The middle market has reached a digital precipice where ignoring the forces of disruption is no longer an option, new research finds. According to BDO’s inaugural Middle Market Digital Transformation Survey, which polls C-level executives at companies with annual revenues of $250 million to $3 billion, 94 percent of mid-market organizations have either developed a digital transformation strategy (63 percent) or are in the midst of developing one (31 percent).

There is good reason for the hype: Digital transformation is already paying significant dividends. Nearly three-fourths (71 percent) of mid-market companies experienced an increase in revenue from their digital initiatives over the past 12 months, while 74 percent saw an increase in profitability. Eighty-one and 79 percent, respectively, anticipate a similar increase in revenue and profitability over the next three years.

Mid-market executives are putting their money where their mouth is: 79 percent plan to increase their digital spending over the next year—37 percent by 10 percent or more. The most popular funding strategies include working capital (68 percent), R&D tax credits and incentives (40 percent) and private funding (40 percent).

“No business or industry is immune to disruption,” said Malcolm Cohron, leader of BDO USA’s National Digital Transformation Services practice. “Disruption can be turned from threat to opportunity, but only with a combination of foresight and focus. Organizations that don’t take proactive steps to adapt their business to meet tomorrow’s needs will soon be relegated to the annals of history.”

Top findings from BDO’s 2019 Middle Market Digital Transformation Survey include:

Digital Transformation Drivers

• Increasing Revenue and Profitability: One-fifth (20 percent) of businesses experienced a revenue increase of 10 percent or more from digital initiatives over the past year, and 40 percent expect a similar percentage increase in profitability over the next three years.
• Improving Customer Experience: 69 percent of mid-market executives say that improving customer experience is one of their top three long-term business goal (18 months-3 years).
• Boosting Operational Efficiency: 72 percent cite replacing or upgrading legacy IT systems as one of their top three short-term business goal (12-18 months).

Digital Transformation Success Factors

• Strong Leadership & Management: Digital transformation has now transcended the IT department, with nearly half (46 percent) of all middle market companies citing their non-tech C-suite executives (e.g. CEO, CMO, COO) as the primary ones responsible for leading their organization’s digital transformation.
• Defined Digital Transformation Approach: Taking intentional steps toward a clearly defined strategy is the most common approach to digital transformation (51 percent), followed by experimental testing and learning (22 percent).
• Business Enablement & Digital Adoption: To enable and ensure employee adoption of technology advances, companies are implementing training to upskill current employees (62 percent), developing a formal change management strategy (58 percent) and establishing a Digital Transformation Office (49 percent), among other strategies.

Digital Transformation Risks & Challenges

• Cyber and Data Privacy Concerns: 33 percent of executives cite cyberattacks and privacy breaches as their number one digital threat.
• Measuring Digital Success: 27 percent say that establishing the right metrics is the number one barrier to moving forward with a new digital initiative.
• Finding and Training Talent: 54 percent worry about a lack of skills or insufficient training as a barrier to implementation.

“While any business can reap the benefits of digital transformation, we believe the middle market needs its own playbook,” said Stephanie Giammarco, partner and national leader of BDO USA’s Technology and Business Transformation Services practice. “Ultimately, the middle market’s road to digital transformation is rooted in balancing smart risk-taking and reality, where short-term priorities are addressed in the context of the long-term vision.”

For the full survey results, click here.