The fastest-growing middle market companies place the strongest emphasis on going digital, according to NCMM and Magento Commerce
Columbus, Ohio – (January 19, 2016) – The National Center for the Middle Market (NCMM) and Magento Commerce today announced results from their joint “How Digital Are You?” study, which examines how middle market businesses are utilizing digitization to streamline processes, maximize efficiencies and promote business growth.
The research found that the fastest-growing middle market firms (those growing revenues at a rate of at least 10 percent annually) place a measurably greater emphasis on digitization versus similarly-sized companies. Additionally, the research found that the middle market as a whole is shifting the focus of its digitization investment to emphasize projects that affect strategy development and future growth. This marks a departure from the back office and operations-focused spending that has defined past digitization activities.
According to the study, 49 percent of middle market firms with annual revenue growth of 10 percent or more consider themselves “digitally advanced,” compared to just 36 percent of all middle market firms surveyed. The business services and technology sector has the greatest percentage (50 percent) of companies that consider themselves digitally advanced. Meanwhile, the retail and wholesale trade industry has the largest proportion (35 percent) of firms that consider themselves “somewhat or far behind” the average middle market company.
“By illuminating successful companies’ digital best practices and identifying common pitfalls, we expect this study to serve as a roadmap of sorts for middle market firms.” said Thomas A. Stewart, Executive Director, NCMM, a partnership founded in 2011 between GE Capital and The Ohio State University Fisher College of Business.
"Clearly, the study validates that improving digitization is important to every industry in the digital age and that technology is rewriting the rules of the game. Businesses that are complacent or just average in this area will get left behind," said Peter Sheldon, Head of Strategy, Magento Commerce. "To keep pace, companies must take necessary steps to address key digitization barriers and move quickly to successfully adopt next-era digital tools. In doing so, these businesses secure not only continued relevance, but also superior returns and growth."
Middle market companies are defined as those that produce annual revenues between $10 million and $1 billion. The U.S. middle market consists of nearly 200,000 companies that employ 44.5 million people and generate more than $10 trillion in combined revenue annually.
Digitization Remains Focused on Operations
Currently, 44 percent of digitization spending in middle market companies goes toward operational activities (business management, back office functions and logistics). However, the study shows that 19 percent of digitization spending is now allocated for innovation and strategy development projects, which have direct implications on a company’s future growth.
When asked to predict changes to future spending on digitization, 42 percent of firms expected to increase spending on business analytics and strategy development, while 39 percent of firms expected to increase spending on innovation. Additional answers included business management (35 percent), back office functions (30 percent) and logistics (26 percent).
Spending Increases Expected in Technology Sector
Despite having the greatest percentage of companies that already consider themselves digitally advanced, the business services and technology sector leads all industries with 35 percent of firms expecting to increase spending in the next 12 months.
The health products and services industry, however, had the greatest percentage of companies that expect to decrease future digitization spending at 12 percent. No other industry in the middle market had more than 6 percent of companies expecting to decrease spending over the next 12 months.
Firms Grade Themselves as Average for Current Digitization Efforts
Despite general optimism in individual digitization projects, firms as a whole graded themselves at a 2.8 “Digital Grade Point Average” on a scale of 0-4. “That’s about a C-plus,” said Stewart. “Even the companies that say they are digitizing rapidly give themselves an average GPA of 3.1, a B-minus. Either they’re tough graders, or they realize they have a long way to go.”
While individual projects are often viewed as successful, the average grade stems from difficulties transitioning individual digitization accomplishments into gains for the entire company. Factors cited that negatively affected company-wide digitization projects include the slower pace of large-scale projects, the length of time necessary to see a payoff and a lack of in-house talent on the digital front.
About the “How Digital Are You?” Study
The study, conducted by the National Center for the Middle Market, in partnership with Magento Commerce, surveyed 500 C-level middle market executives with responsibility for company strategy and business process implementation. The Center and Magento worked with Ralph Greco, of the Fisher College of Business at The Ohio State University and Kati Suominen, CEO of Nextrade Group, to design the survey to gauge attitudes toward digitization practices and benefits, determine firms’ digital readiness and digital performance capabilities, and identify trends in digitization spending. Respondents completed the 15-minute, self-administered survey online between October 2, 2015 and October 9, 2015.
About the National Center for the Middle Market (NCMM)
The National Center for the Middle Market was founded in 2011 in partnership with GE Capital and The Ohio State University Fisher School of Business. The Center is the nation’s leading research institution dedicated to helping middle market companies to be more competitive through research, advocacy and educational initiatives. To learn more about the Center visit www.middlemarketcenter.org.