transformation was the most important area or among the most important areas of investment for their companies.

When asked about their main reason for investing more in digital transformation and IT, 25% of executives said to drive business productivity. Twenty-two percent of respondents said improving the customer experience was an important reason for investing in digital transformation and 19% said enabling employees to be as connected and engaged as possible was primary.

"Digital transformation has the power to reshape mindsets and strategies to create lasting improvements in an organization," said David Hickethier, principal of the human-centered design practice at RSM US LLP. "We think it's vital that businesses first understand the challenges and opportunities from an employee perspective. Ultimately, digital transformation's impact on the employee experience is what drives a successful customer experience."

Cybersecurity a Key Motivation for Digital Transformation Efforts

Cybersecurity dominates the landscape of digital transformation, and an overwhelming 88% of survey respondents said they currently employ cybersecurity or data security in their businesses or plan to do so within the next 12 months. Thirty-two percent said cybersecurity concerns present a challenge to achieving their digital transformation goals.

The report notes that corporate leaders are nervous about their company's vulnerabilities, and as a result, some organizations are fortifying their digital infrastructure rather than investing in new technologies. Establishing or maintaining effective cybersecurity is a powerful reason for companies to invest in digital transformation, and this is underscored by the 65% of respondents who said increased concern over cybersecurity was the top motivation for changing their IT budgets.

Complexity, Tight Labor Market Raise Challenges

Digital transformation is a complex and ongoing process, and 11% of executives said they have no formalized digital strategy at all. Insufficient executive team support was cited as an obstacle to achieving digital transformation goals by 23% of respondents.

The survey results also imply a tight labor market is hindering progress, as 29% of respondents said the shortage of skilled IT personnel is a main issue when it comes to fulfilling their digital transformation plans.

"An option for companies with staffing needs is to consider hiring a managed service provider to handle their IT functions," said Matt Kenney, business applications service line leader with RSM US LLP. "Outsourcing the effort of becoming digital can help companies focus on their business. They may want the benefits of digital transformation, but they might not want to go through implementing and running a new system. A provider can handle the operation of the system, so the company doesn't have to take that on."

The survey data that informs this index reading was gathered from 404 respondents between April 3 and April 24, 2023.