The 5 fronts of digital transformation in the middle market
The past 18 months have brought unprecedented challenges for businesses of all sizes, and the US mid-market has not been spared.
The National Middle Market Center (NCMM) has tracked the performance and sentiments of companies between $ 10 million and $ 1 billion in annual revenue since 2012. After experiencing negative growth rates in 2020, the average revenue growth for the period of June 2020 to June 2021 was 8%. This is good news, as the average annual growth since 2012 has been around 6.5%. However, a closer look reveals a split recovery: 45% of companies reported revenue growth of 10% or more, but 34% reported flat or declining revenue.
Employment growth also returned to positive rates, with average growth of 5.9% across the sector. In addition, 70% of the mid-market workforce reported returning to their primary workplace in June 2021. Executives of midsize companies also cited the two most difficult aspects of running the business. their business in today’s environment: 51% said they face challenges. through employee communications, engagement and productivity, and 45% reported customer engagement issues.
The severity of these challenges varies by industry. For example, 60% of healthcare companies report having difficulty with employee engagement, and 55% of construction companies struggle to engage customers in new and beneficial ways.
With a patchy recovery and ongoing challenges, how can mid-sized businesses continue to thrive? We know from our research over the past decade that they are generally resourceful in the face of constraints such as capital, expertise and time. Focusing on digitizing their businesses will help address the challenges of customer and employee engagement.
The pandemic has changed priorities
Investments in various technologies have accelerated due to the pandemic, with the aim of addressing a number of operational areas, such as cybersecurity, customer engagement and communications. But this move to digitalization doesn’t necessarily reflect what executives think about the state of their own business.
We asked executives about the importance of digitalization, and while 52% cited it as important or extremely important, only 35% considered themselves advanced or ahead of their peers. Additionally, only 46% of mid-market companies say they have a digital roadmap built into their strategy, meaning the rest either don’t have a defined plan or are unable to tackle it just yet.
As with other challenges, digital maturity levels differ by industry. Take the manufacturing industry, which is one of the largest sectors in the middle market with around 17% of all businesses. Almost 50% of these companies say they care about keeping pace with the right technology in order to be competitive. This is concerning, because it’s not just about advanced manufacturing and artificial intelligence in the factory – the technology touches every aspect of the business.
For example, Gertrude Hawk is a chocolate maker based in Scranton, Pennsylvania. The 85-year-old operates 40 physical locations in three states, as well as a consumer e-commerce site and a B2B platform. While their internal processes are excellent, the company has long ignored the importance of strong digital platforms as a way to engage customers. Recently, they have focused their investments on digital marketing tools, such as an improved website with high-quality photographs, in addition to a customer rewards program accessible through mobile devices to make shopping and ordering easier. Recognizing that they were lagging behind their peers, the company saw increased site traffic, longer average visit times to the site, and an increase in the number of members being rewarded for their investments.
While most of the concerns observed at the onset of the pandemic – uncertainty, business continuity, working capital – have largely subsided, customer engagement and communications with employees remain a challenge. Almost a third of midsize businesses say they have made the switch to digital communication internally for good, and 24% plan to do so in the near future. In addition, 31% of companies have continuously implemented technology to interact with customers.
A good example is Twiddy and Company, a hotel company located in Duck, North Carolina. Owner of hundreds of rental properties in the Outer Banks, Twiddy has traditionally relied on strong relationships with clients, loyal customers and word of mouth recommendations. However, with the industry shutting down in spring 2020, CEO Clark Twiddy began leveraging investments in CRM platforms to reach customers in new ways. For example, they found that prospects and former tenants responded better to SMS updates than to phone calls or emails. CRM also allowed Twiddy’s marketing and sales teams to collect and monitor every touchpoint, regardless of the method, to ensure the right mix and pace as well as the calculation of conversion rates. The results have been impressive, driving historic growth and occupancy. Going forward, the company is committed to continuously innovating, experimenting and investing in digital communication practices.
Many mid-market companies also face resource constraints. Therefore, making similar investments is easier said than done. When asked about the barriers, most companies mentioned the costs and budgetary issues associated with new technologies. Mid-market IT spend is focused on day-to-day business operations and cybersecurity, both accounting for around 11% of total budgets. In addition, companies see a lack of time given other priorities and a lack of adequate internal resources to effectively implement these technologies.
A framework for digital transformation
Investing in digital tools and processes hasn’t suffered as much over the past 18 months as other business functions, in part out of necessity. Indeed, investment has also accelerated as a means of achieving the goal of a more efficient, profitable and productive future state of work, and the investment has paid off. Mid-size companies with a clear, comprehensive digital vision that guides strategic decisions grow 75% faster on average than less digitally sophisticated peers.
While impressive, nearly two-thirds of executives also say that a lack of digital skills in their workforce prevents them from pursuing even more aggressive activities. So how should leaders approach these issues? The NCMM has developed a framework to help guide middle market companies through the process of digital transformation. Essentially, the company sits in the middle of five distinct but interconnected activities:
- What we sell – product and service offerings
- How we produce it – supply chain, manufacturing, operations
- How we sell it – customer experience, channels, marketing
- Our IT Backbone – infrastructure, security
- Our workforce – talent, digital skills
To tackle two of the biggest challenges in the middle market, we’ll be focusing on how we sell it (customer engagement) and our workforce (employee engagement).
Mid-market companies say customer experience, lead generation, and marketing tools are their top three digital priorities for customers right now. Here are some good practices to progress in these areas:
- Put more emphasis on integrated multi-channel marketing and sales, finding the right mix of online and offline marketing, sales and service.
- Develop a more functional website that connects customers with employees and offers support for products and services.
- Increase online interaction with customers (website, social media, mobile).
- Use a variety of digital analytics and customer experience tools.
- Use technologies that support the sales force, such as CRM systems and social media.
- Work towards an end-to-end omnichannel digital experience across all platforms and channels.
Accessing, attracting and retaining the right talent has been a challenge in the mid-market for several years. Executives are particularly challenged when it comes to finding potential employees with the right digital skills. To solve these problems, middle market companies should do the following:
- Make a concerted effort to invest in people with specific digital expertise and be prepared to pay a premium for the right skills.
- Adopt the latest and greatest digital technology and processes, including using digital platforms for employee goal setting and performance management, and using mobile apps for talent acquisition.
- Take a strategic approach to realigning the workforce and deciding which activities can be outsourced to outside specialists to tackle the digital skills gap.
- Provide training and career development and clear career paths.
Insaco, founded in 1947 near Philadelphia, develops and produces high-precision machine parts (originally for the phonograph and textile industries, but more recently for medical, defense and aerospace customers. ). Their investments in advanced manufacturing technology have preserved their ability to meet stringent production requirements down to the millionth of an inch. While operational investments have helped them maintain their leadership position in their industry, the focus on customer and employee engagement has also been an important part of their growth. They reorganized their website into a one-stop shop, which is easy for customers to navigate and allows employees to access product materials and make updates easily. Since the launch of the new site, Insaco has seen a significant increase in page views, pages per session and average session length. They also saw a lower bounce rate, which indicates that the redesign had a significant impact.
By using some of these best practices, mid-market companies can launch or help strengthen their own digital journeys and prepare for future growth in the process.