Decoding the Digital Transformation Costs for Businesses

Saurabh Singh February 20, 2024
How can Digital Transformation Reduce Your Business Costs

Digital business transformation constitutes the implementation of digital technologies in all your business areas. It can streamline your business process, manage and reduce your operational costs, and contribute to revenue growth.

Although the early phases of digital transformation require substantial investment, they are rather essential for long-term cost reductions and improved operational efficiency. For technology professionals, it is vital to understand the importance of prioritizing cost optimization alongside strategic initiatives.

Digital transformation can help organizations streamline operations, eliminating redundant processes and enhancing overall efficiency. By investing in advanced technologies and modernizing systems, businesses can reduce expenses associated with manual tasks, errors, and system inefficiencies.

Furthermore, automating workflows and leveraging data insights allow for cleaner and more optimized processes, leading to improved productivity and reduced operational costs.

Therefore, if you are a business looking to enhance your operational processes and manage costs by adapting advanced tools and technologies, your first concern may revolve around “digital transformation cost.” While there is no accurate answer to this, you may get an idea based on your business needs and digital transformation cost-benefit analysis.

This article familiarizes you with various cost management benefits of digital transformation, digital business transformation strategies, and models to help you reduce business costs and technology implications that contribute to your digital business transformation cost.

Digitally transform your business

Understanding the Power of Digital Business Transformation: Why It’s Necessary?

Digital business transformation is essential for companies navigating today’s dynamic business landscape. It’s no longer merely an option but a strategic necessity for firms aiming to remain competitive. This transformation’s power lies in its capability to revolutionize operations, customer experiences, and business models by integrating cutting-edge technologies.

Embracing digital transformation is crucial for organizations as it brings numerous benefits. It enhances productivity, improves operational efficiency, and enables smarter decision-making through data analytics and process automation. Moreover, it facilitates the delivery of personalized customer experiences, fostering stronger relationships and providing opportunities for growth. This transformation represents a significant shift in business culture and operations, allowing companies to adapt to new technologies and remain agile in an ever-evolving market.

According to recent reports, digital and AI transformation initiatives are already underway in over 89% of large companies globally, realizing 31% of projected revenue lift and 25% of expected cost savings.

The global market size for digital transformation is further expected to reach $3.4 trillion by 2026, signifying the right time for organizations to leverage the opportunity to digitally transform their business operations for improved efficiency and competitive advantage in the market.

Spending on digital transformation technologies and services worldwide

The market size forecast indicates a significant increase in the adoption of digital transformation. The desire for improved operational efficiency, enhanced decision-making capabilities, and advanced customer experiences drive this trend. Companies are encouraged to invest in this transformative shift to position themselves strategically for future growth and success.

Understanding the Average Cost of Digital Transformation

Digital transformation costs can significantly vary based on a multitude of factors specific to each company’s needs, industry, and goals. As IDC projected, global spending on digital transformation initiatives was set to reach $3.4 billion in 2026.

The costs involved in digital transformation are directly dependent on multiple dynamics within a company. These include the organization’s size, its current technological infrastructure, the complexity of existing systems, and the degree of digital transformation required.  Small and medium-sized enterprises may have more manageable expenses due to simpler systems, agile structures, and fewer legacy issues. On the other hand, larger enterprises with extensive operations, legacy systems, and regulatory compliance challenges may need a significant digital transformation budget.

To give you a brief idea, the overall costs of digital transformation for businesses can vary from $50,000 to $500,000. It’s crucial for businesses to partner with a dedicated development firm so as to get a detailed analysis of the costs, as per their specific requirements and business size.

Small to medium-sized enterprises (SMEs) might find their digital transformation costs falling within the lower end of this range, while larger corporations with extensive requirements and infrastructures could expect the costs towards the higher end or even surpassing a million dollars.

Let us move ahead and look at the multiple factors that impact the average cost of digital transformation in detail.

Factors Affecting the Digital Transformation Costs for Businesses

Numerous factors contribute to the total cost of the digital transformation process. The scope and scale of such an effort are influenced by multiple aspects within an organization:

Various Factors that Affect Average Cost of Digital Transformation

Technology Infrastructure

Upgrading or integrating new software, hardware, and networking infrastructure can lead to substantial costs. For example, consider a mid-sized e-commerce company seeking to expand its online marketplace by adopting a new customer relationship management (CRM) system. It will require investments in licensing fees, hardware enhancements, and software integrations.

Technology Stack Integrations

Integrating innovative technologies into existing workflows can result in significant expenses. For instance, when a healthcare organization decides to implement a new electronic health records (EHR) system, it may face additional costs due to the requirement for custom integrations and comprehensive staff training to ensure a smooth transition to the new system.

Organization Size

The organization’s size impacts various costs, such as software licenses, server bandwidth, training resources, and security measures. Implementing digital transformation across all subsidiaries and departments can result in higher expenditures for a multinational corporation with a diverse portfolio and global presence.

Existing Digital Skills Gaps

Training staff on new digital tools and processes to address skill gaps can require investment. For example, when a traditional manufacturing company adopts Industry 4.0 technology, it needs to upskill its employees on automation and IoT technologies, resulting in training and development costs.

Business Goals

Significant investments are often necessary to align digital transformation initiatives with specific business objectives. For example, a financial institution that is transitioning to a digital banking model must invest in app development, data security, and customer service enhancements. These investments are crucial to ensure a smooth transition and meet customers’ evolving demands.

Legacy System Integration

Integrating legacy systems with modern technology can be a complex process that requires investments. For instance, a transportation company looking to upgrade its fleet management may have to endure higher expenses due to the complexities involved in integrating legacy software with modern GPS tracking and management systems.

Regulatory Compliance and Security

Meeting compliance standards and ensuring robust data security require significant investments. For example, financial institutions undergoing digital transformation must comply with strict regulations like GDPR or PCI DSS. This often involves substantial investments in data security measures and compliance.

Partnership with Digital Transformation Firm

Partnering with the right digital transformation company can significantly impact project costs. The digital transformation budget can vary depending on the location of the hired firm, which affects the expense structure. For example, contracting with a firm in a developed country like the United States or Western Europe may result in higher service charges due to higher labor costs and operational expenses.

On the other hand, engaging a digital transformation company based in a region with lower living expenses and operational costs, such as Eastern Europe or Southeast Asia, could potentially reduce the overall project expenditure without compromising on quality or expertise.

According to a report from Deloitte, the synergy between digital strategy and execution is pivotal in extracting value from digital transformation efforts. An optimized combination of digital transformation initiatives could potentially unlock up to US$1.25 trillion in new value.

Business Benefits of Digital Transformation That Contribute To Cost Reduction

As simple as it is, digital transformation cost savings gathered from mundane and unproductive tasks can be better invested in customer acquisition. Ideally, digital transformation for businesses can reap the below benefits that directly contribute to cost management:

Multiple Digital Transformation Advantages for Businesses

Resource Management

As you digitally transform your business, you slowly replace the legacy system that only serves individual business units. Industrial experts state that this end-to-end digital approach can help eliminate manual and associated costs. Moreover, on-demand technologies can help your business adapt to modern changes and customer requirements.

Also Read: How Digital Technologies are Revolutionizing Exploration and Production in the Oil and Gas Industry?

Improved Consumer Engagement

One of the most sought-after business benefits of digital transformation is improved customer engagement. Integration of the latest technologies in your business constructs can enhance the business-customer relationship. Your business attains varied opportunities to connect with the customers and understand their needs and demands. This is probably how you can meet the shifting needs by allocating the right resources at just the right time, leading to reduced costs over a period of time.

Faster Time to Market

One of the most prominent digital transformation advantages is the reduced product life cycle. Specifically, where development costs are higher, digital technologies in business are the way to stay ahead. Due to ever-evolving digital transformation, the economics of the entire developing and manufacturing industry might change in the coming years.

Energy and Personnel Costs

Embracing digital transformation business models can help you stay in compliance with maintenance schedules and keep your systems and equipment in optimal condition. This significantly saves you from paying high energy maintenance bills.

Moreover, by automating your business process, you can save huge overhead costs on administrative tasks, in-house promotions, management tasks, and training sessions.

Increased Revenue

Since our major part of the discussion is focused on digital transformation cost-benefit analysis, it is vital to understand that it has a massive reason for increased business profitability. Digital businesses have delivered new functionalities that allow business growth and more significant ROI.

Speaking of maximized revenue with digital business transformation, let’s look at how digital transformation drives your revenue.

Technology Implications That Can Reduce Your Business Cost

Here are some of the digitally transforming tools and technology implications that can help you with digital transformation cost reduction along with better customer experience:

 Techniques to reduce your DT cost

Cloud Hosting and Migration

Cloud adoption is the most significant step to accelerate enterprise digital transformation. Statista’s survey states over 50% of corporate and public data is stored in the cloud. This shows that companies increasingly shift their resources to cloud environments with business agility. Cloud hosting leads to centralizing the entire business from one touchpoint so that all information is accessible to everyone, saving cost and time.

Automation Tools

Enterprises of every scale and size widely adopt automation tools. For a business to survive, it constantly needs to focus on lowering operational costs, and that’s when automation tools come into action. They simplify workloads and mundane tasks and increase productivity by bringing efficient management. This helps them reduce the enterprise digital transformation costs effectively.

[Also Read: AI in Quality Assurance: The Next Stage of Automation Disruption]

IoT (Internet of Things) Integration

Emerging IoT technologies are the answer to how digitalization reduces cost. IoT helps prioritize and optimize inventory, revenue system, manufacturing, operational process, and energy management. IoT is the biggest source of predictive maintenance, 5G, and big data, decreasing interruptions and overall development costs.

Team Management Tools

Startups and enterprises are using applications such as Keka, Basecamp, Asanaises to manage tasks, projects, and teams efficiently. They enable tracking all initiatives in one system. These comprehensive management tools and software also significantly help in cost and resource management.

Shipping and Logistics Tools

Technological tools can be the backbone of delivery, purchase, and transportation. Digital tracking of shipping and logistics saves staff requirements and centralized product operations. This is another example of enterprise digital transformation cost reduction.

So far, we have covered various aspects of digital business transformation that can help you save operational and overhead costs. However, we have yet to discover the process of applying the technologies mentioned above to our respective business industry.

Let’s take a few real-time industry use cases of digital transformation adoption to understand how various business verticals adapt to modern technologies and leverage the expertise of a reputed IT consulting company to save costs.

Below are some of the successful digital transformation applications and practices that various industries follow to manage cost and scale.

Five Digital Transformation Industry Use Cases For Understanding Cost Management

Startups and enterprises are now looking at big numbers and opportunities by implementing various digital transformation strategies aligned to their industry needs. Here, we have listed real-time digital business transformation examples and practices businesses follow to manage their costs.

Supply Chain and Manufacturing Industry for Social Distancing With an Automation Process

AI and IoT use cases are well known for digitally transforming the supply chain and manufacturing industry. We have talked about how IoT in manufacturing has been a massive help in breaking digital barriers. Bringing intelligence to the equipment on the factory floor has minimized the time humans spend in close proximity.

Manufacturing and related industries implemented WIP (Work In Progress) solutions with deep learning that helps in the quality control process. Another big execution in IoT is image processing and automation tools that have helped keep social distancing in check. These given technologies have helped the supply chain sector save over 40% on labor and associated processes.

One real-time example of executing a digital transformation strategy for the supply chain is Appinventiv, which designed an intelligent logistics and supply chain software solution to help the enterprise become more responsive to its customers’ needs. The solution resulted in a 60% increase in supply chain visibility and a 40% reduction in transportation and logistics costs.

Digital Healthcare Industry to Keep Spaces Safe

Innovation in the healthcare industry has been one of the most prominent examples of digital business transformation success. In the post-COVID world, combining AI with robotics has helped enhance patient monitoring, lab automation, neurosurgery, medical device packaging, and many other fields. Online healthcare applications have also kept patients and doctors in touch digitally.

Healthcare institutions also get the agility required to optimize operational processes while reducing costs.

One real-time digital business transformation example can be Appinventiv building a revolutionizing app solution, “YouCOMM,”  to transform patient assistance in emergencies effectively. YouCOMM is now successfully running in various hospital chains, leading to a 60% growth in nurse response time.

Digital healthcare industry

eCommerce Industry Creating More Engaging Shopping Space

Another industry that witnessed remarkable progress in digital transformation is the retail and eCommerce industry. Businesses use data and AI to refine customer experience, optimize operations and layouts, and refine product development.

In the world of social distancing, computer vision and Big Data are being used to track customer volumes in stores and help retailers maintain an engaging shopping space. Moreover, directly interacting with customers on your business platform (mobile apps) rather than on third-party websites can help you cut costs, offer better prices to customers, and generate better revenue.

Two popular instances of digital business transformation in eCommerce are Adidas and IKEA.

  • Appinventiv curated a mobile app solution for Adidas to expand its global presence, resulting in over 2+ Million downloads.
  • Appinventiv designed an ERP solution for the world’s biggest furniture retailer, IKEA, to ease its customer onboarding process. Today, the ERP solution is expanded in more than 7+ IKEA stores across the UAE and is the biggest source of ROI measurement.

Food Industry Delivering Successful Customer Experience

The food and restaurant industry often struggles with customer retention due to unsatisfactory app experience, difficulty placing an order, or poor in-app user journey. A digital transformation business strategy of adopting enhanced and conceptualized food applications has helped the industry overcome major challenges.

Digital business transformation cost management examples for the food industry can be Appinventiv redefining Domino’s UI/UX strategy to increase its mobile app conversion rate by 23%.

Another instance is Appinventiv transforming the digital user journey of Pizza Hut through end-to-end mobile app development. The app has over 50k+ downloads and an increased conversion rate of 30%.

digital user journey of Pizza Hut

How we act today is how we will be remembered in the future. Making the right decisions is an absolute necessity today, and the right way to innovate through your business is by adopting digital transformation. However, ensure you have a reliable technical partner for optimizing business processes, automating systems, and propelling innovation.

[Discover how Appinventiv solves digital transformation challenges that pull businesses down.]

achieve substantial cost savings

How Can Appinventiv Help You With Digital Transformation?

Appinventiv is a leading digital transformation services company dedicated to assisting businesses in achieving measurable outcomes and establishing agile procedures through tailored solutions aligned with the assessment of their current capabilities.

We redefine how you engage with your current and prospective clientele, enhancing your adaptability to market trends and mastering the application of the latest and emerging technologies for your business, among various other benefits.

Furthermore, we are committed to assisting in reducing the enterprise digital transformation cost by employing expertise and innovative solutions. With our seasoned team of professionals, we conduct comprehensive analyses of your current systems and business operations. Our dedicated digital transformation strategy can pinpoint areas where cost reductions and operational improvements can be made by identifying redundancies, gaps, and inefficiencies.

Through strategic planning and the implementation of streamlined and efficient technologies, we aim to optimize your systems and processes. Our tailored strategies are designed to help you achieve operational efficiency and cut down unnecessary expenses, enabling you to invest more effectively in digital transformation.

Collaborate with us to harness cutting-edge technological solutions that can help you effectively reduce costs across your digital transformation journey.

FAQs

Q. Why is digital transformation important?

A. Digital transformation is essential for businesses to stay competitive in the evolving market. It enables companies to modernize operations, enhance customer experiences, and streamline processes through advanced technologies. This transformation is crucial for meeting customer demands, optimizing efficiency, and preparing for future challenges.

Q. Discuss various cost-saving opportunities of digital transformation.

A. Digital transformation presents numerous cost-saving opportunities for companies. By utilizing modern technologies, businesses can automate processes, decrease reliance on manual labor, optimize resource allocation, and minimize operational inefficiencies. Furthermore, the digitization of operations results in reduced paperwork and facilitates more efficient workflows.

Q. Can digital transformation reduce spending?

A. Digital transformation has the potential to reduce overall costs by improving business processes and operations. Through automation, streamlined workflows, and the adoption of modern technologies, companies can reduce costs associated with manual labor and inefficient processes. Additionally, optimizing workflows, eliminating redundancies, and increasing productivity can result in long-term digital transformation cost savings across different business functions.

THE AUTHOR
Saurabh Singh
CEO & Director
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