
Businesses that don’t get their digital transformation projects done right risk no longer being in business. They’ll be less agile to market fluctuations, run their businesses less effectively, be less innovative, and engage with customers less effectively. By getting digital transformation wrong or not constantly working at driving digital innovation, even the most prominent market leaders find themselves vulnerable to innovative niche upstarts.
With the high stakes, nearly every organization digitally transforms in some business area. Recent McKinsey & Company research shows 90% of organizations are doing so. Not surprisingly, AI is the most popular investment area at the moment. According to McKinsey’s 2024 Global Survey on AI, 72% of respondents said their organizations use AI. That’s up from about 50% in previous years.
With investment in digital transformation at that scale, CxOs must understand the current state of digital transformation, where organizations place their bets, and why.
Shift From Tech-Focused to Business-Outcome-Focused Transformations
Those CxOs finding success are those working to ensure that the initiatives they do back target specific business outcomes. For instance, many organizations now prioritize transformations that simplify workflows and manual processes. Still, growth and responding to market demands top the list. Research and consulting firm Prophet reports that 56% of digital transformation efforts are driven by growth opportunities, with 44% spurred by increased competitive pressures.
Tim Crawford, CIO strategic advisor at AVOA, explains these pressures, and with numerous failures or lackluster transformation efforts behind them, business leaders demand concrete results now. “Everybody talks about digital transformation or has been talking about digital transformation. Part of the problem is that it’s been digital for the sake of digital.” Crawford said many organizations have spent millions upgrading their digital estate without focusing on business outcomes, leading to CEOs, directors and CFOs increasingly questioning the value of these investments.
“I’m a big proponent that the CIO is a business leader first who happens to have responsibility for technology,” Crawford added. “When you use that mindset and think about transformation, you start the question: How are we going to transform our business in ways that matter to growth and innovation?”
He explained that this forces a focus on expanding revenue, reducing costs or differentiating the business in some way by using technology as a catalyst rather than an end goal.
Krishna Prasad, chief strategy officer at digital transformation services provider UST, echoed this sentiment. Prasad explained that the role of the CIO is evolving to be more business-aligned. “Smart CIOs are stepping into more business-focused roles. They know it’s not just about efficiently running the business or technology, but improving business outcomes and preparing the business for change,” Prasad said.
Daniel Clydesdale-Cotter, CIO at technology services provider Echostor, explained that CxOs are asking themselves much more business-focused questions. “They’re increasingly asking how their specific business-market advantage should inform where the business should spend its technology resources. Enterprises have these large IT organizations that are essentially just keeping the lights on, but they’re not adding much value. Repeatedly solving technology problems with more technology is not a great cycle to continue,” he said. “This forces CxOs to evaluate whether certain capabilities, like AI, should be built internally or sourced externally,” Clydesdale-Cotter added.
Investing in Smaller Wins, More Significant Business Outcomes
Market analysts anticipate enterprise business-technology spending to increase robustly. The research firm Gartner projects worldwide spending to increase by 9.3% this year to nearly $6 trillion. In contrast, HG Insights forecasts total enterprise spending to only grow about 4%, to almost $4 trillion. However, according to a survey conducted by KeyBanc, 71% of large corporations and 82% of small enterprises forecast budget expansions.
Despite the somewhat tight economic economy and relatively high interest rates, Alexandre Wentzo, CEO of process intelligence and management provider iGrafx, sees enterprise digital transformation spending primarily catalyzed by AI.
“On the one hand, with the cost of capital being high, we gave a compressed macroeconomic environment. That means budgets have been tight. On the other hand, there is perhaps more excitement than I’ve seen in a long, long time around what digital can do for our clients, and no surprise that it is being driven in large part by the enthusiasm around what generative AI can do for their business,” Wentzo said.
What is changing, multiple experts noted, is the size of initiatives business leaders are willing to finance. Bentzi Aviv, global head of fintech solutions at software and technology services provider Amdocs, when speaking about the banking industry, said that there’s no appetite to go into long-term commitments with hundreds of millions of dollars worth of investments to replace things such as core banking systems.”
Many verticals have shifted away from large-scale, expensive core system replacements toward more targeted digital transformation efforts. That’s not to say large initiatives aren’t underway in enterprises or won’t be funded, but they’d better be a strong financial and business case.
The Soaring Growth of AI and Data Analytics
With tens of billions of enterprise investments in AI and advanced data analytics underway, these data tools have become integral to digital transformation initiatives. Enterprises leverage these technologies to improve customer experiences, optimize business processes and enhance decision-making capabilities.
Scott Crawford, research director of the Information Security channel at S&P Global Market Intelligence, said this year that companies will stop deploying AI for the sake of deploying AI. “Until now, many enterprises have been deploying AI because they are curious about its capabilities or are chasing ‘the new shiny thing.’ No more, initiatives will need measurable results now,” Crawford stressed.
Trevor Horwitz, founder and cybersecurity and compliance services provider TrustNet, stressed that CxOs should focus on practical, evolutionary improvements rather than revolutionary changes. “Most AI integrations enhance existing capabilities rather than create entirely new paradigms. For example, in security operations, AI is being used to analyze larger datasets more quickly and identify attack vectors faster than current tools,” Horwitz said.
Adam Ennamli, chief risk officer at General Bank of America, advised cautious use of AI with mission-critical applications and services. “While AI adoption is increasing, there’s still hesitation to fully rely on AI for critical decision-making, especially in areas like banking and security. Human oversight remains important,” Ennamli said.
Still, tremendous interest in “agentic AI” for more complex tasks is growing. “There’s increasing discussion about AI agents that can handle more complex, non-deterministic tasks with minimal human intervention, though this technology is still in its early stages,” Crawford said.
However, investments in generative AI and agentic AI are expected to soar, each being a driving contributor to reach nearly $32 billion by 2033, according to Emergen Research.
Where’s the infrastructure and data coming from with all of these digital transformations and deployments? That’s another area of current growth, experts said.
Cloud Adoption, Data and Continued System Modernization
When implementing AI and managing large data sets, enterprises run into data and technical challenges, such as data quality and availability, data volume and velocity, and data integration and standardization. Then there are the AI modeling and deployment challenges and the high-performance computing infrastructure often required to run these systems.
Many organizations are realizing that successful AI adoption requires significant investment in data preparation and infrastructure,” said Crawford. “And poor data quality can, and often is, limiting the effectiveness of AI enterprise tools,” he added. Jonathan LaCour, CTO at Mission, agrees and stresses that as companies move more data to the cloud, there needs to be an increased emphasis on ensuring data quality and implementing strong governance practices, which are crucial for effective long-term AI and analytics initiatives.
Aviv stressed the need for many organizations to break down data silos. “Organizations recognize the importance of centralizing and streamlining data across all operational functions. Aviv said this is particularly evident in industries like banking, where more integrated, customer-centric models are replacing traditional siloed approaches.
LaCour, CTO at managed cloud service provider Mission, said challenges with data migration and integration from various sources drive investment in data integration and ETL (Extract, Transform, Load) tools. SkyQuest Technology Group estimates the global ETL market to grow from $6.5 billion in 2023 to roughly $19 billion by 2032.
Organizations are also investing heavily in continued systems modernization efforts, with many organizations still redesigning their applications and infrastructure to be cloud-native and leveraging technologies like Kubernetes and microservices. “This approach offers better scalability and flexibility than simply lifting and shifting existing applications to the cloud,” said LaCour.
In sectors such as banking, many organizations are modernizing their core systems. “This often involves creating configurable capabilities that allow for easier updates and changes in the future, rather than simply replicating old systems in new environments, Aviv said.
Ensuring Future Agility and Scalability
Experts also stressed the need for CxOs to prepare their organizations for constant change and scalability. “AI will fundamentally shift how businesses operate, requiring agile processes that cut across traditional functional boundaries,” said UST’s Prasad. This underscores the importance of building flexible, scalable systems that adapt to evolving business needs.
Crawford advised organizations to balance their technology, culture, processes and product mix to drive agility and scalability in their transformation efforts. “By prioritizing agility and scalability, organizations can better position themselves to adapt to market changes and leverage new technologies effectively in their digital transformation journeys,” Crawford said.
Enterprises will need that ability to adapt in the next few years. The only thing we know for sure is that we don’t know what the near, let alone long-term, future has in store for enterprise technology. By investing in the necessary foundations and focusing on ensuring agility and scalability, CxOs at least know that they’re doing what they need to do to prepare themselves for whatever advancements come their way.