Techaisle Blog

Techaisle’s US midmarket digital transformation trends study shows that maturity of cloud adoption does not equate to high digitization of the business. Study data shows that only half of the 47% of mature midmarket cloud adopters are holistic adopters of digitalization. It is true that these firms believe in cloud and its effect on digitization but they also believe that true digital transformation requires advanced adoption of multiple technology solutions. Data also shows that the midmarket firms that have a siloed strategy of digital transformation are intermediate adopters of cloud, mostly driven by non-IT business units which need cloud to further their business objectives.

However, it is also clear from data that the Holistic segment includes a disproportionate number of mature cloud adopters, and mature cloud adopters in turn are much more likely to be Holistic in their approach to digitalization than firms in the intermediate category. A smaller (7% of total) third group of midmarket businesses, ‘born in the cloud’ (i.e., have all IT resident in the cloud) largely echo the patterns of the mature cloud users.

From a digitalization product/service marketer’s perspective, this is an important finding: it shows that those who can identify mature cloud adopters are likely to find greater receptivity to their messages and offerings than those that engage equally with the similarly-populous group of intermediate (in terms of cloud adoption) midmarket businesses.

High adoption of diverse technology solutions determines digitalization success

Even considering planned adoption, Siloed midmarket digital segment is likely to remain far behind the Holistic midmarket digital segment. The Siloed segment even lags being in the technology areas which midmarket firms see having the most impact in their business for the next 5 years.

Midmarket firms that adopt a holistic organization-wide digital transformation strategy are growing at 2.2X vs. Siloed digital transformation strategy. They are also experiencing 2.1X business process cost reduction, 1.9X better customer intimacy and 1.4X improved employee productivity vs. Siloed adopters. Techaisle’s US midmarket digital transformation trends study shows that it pays to have an organization-wide, holistic digital transformation strategy. Survey of 876 US midmarket firms reveals that Holistic adopters are experiencing better business outcomes than Siloed adopters of digital transformation.

We are all responsible for the pace of change – and to ensuring that it benefits rather than threatens our success. Nowhere is this clearer than with digital transformation – the adoption of digital infrastructure as the foundation for digital business processes, which enhance operational efficiency, employee empowerment, product innovation, customer intimacy, competitiveness and profitability throughout the organization. Businesses that embrace digitalization are more agile, more adept at using technology to accelerate cycle time and expand reach, better able to respond to market opportunities and requirements – while those that are left behind face an uncertain future in which one wrong step can lead to diminished business viability.

Holistic, Inclusive, Siloed and In-the-Shadows are the four midmarket segments by digital transformation strategy as revealed in Techaisle’s US midmarket digital transformation trends survey & segmentation data. The segmentation reveals that overall, 41% of the US midmarket firms (100-999 employee size) are firm believers in digital transformation. They are leading digital transformation initiatives. These firms belong to the “Holistic” segment of the four different digital transformation segments. They believe that digital technologies impact every aspect of the business and are a core part of organizational strategy. Interestingly though, within the firms belonging to the holistic segment, digitization of process automation is far from complete. They still have a huge runway in front of them.

For 59% of the midmarket firms, digital transformation initiatives are sporadic and ad hoc or not critical across the entire business. These are the firms that belong to the Inclusive, Siloed and In-the-Shadows segments. They are the laggards in digital transformation journey.

Clearly there is vast untapped potential for firms offering digital transformation services to the midmarket businesses.

• ‘The’ IT market is comprised of many segments: large enterprises act at a different pace than SMBs.
• The ‘run rate’ revenue in the IT industry is attributable to products that are mature, accessible to buyers in all segments.
• In many cases, the IT industry focuses on new product categories (e.g., IoT) appealing to sophisticated buyers as growth drivers.
• For the most part, adoption begins in large accounts, and ‘filters down’ into SMBs over time.
• Techaisle research demonstrates that the SMB market is not a monolith – and provides the insight needed to understand advanced IT adopters within the SMB community. And trend analysis serves as an important illustration of the impact that IT’s relentless progress has on different buying segments within SMBs

IT products are often described as having ‘a market’ – but ‘the’ IT market is comprised of many segments, each of which has its own approach to IT adoption. Some industry sectors (e.g., aerospace) tend to move faster than others (e.g., retail); large enterprises tend to adopt technology earlier than SMBs; and different countries and regions invest in new technologies at different rates.

Unless/until they are supplanted by new solutions, mature IT products (e.g., printers, desktop computers) are acquired at about the same rate by all buyers: large enterprises, SMBs, and various industries all have well-defined needs and acquisition patterns for these technologies. These technologies generate the majority of ‘run rate’ revenue in the IT industry.

When IT industry growth opportunities are discussed, the focus often turns to earlier-stage technologies – witness current enthusiasm over IoT, analytics/Big Data and cloud. Sellers of these technologies tend to focus on advanced segments (large accounts, particularly in leading-edge industries). SMBs are generally viewed as a secondary market. 

IT sophistication segmentation

However, the SMB market is not a monolith. Techaisle research, SMB & Midmarket IT Sophistication driven technology adoption trends has identified four attitudinal/behavioral segments that have different approaches to IT adoption. Suppliers who understand the scope and characteristics of these segments are able to expand their target markets and develop strategies geared to reaching high-potential SMB prospects. These suppliers ultimately have access to an expanded TAM, and have the insight needed to align marketing investments with priority customers. Sophistication is a crucial issue in SMB technology adoption – but it is often overlooked, and even when it is not, it is poorly defined and quantified. This report provides the insight needed to align SMB targets and strategies with highest-potential segments.

The above chart provides a high-level illustration of the four IT sophistication-defined buyer segments found within the SMB market. The first group, “Pre IT,” represents firms – all of which are found in the small (1-99 employees) rather than midmarket (100-999 employees) market – that have not embraced IT as part of their business operations.

The second group, “Basic IT,” is the largest of the four segments, and most closely resembles the approach that is commonly thought of as ‘the SMB IT market’. These firms invest in mature (run-rate) technologies, but lack the internal business demand and IT understanding to expand into more advanced solutions. In the small business market, Techaisle categorizes these firms as “old-fashioned yet entrepreneurial” – firms that are not sophisticated in their use of IT, but who will buy proven solutions to address clearly-defined impediments to business success. In the midmarket, Techaisle classifies these organizations as “proactive yet cautious” – committed to investment in technologies that have been proven to enhance individual productivity or firm-level capabilities.

The third group, “Advanced IT,” represents the approach that is often considered to be characteristic of leading-edge SMBs. These firms are actively exploring advanced solutions: ‘second-order’ applications (such as analytics and ERP) that build on the more basic capabilities that are already deployed within the organization, and emerging applications (such as IoT) that provide entirely new, IT-enabled expansion opportunities to their businesses.

The fourth group, “Enterprise IT,” functions like the IT operations within large accounts. In an SMB context, Enterprise IT refers to organizations where IT is run as a business, providing support for IT-enabled innovation across all functions and processes. This group, which is found only in midmarket accounts, represents about 17% of the SMB market total.

Technology progress creating segment separations

Comparing the latest 2017 analysis with similar segmentation analysis conducted in 2015, we see that in 2015, 10% of small businesses were classified as Pre-IT, 59% as Basic IT, and 31% as Advanced IT. Over the next two years, IT complexity spiked at a historically high rate: cloud and mobility went from PoCs to essential infrastructure, analytics (and increasingly, Big Data) moved swiftly from early adopter to early mass market status, IoT is rapidly following this path, AI is migrating from science fiction to data centers, and entirely-new options like Blockchain are having real impact on IT strategy in advanced IT environments. Against this backdrop, small businesses see that their capabilities are not adequate for this increasingly-complex world: nearly 70% are in the “Basic” category, and the proportion that can claim to be “Advanced” has halved, from 31% to 16% and the Pre IT has increased.

At the same time, analysis shows that more sophisticated segments are able to grow with this expanding constellation of options. One-third of midmarket businesses were categorized as “Basic” in 2015; by 2017, this group had shrunk to just 11% of midmarket firms. At the same time, midmarket firms boasting “Enterprise” level capabilities grew from 14% to 37% of midmarket organizations.

Taken together, the data illustrated in the research reinforces the need to understand ‘the SMB market’ at a more detailed level. The ability to identify buyer segments within this dynamic environment is critical to a supplier’s ability to adequately scope and target SMB opportunity.