Managing digital transformation costs in 2024

As IT leaders consider their priorities for 2024, they’d do well to remember digital transformation costs and the associated challenges. While digital transformation is important for business growth, many UK firms have struggled with poor returns linked to budget and strategy.

The failure rate for digital transformation projects is high, with a majority (88%) of  business leaders surveyed for an Endava-sponsored IDC brief stating that only up to half of their digital transformation projects met the goals set out.

In spite of these challenges, global projections from Statista forecast spending on digital transformation projects rising to $2.51 trillion in 2024. Making spending go further for digital transformation and ensuring the cost of digital transformation does not exceed budgets will be key.

When TSB attempted to migrate its IT system back in 2018, technical glitches left 1.9 million people without access to their online and mobile banking services for several days. The UK bank lost 16,000 customers in the aftermath and was fined £48.65 million at the end of 2022, with the Financial Conduct Authority arguing that “the governance of the project was insufficiently robust”.

The case of TSB is a prime example of what can happen when digital transformation goes wrong or is poorly executed. But for businesses that are apprehensive about the risks involved and their projects failing, there is a low-cost approach they can take.

Digital transformation costs: open source alternatives

A number of factors will drive IT spending in 2024, with cloud spending expected to continue to rise and sustainable technology becoming a bigger priority for the C-suite, but digital transformation projects don’t have to involve forking out on expensive software. Open-source can be a cost-effective alternative. 

Research by Red Hat published at the end of 2023 suggests that open source software could become a key focus for businesses over the next 12 months. Of 300 UK IT managers, 67% indicated they intend to utilize open source software, of which 80% plan to increase their use of it in the next two years.

Following its £4.2 billion acquisition by KKR in 2020, Viridor wanted to update its online presence. The waste management firm had been using “a monolithic digital experience platform, which had resulted in the organization paying for more functionality than it was using,” explains Matt Sutherland, head of technology at True Digital, which worked with Viridor to develop a solution. 

They opted for the open source content management system Umbraco “because its headless and composable architecture provided a cost-effective route to updating and improving Viridor’s digital presence”. The fact that Umbraco’s flexibility means only the necessary applications need to be integrated has reduced annual license costs by £80,000.  

Digital transformation costs: low-code software 

The success of digital transformation projects can often be threatened by a lack of skills – 41% of corporate executives surveyed by KPMG in 2023 cited the skills gap as a hurdle most likely to hinder projects. Not only is finding the right talent time-consuming, but hiring talented developers to build applications and systems can be expensive. While not a panacea, low-code platforms can offer a slightly easier and cheaper way to do things. 

“Low-code software has emerged as a transformative catalyst. It empowers enterprises to adapt, flourish, and thrive amid the dynamic demands of the digital age. It’s also a versatile solution to the critical challenge of talent scarcity,” says Kelly Hungerford, director of digital transformation strategy and services for international oral healthcare company Sunstar.

Back in 2021, Sunstar realized that its operating expenses for digital technology were increasing and it “wasn’t able to bring innovation and evolution fast enough to business,” explains Hungerford. By moving away from on-premise solutions to a low-code cloud solution, Sunstar saw a 30% reduction in agency maintenance costs, while it paid off the cost of migrating within nine months. 

Digital transformation costs: review your tech stack

Underutilized tech stacks a blend of legacy and modern IT are another barrier that can stymie digital transformation projects and inhibit growth. Enterprises have, on average, over 200 applications in their tech stack according to data from Futurum Research. On top of this, the two-year turnover is about 60%, meaning that the applications that were relied upon in 2021 may not be used in 2024. So, reviewing tech stacks can be a low-cost way of improving digital transformation outcomes. 

Take the case of Spy Alarms. The security installation business has acquired 29 companies over the last decade. It became apparent that its systems and processes needed to be optimized and upgraded to support its ambitions and customer base of more than 75,000 and counting.

“Businesses that have undergone rapid growth eventually reach a point when systems no longer meet the requirements of their expanded headcount and IT estate,” says Tristan Shortland, chief innovation officer at Infinity Group, which was selected by Spy Alarms to come up with a solution.

By adopting Microsoft Dynamics 365 and Microsoft Power Platform, Infinity Group created an automated end-to-end process to manage data from initial customer inquiries through to completed service activity.

Spy Alarms has seen a 44% uptick in productivity since the upgrade. Field engineers now complete eight to nine jobs a day, up from five or six jobs previously. Meanwhile, revenue has risen as manual processes around work agreements and work orders are now largely automated. This means that staff are now able to focus on higher-value activities, which, in turn, has seen inbound calls fall roughly 20% from 14,500 per month to 11,500 per month.

“The crucial benefit of the implementation is that Spy Alarms now has a tech stack that’s designed to enable change, grow with the business, and support its continued ambition to acquire more companies,” concludes Shortland.