Business leaders divided over digital transformation according to EY report

EY: Business leaders still split on the idea of digital transformation/ image via Unsplash

Business leaders are split on the idea of digital transformation, with some seeing it as a positive and others as a threat, according to professional services firm Ernst & Young's (EY) ‘Global Capital Confidence Barometer’.

Having surveyed more than 2,900 executives from 45 countries and across 14 different sectors, and asked them what the biggest impact digital transformation has had on their industry, 22% said it had reduced barriers to entry and created positive changes in customer behaviour. However, 21% said it had actually increased competitive pressures, 19% said it was blurring boundaries with other industries, and an additional 16% said it was in fact increasing barriers to entering their respective industries.

Exploring the changing fortunes of the mergers and acquisitions market, EY also asked business leaders whether mergers and acquisitions can help them to navigate digital transformation and future-proof their business: 42% strongly agreed that it would, 40% remained neutral on this idea, and 18% said they disagreed entirely with this notion.

The study explored how business leaders plan to invest in digital over the coming years, with the results suggesting more are comfortable with the idea of working with external companies opposed to promoting the use of more digital technology internally. Although a quarter (25%) of respondents said they plan to invest in in-house development and research and development over the coming years, the majority of respondents are looking externally for answers: 20% are looking to improve their digital output by direct acquisitions, 18% via joint ventures and alliances, and another 18% via an external venture fund.

But even if there is still a little bit of fear around the idea of digital transformation, it’s clear digital is now just part and parcel of the majority of companies’ DNA — more than half (55%) of respondents said they allocate between 25% and 50% of their investment capital to their digital future. This compares to 36% who are investing between 0% and 24% in digital, and 8% who are investing between 50-74%.

The report projects an optimism, especially around the global economy. Although it’s worth pointing out that this study was completed before global coronavirus fears materialized, 54% of respondents said they don’t expect an economic slowdown in the near to mid-term. More than half (52%) said their business plans to actively pursue a merger or acquisition deal within the next 12 months, with 68% expecting the M&A market to improve over this time period.

When asked what might be the biggest threat to the growth of their business, the number one concern (31%) was geopolitical, trade and tariff uncertainty. This was followed by increased competition from startups and technology (22%), regulatory uncertainty (19%) and new climate change policies (14%) which might affect a supply chain. Fortunately, there’s a hunger to sort these issues out, with 64% of respondents planning to take action and imminently respond to these threats.

The respondents also touched on internal threats, too, particularly around the idea of talent retention. A whopping 61% of respondents said they were experiencing difficulties hiring or retaining staff, and EY worryingly suggests: “Indeed, as more jobs are automated in routine tasks, companies are finding it more difficult to attract and retain talent with the right technical and digital skills to benefit from these efficiencies.”

According to EY’s global vice chair Steve Krouskos, the report highlights the need for executives to be on the right side of history. “Creating long-term value beneficial to all stakeholder groups is becoming non-negotiable,” he advised. “Companies must be good corporate citizens, delivering value for all stakeholders. Those that find themselves on the wrong side of this argument will find themselves on the wrong side of history. They will lose customers and imperil future growth.”

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