Published on the 15/12/2022 | Written by Heather Wright

Digital assets, capabilities and platforms in driver’s seat

Businesses will see quantifiable business value creation directly from or enabled by digital in the coming year as a move to what IDC is terming the digital business gains force.  

The digital business, with a digital-first strategy in place, sponsored and driven by the C-suite and CEO directly involved and with digital innovation program delivering tangible outcomes at scale, will use tech to compete – and take climb up the market valuation tables.  

“Enterprise value is being redefined in the digital business era.”

That’s according to Linus Lai, IDC A/NZ chief analyst and digital business research lead, who says spending on digital transformation technology across Australia and New Zealand is going to increase to about $85 billion by 2025, highlighting that move away from the experimentation and small, discrete projects that marked DX 1.0 and 2.0. 

“When spending expands at this rate, then we are talking about shareholders, customers, employees all expecting a greater payback.  

“The C-suite recognises that small discrete projects will have to be superceded by larger and more purposeful long-time goals, and as a result we are also seeing the average contract value start to get higher and higher and higher as these transformation programs get larger and larger,” Lai says.  

Speaking at an IDC FutureScape webinar earlier this week, he said by 2026, 40 percent of total revenue for global 2000 organisations will be generated by digital products, services and experiences.  

“The last two years we have seen how organisations have pivoted to online commerce, working from home, etc. 

“Now digital innovation programs are at the core of enterprise strategy and as a result we are seeing a lot of digital first strategies on the tables of the executive and trying to drive the execution of those strategies to fruition.” 

Lai says businesses are also looking beyond straight financial ROI, with enterprise value being redefined to include ecosystem impact and ESG/sustainability impact.  

A recent IDC C-suite Sentiment Survey found 89 percent of CEOs believe it is very important or important to actively participate in digital ecosystems to accelerate revenue growth, and 85 percent say digital business initiatives are key to achieving improved profit and revenue growth. Eighty-one percent agree, or strongly agree, that their digital investments will drive their ability to meet ESG goals.  

“In our CEO study in A/NZ, CEOs said in the coming year to grow revenues what’s more important than customer experience is participation in digital ecosystems,” Lai says. 

“For the CIO of a large retailer this means measuring new customer acquisition rates driven by the partner ecosystems and marketplaces. In a manufacturing organisation with many subsidiaries, this means resilient Lean operations, but also measuring supply chain sustainability metrics for the first time.” 

Come 2026, IDC is forecasting that 80 percent of organisations will accurately quantify the value of their digital capabilities and assets, including data, algorithm and software code, to significantly improve their market valuation. 

“As a result, we are now not looking at very traditional metrics for market valuation in terms of return on capital or financial metrics we are looking at how digital assets, capabilities and platforms, particularly driven by a data driven strategy is going to contribute to future valuations.” 

But when it comes to what exactly a digital business is, we enter the Goldilocks zone – it’s not about a specific platform or technology but an accumulation of technologies that help create a digital platform that is right for the specific business. 

A digital business, in Lai’s terms, is ‘one that is driving how an organisation attracts and engages with customers, citizens and partners – hence the ecosystem – how it attracts and manages and retains employees as well as how products, services and experiences are being reinvented’. 

He says he expects to see a lot of new digital models emerging next year, with companies already debuting more direct to consumer and service and subscription models for products and services.  

Just as the tech sector moved from on-prem license based models to subscription models, he says so too is the non-tech sector. 

“Once you do that you will see the knock-on effect of very large transformation capabilities needed.” 

In fact, by 2027, IDC is forecasting that the number of tech providers in the G500 will double, incorporating businesses that originate outside the tech industry.  

“It’s not just going to be dominated by the Amazons, Salesforces or Microsofts. We think it is going to be inclusive of other tech providers who come from digital businesses who now have valuation against their digital assets and have greater scale than their traditional business.” 

That ‘new tech world order’ for companies will be made up of five components:  

• Addressing the talent gap, which is expected to increasingly put a cap on technology ROI;  
• Cloud sovereignty where IDC is expecting 35 percent of the Asian2000 will move 10 percent of workloads to sovereign cloud providers to address data, technical, and operational requirements 
• Sustainability, with 30 percent of A2000 companies expected to leverage ESG data management platforms to steer ESG KPIs by 2024;  
• Machine vision, with Lai saying the ability to deploy and use machine vision as an inherent capability in any new product/process will be a primary characteristic of the five fastest growing enterprises in most industries; and  
• Data first, which sits at the centre of the digital business platform every enterprise is defining for themselves and helps drive new operating and business models. 

So where should companies start? 

The C-suite survey across A/NZ shows where investments are headed. From a productivity perspective, the focus remains on improving IT Support and creating hybrid workplace environments.  

Thirty-one percent are also investing in emerging technology such as Web3, blockchain and the metaverse, while when it comes to the ecosystem, 28 percent are increasing the use of IT tools to collaborate with partners.  

Among the core capabilities being invested in are automation and augmentation – a key area of investment for the year, at 38 percent. 

“All the top growth markets for software [which is forecast to grow 10-12 percent across A/NZ in 2023] are related to this space – things like AI lifecycle software which is easily 20-40 percent growth; dynamic data management, advanced stream processing, AI software services, RPA software, even distributed data grid software – all are going to have extremely high growth.  

Investments in CX and customer data platforms are also high on the priority lists for C-suites.