If you think digital transformation (DX) is all hype – or maybe yesterday’s news – then get ready for sticker shock. A new report from IDC says that global spending on digital-transformation projects will reach $1.1 trillion this year, up from $958 billion last year.
And it’s just getting started.
“Many organizations are still in the early stages of their DX journey, internally focused on improving existing processes and efficiency,” says Craig Simpson, research manager of IDC’s customer insights and analysis group. “As they move into the later stages of development, we expect to see these priorities and spending shift toward the use of digital information to further improve operations and to create new products and services.”
Manufacturers will spend the most ($333 billion) on improving operational efficiencies. They’re buying up applications, connectivity services and IT services as they build out their DX platforms. Top priorities are smart manufacturing – think: industrial internet of things – digital supply-chain optimization, and logistics automation.
IDC looked at 139 DX use cases across 19 industries. Use cases receiving the most funding this year are freight management, robotic manufacturing, asset instrumentation and automatic operations. Spending growth over the next five years will be in construction operations, connected automated vehicles and clinical operations management.
Channel partners in DX stand to gain high margins off of this spend. Last month, Microsoft and IDC released the first in a series of five e-books outlining how partners can sell digital-transformation services.
The other side of the spending spectrum is also very telling. Companies are just now opening their wallets and investing in long-term projects, such as building cognitive capabilities – think: artificial intelligence – data-driven services, digital trust and stewardship. Simpson says these strategic areas suggest companies are just getting started with DX.
Channel Futures caught up with Simpson to gain more insight into the massive DX spend.
Channel Futures: What’s the common trait qualifying these 139 use cases as DX?
Craig Simpson: DX is long-term, not an upgrade of a current solution. It is a complete overhaul. It redefines how you conduct your business, creates new business models, interacts with customers in new ways, and generates new revenue streams.
CF: What were some of the more interesting outlier use cases?
CS: Some of the smaller outlier use cases that have great potential and represent substantial opportunity for customer engagement include: 3-D product design and review, and digital product life-cycle management.
The interesting aspects of these use cases are how they’re closing the divide between manufacturer, retailer and customer. The ability to showcase products virtually, in real-world scenarios, through augmented and virtual reality, and having customer interaction and feedback streaming in real-time back into product development and inventory optimization is something that is going to change the way we do business.
CF: You said DX will eventually create new products and services. When will this happen and what do you envision?
CS: This is very hard to say. From industry to industry, use cases vary greatly in terms of relative maturity and pervasiveness. Industries where closer customer interaction and understanding [are] required, where extremely competitive markets drive the need for new ways and means to conduct business, and where there’s a need for closer ties upstream and downstream in terms of relationships and logistics are the industries laying the foundation. They’re likely to drive the greatest net economic value-add up front.
CF: Early on, there was a lot of talk about DX upending business models and reimagining the customer experience — a sense of great disruption on the way. Then the conversation retreated to marginal operational improvements. What happened?
CS: DX still has the disruptive power. The problem is, too often people misunderstand what exactly DX is and how it not only can support your business, but completely transform it.
The simpler areas related to higher-level business models are what the majority of us head to first, in terms of understanding the dynamics of how it will affect businesses. However, when we look deeper, there are so many pieces of DX applied to very specific parts of the business, which build on top of each other to eventually lead to the business-model change.
So I think the conversation has changed from a higher-level focus to more of a granular focus on what needs to be done to make the transformative change.