The three challenges of digital transformation

  • Cyber security poses a major risk to businesses on their digital transformation journey.
  • Inability to integrate legacy and new technology can be challenging.
  • Talent remains critical, and businesses  must implement the right culture and drive digital literacy.

IT spending as a share of global fixed investment surged in 2020, as the pandemic forced businesses to digitalise their operations. After a slowdown in the ensuing years, EIU expects an uptick in 2024. Much of this spending is likely to be directed towards implementing generative AI solutions, as businesses look to boost efficiency, cut costs and access new markets and customers. While investing in new technologies, such as AI, businesses will need to be mindful of three key challenges: security, technology, and talent. 

Security: it is now easier and cheaper to attack

“Contemporary technology cannot provide a secure system in an open environment.” 

This quote comes from a 1968 report from the Pentagon’s Defense Science Board Task Force on Computer Security, and it shows that cyber security is a decades-old challenge. But as more and more objects and things are connected to the network, and technology becomes ubiquitous within the enterprise, security risks are becoming even more widespread. McKinsey surveys from 2022 and 2023 reported that over half of companies highlighted cyber-security as one of the most relevant threats they were facing.

It has now become easier and cheaper for hackers to attack a company. Every sector is targeted, and there are multiple ways that hackers can penetrate a business, in what has become a major, if illegal, business. There is also a clear imbalance between attacker and defender, as the attacker only needs to get it right once, whereas the defender needs to get it right all the time. As the threat surface keeps on increasing, this makes it even more difficult to be protected, which is why resilience has become the main priority. This is why it is important to remember that:

  • Anything connected can be hacked
  • Nothing is ever fully secure
  • The network is only as strong as its weakest link

Integrating the old and the new

There are two main things for companies to consider when they purchase new technologies. The first is how well it will integrate with legacy systems. Companies have been using technology for many years, and the different systems may not work with each other as well as they should. This is especially when it comes to data insights. Companies have a lot of data available, but it may not be available in the right way to gain the necessary insights from it. It could, for example, be stored in a specific format that is not interoperable with the right data science or AI tools, or it could be stored in a way that only a few people can access.

The second consideration is the need to buy a durable system. During the Internet of Things (IoT) boom in the early parts of the century, there was a proliferation of proprietary networks. Companies bought sensors that only worked on these networks, but if the operators went bust or stopped operating that specific technology, they were left with a system which could do not anything. A similar trend happened in the consumer market with smart-home systems, where many companies, while still operating, stopped providing updates for some systems, which made them a major security issue. Both integrating and getting the right system are critical, because not getting it right will have a cost. A June 2023 survey from Altair, a US-based IT company, highlighted that 40% of companies had wasted money in the past year because one of their AI projects had failed.

Need for talent: no digital transformation without humans

It might seem obvious, but it is still worth repeating: digital transformation does not mean replacing humans with technology, but rather helping humans to work better with technology. Digital transformation has to be human-centric, but this can only happen with the right talent, and the Altair survey showed that 75% of companies struggled to find the right data science staff. The US Labour Bureau expects a 35% increase in demand for data scientists over the next decade. Digital literacy among employees is critical, and this will not only happen through the education system. Companies will also have a role to play in ensuring that they provide the right training to their employees based on what is and will be required by the business over time. 

The right culture is also critical in the company. There needs to be an alignment between management and the rest of the staff, as this gives the best chance of success for any digital transformation programme. A disconnect will create friction, and it is important for management to be clear as to the aims of any programme, and for the rest of the company to know exactly what they need to do and be given the right tools to do it; the Altair survey shows an 18-point gap between executives and the users when it comes to the need for data science expertise in any AI projects.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.