As the world goes digital, developing innovation in-house is no longer enough, according to a new study from EY. With time and capital constraints, non-tech firms are turning to inorganic growth strategies as mergers and acquisitions joint ventures and alliances to spur the innovation they need.
The first ever ‘EY Digital Deal Economy’ study of the views of 600 corporate executives from large companies globally found that 90 per cent face more competition from digital adopters. In response to this new disruptor, more than two-thirds of global executives now plan to use acquisitions to upgrade their digital capabilities.
Commenting on the study results, Ronald Attard, EY’s Central and South-East Europe Leader for Transaction Advisory Services and EY Malta’s Country Managing Partner, said: “Executives recognise that digital transformation is impacting all aspects of their business – from the front end to the back office. The critical question becomes can companies build the capabilities required to succeed in the brave new world or do they need to buy them in? Technological advances continue to drive sector convergence, compelling companies to adopt forward-looking, deal-centric strategies to ensure they future-proof themselves for a digital world.”
The majority (85 per cent) of survey respondents have an established digital-transformation function in place allowing them to keep pace with technological evolvement. But more than half say they do not possess the in-house capabilities required to keep pace with the speed at which technology is evolving. In addition, only 55 per cent of businesses have sophisticated processes in place to quantify the capital needed to pursue digital transformation.
90 per cent of non-tech companies face increased competition from digital adopters
Tony Qui, EY Chief Digital Officer, Transaction Advisory Services, said: “Digital is not an IT strategy or a one-off investment. The scale of transformation needed requires a long-term digital capital strategy. The key challenge for many companies is a lack of sufficient capital to meet their digital ambitions. Businesses need to take a holistic view and incorporate their digital strategy into their ‘capital agenda’ – an enterprise’s strategy for capital allocation – and confirm that leadership is committed in the long term to creating a digital mindset and a culture of agile innovation.”
While 87 per cent of respodents say they are explicitly considering digital transformation needs in their immediate capital allocation planning, only half have established methods to quantify the capital needed for the change.
A significant share of companies are using analytics and seeking advice to improve effective inorganic growth – examples include front-end strategic pre-deal analysis of industry and market trends as well as use of fully leveraged big data.
“Innovative technology is often a key driver in building digital capabilities, so it is important to understand the value of intellectual property you are buying. The smart use of digitally enabled analytics will help companies make the right investment choices, whether it is acquisitions, alliances or joint ventures, alongside organic routes,” Mr Qui said.
Effective digital transformation to fast-track growth and create new opportunities necessitates a business model that is supported by an agile capital and digital strategy.
Strategic vision being mapped to digital needs is the most important element of digital transformation, according to three-quarters of companies surveyed.
Mr Qui said: “Today’s fast-moving and increasingly disruptive technologies are adding to the pressure companies face, resulting in competitive advantage for those that are quickest to adapt. Aligning the capital strategy to support the digital strategy is fundamental, as is accountability at the board level around decisions to future-proof your business model.”