We are constantly hearing that companies need to embrace digital transformation to survive, but how can they make this an affordable reality?
In today’s economy, digital transformation is unavoidable. The future no longer belongs to the best-performing firms, but to the most agile and innovative.
The digital revolution has seen the emergence of new entrants that are fundamentally changing their business sectors and this is putting the future of non-digitalised organisations at risk. Half a century ago, the shelf life of a firm in the Fortune 500 was around 75 years; today it’s less than 15 years and declining, according to Information Age.
Digital has already proved itself as a profitable medium when it comes to return on investment. As a result of digital initiatives, Information Age says, 86 per cent of UK organisations say they have seen or anticipate seeing a growth in revenue, 85 per cent have seen improvements in customer retention and 68 per cent are now able to act more quickly on business opportunities.
What does a digitally transformed business look like? According to a 2015 MIT and Deloitte survey, it’s an organisation, reimagined through digital and innovation, which is improving processes, engaging talent and driving new business models.
However, innovating and modifying an organisation is a difficult exercise for established companies constrained by history, legacy systems and culture. To stand out in the digital jungle, it is key for any business, regardless of its size and history, to take the risk of starting a deep change in its mentality and strategy to include new capabilities, without losing what makes it unique.
Investing in digital transformation can be done in a way that is both cost effective and self-financing
But transformation is not an incremental change. Creating a Twitter account, Facebook page or an iOS app is simply not enough; a real digital strategy is essential. It must start internally by transforming business models. Digital needs to become central to all activity by integrating people, processes and technologies. Management must lead the initiative and take charge.
Unleashing employees’ potential is also essential, as they will be one of the main drivers of any digital transformation. Working with modern devices that reflect their personal use of technology will offer them extensive information access and collaboration capabilities. These new tools will ensure improved employee satisfaction, enhanced operational performance and adherence to the new digital transformation.
Yet there are obstacles that are preventing businesses from taking advantage of the digital revolution. Often the issue is finance. Companies are concerned at the cost of digital investment, with 50 per cent citing a lack of funds available as the main barrier to investing in these projects, according to a study by CIO.co.uk and CSC.
What some organisations fail to understand, though, is that investing in digital transformation can be done in a way that is both cost effective and self-financing. Deploying bespoke finance models means firms can invest in digital transformation today.
Financial models must be tailored to the organisation, both its sector and budget. This goes well beyond classic lease and managed services contracts. Even cash-rich companies should match the cost of investment with the business benefits over a number of years, aligned with their strategy.
Econocom, Europe‘s largest independent provider of digital finance and associated services, is leading the way and developing innovative ways to enable businesses to initiate their digital transformation, now. New models such as variable rentals, pay-per-use and as-a-service solutions match the cost of digital investments with the improvements they bring.
In the UK, Econocom is currently working with a global oil company where the rentals are anchored to an external variable factor, in this instance the oil price. If the oil price is high, the project is paid over a shorter period, but if the oil price is low, the rentals are lowered accordingly and the amortisation takes a little longer.
Financial models can also be tied in with business cycles. Consider a retailer, for example. From September to November, when the retailer is stocking up and cash poor, the rentals are low. In contrast, from December to January, when the retailer becomes cash rich thanks to Christmas, the rentals increase thereby matching the client’s cash flow.
Other options being proposed within the retail sector include rentals based on the square meterage of shops to spread the cost of digital investment equitably across the store estate. Econocom is also working with one of the UK’s largest retailers on a different project where cost of investment is matched with a price per transaction model.
Even companies with highly variable incomes can take advantage of new ways of financing digital transformation projects. For industries such as entertainment, which is dependent on season tickets and event timetables, it’s possible to adopt a highly flexible pay-per-event approach.
With imminent changes to the classification of leases (IFRS 16), these pay-per-use or as-a-service contracts mean financing may still be treated as a revenue expense, making it easier to get boardroom buy-in.
Such innovation in financing means almost any organisation is able to take advantage of new digital opportunities now and ensure it remains up to date in this new economy. Isn’t it time you joined the digital revolution?
Econocom is Europe’s largest independent provider of digital finance and associated services. With more than 9,000 employees in 19 countries and 2015 revenue of €2.3 billion, Econocom has the expertise to speed up digital transformation in organisations.