Board expectations leave UK CEOs frustrated by digital transformation

04 September 2018 Authored by Consultancy.uk

A new study has found that board members and management teams have set themselves up to feel short changed by digital transformation projects. According to the report, business leaders foster “unreasonable expectations” when it comes to digital transformation and the return on investment that new technologies could conceivably deliver.

Over the past few years, corporate entities of all shapes and sizes have been involved in a scramble for digital supremacy. In the UK, this is particularly pronounced, to the extent that Britain currently tops even the US in terms of investment in FinTech, one of the most profitable digital disruption scenes around. However, while the capacity for innovative new technologies to improve output across all industries are unquestionable, profitability remains low, with many leaders having seemingly pursued transformation exercises on the basis of the dreaded FOMO (fear of losing out), rather than in pursuit of tactics tailored to their own business’ needs.

Now, a survey by KPMG of 150 CEOs across UK businesses has found that the majority are under pressure from board members, who appear to feel a degree of buyer’s remorse when it comes to digital transformation efforts. 72% told the Big Four professional services firm that they were frustrated by how short-sighted board members are, instead arguing that boards should see tech investments as a long-term game. Two thirds, or 64% are expecting to see returns on investment (ROI) on Artificial Intelligence in the next three to five years, after the initial outlay. The same goes for robotics, where 52% of CEOs agree it takes more time.

UK CEOs frustrated by digital transformation

However, their respective companies do not seem to share their view on the matter. Tensions are starting to show between CEOs, boards and management teams when tackling digital transformation projects, according to some of Britain’s biggest businesses. A huge 95% of those polled agreed that digital transformation was more of an opportunity and less of a threat, but 86% said they had been overwhelmed by the time needed to see any progress. This relates heavily to the fact that the same CEOs doubt the skills of their wider management team, who they do not believe are confident enough to manage such a radical change.

Meanwhile, CEOs remained sceptical about the usual discussion that new tech will see employment fall, with 71% believing AI will create more jobs in the short term. While this fact has broadly been celebrated by the proponents of AI, for employers it presents something of an unexpected problem, exacerbating the much talked about talent shortage which the UK finds itself on the brink of, following its reduced access to European talent in 2019, and an ageing population reaching retirement age.

Commenting on the study, Lisa Heneghan, Partner and Digital Transformation Lead at KPMG UK, said, “Digital transformation is no longer a choice, it’s an essential driver of revenue, profit and growth. Business leaders need to move away from simply fulfilling client needs, in sometimes laborious ways, to using technology achieve results with more depth, efficiency, and decrease the probability of error.”

She added, “The reality is that digital transformation isn’t a simple change that can be implemented overnight and deliver results straight away. It requires embracement of innovative breakthrough technologies, investment in digital skills, and retraining the existing workforce. This change is needed and for some it is a major turning point, especially for those that have engrained processes, to make the change otherwise there is a real possibility of being left behind by technology first businesses.”

The ROI of digital

Despite vast commitments towards digital technologies, a recent study by Simon-Kucher & Partners showed that in around three quarters of the cases, digitalisation efforts fall short of achieving top-line growth. According to that analysis, the biggest reason for this was that companies neglect the very parts of their business that have the greatest impact on revenue generation – namely value creation and monetising for that value – to instead focus on reducing costs, improving operations, or aggressive pricing to keep up with the competition, which do not yield as great an ROI.

At the same time, it is not necessarily hard to see why investors might be displeased with the returns they have seen on digital transformation. The need for it has been so hyped, chiefly by the consulting industry itself, that many firms instinctively seem to expect that ‘innovation’ of any kind will deliver major boosts to their profit margin in relatively short periods of time. The digital transformation consulting segment currently constitutes a $44 billion global industry, in part thanks to this fervour.

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