Why are firms cutting back on digital transformation?

Less than half of businesses in Ireland are staying ‘on budget’ on their digital transformation plans.

Two years ago, in the grips of the pandemic, most businesses were accelerating their digital transformation plans at a time when it looked like no one would ever return to the office and nothing would be the same ever again.

Zoom forward to late 2023 and the tail-end of a tech wreck that has seen tech giants like Microsoft and Facebook scale back significantly, it looks like the appetite for spending on digital transformation has waned too.

“To remain relevant and propel ahead, businesses must invest in their digital future. Neglecting to do so runs the high – and far more costly – risk of being left behind”

New research from Expleo has found that 72% of businesses on the island of Ireland have recently scaled back their digital and digital and business transformation amidst concerns about external threats to their business.

The global study, which included a survey of 141 business leaders in medium to large-sized enterprises on the island of Ireland, found that among the 72% who have scaled back on their digital and business transformation plans, more than half have scaled back significantly.

Additionally, there has been a noticeable decline in the ability of businesses in Ireland to deliver on their digital projects within the scheduled timeframe. Only 49% of business and IT leaders reported meeting project deadlines – a stark decrease from 70% the previous year – compared to 57% of businesses globally.

Stark decreases in digital spending

There has also been a marked change in the proportion of businesses that are managing to stay on budget with their transformation budgets. This year, only 48% of businesses reported staying on budget, which is a significant decline from the 75% reported last year. Almost all survey respondents (89%) acknowledged that they are facing more external threats to their business compared to a year ago.

These include cost inflation (47%), followed by skills shortages (40%), and economic uncertainty (35%).

In response to geopolitical instability, meanwhile, organisations have adopted various measures to safeguard their operations. These actions include deploying more backup/redundant technology infrastructure to protect against regional disruptions (43%), discontinuing partnerships with suppliers in certain locations (33%), and relocating employees to areas that they perceive to be safer and more stable (32%).

Despite these challenges, business leaders remain resolute to forge ahead and enhance their business offerings. Over the next 12-24 months, the key focus areas for businesses in Ireland will be delivering the best customer experience (56%), increasing productivity (46%), boosting revenue/sales growth (45%), fostering innovation and launching new offerings (43%), and attracting and retaining top talent (42%).

“Despite growing economic optimism, our research shows that businesses are facing significantly more challenges to their digital plans than they were a year ago, prompting many to scale back,” said Phil Codd, managing director for Expleo in Ireland.

“However, as recent history has shown us, it is during uncertain times that embracing and investing in digital projects is not just wise, but imperative.”

Codd says firms need to remain nimble and keep an open mind about continuing to transform.

“We now fully understand the role that digital plays in safeguarding businesses and unfolding a world of untapped opportunities. When the world faces its greatest challenges, digital unfailingly emerges as our steadfast ally, enabling us to conquer obstacles and thrive. To remain relevant and propel ahead, businesses must therefore invest in their digital future. Neglecting to do so runs the high – and far more costly – risk of being left behind.

“The Business Transformation Index 2023 Ireland Spotlight provides insights and practical recommendations for organisations to address the challenges they are currently facing and navigate the road ahead. In doing so, we are empowering organisations to seize new opportunities with digital as the enabler and driving force.”

Main image at top: Phil Codd, managing director, Expleo. Background image: Michael Dziedzic on Unsplash

John Kennedy
Award-winning ThinkBusiness.ie editor John Kennedy is one of Ireland's most experienced business and technology journalists.