What Is Digital Transformation Meets EBITDA
EBITDA is essentially net income (or earnings) with interest, taxes, depreciation, and amortization added back. Every organization knew the needed to go digital before the pandemic. There is no argument that the pandemic accelerated the move. The big question is when the dust settles what will Digital Transformation (DX) looks like. We see this evolving across 3 time-ranges: short term, mid-term, and longer-term:
- Short term impact of the pandemic on digital transformation
- Mid-term needs of the new world
- Long term EBITDA ( will force things a certain way
Short term impact of the pandemic on digital transformation
According to a 2018 survey, 70% of respondents said that their companies either have a digital transformation strategy in place or are working on one – proving that DX is not new or formed by the pandemic. It is however accelerating and growing – a recent research report sizes the global Digital Transformation Market to be around US$ 911B by 2025 and to grow at a CAGR of more than 18.5% on route there.
However, before the pandemic, DX had more loosely defined goals – to use new digital technologies to solve enterprise problems. Obviously, each organization had its own problems to solve, hence DX meant different things to each business. Some wanted to go green and be paperless while others wanted to move to the Cloud and guarantee business continuity.
The pandemic crystalized things for organizations, focusing them on these key technological areas that are a must for their business to function:
- Enabling 100% remote workforce: This represents a major functional undertaking. Organizations needed to make sure that their workers can function, have all their data and applications available remotely, and do that in a secure fashion without risking data leakage
- Sales and Marketing without travel: In a world without trade events, conferences, face to face meetings, how do you keep selling and marketing? The answer is straight forward – it’s all digital and remote. Phone sales, omnichannel, CRMs, marketing automation, etc.
This is the “bare bones” functionality needed for businesses to continue to operate – move to 100% remote workforce scenario with all functions still performing, and make sure the business side of things (sales, marketing, partnerships, etc) continue to perform remotely from the customers as well.
While this is a major achievement it is also short-lived. Once we achieved the “we’re not dead in the water” basics, organizations can continue to function, but productivity and efficiency are not necessarily there yet.
Mid-term needs of the new world
Just like the Maslow pyramid of needs, once the functional basics are working and your workforce can continue to work remotely and has the means to also sell and market, what is the next step?
In short – productivity!
Things that used to be easy before when your team was in one place (or most of it was there) are now taking longer:
- Meetings need to be pre-organized, you can’t just pop into someone’s office
- Water-cooler information sharing is not happening
- Supporting resources are not at easy reach – IT, experts of sorts, even your peers that used to give you tips or advice
- Keeping motivation up is also challenging. Suddenly there is no office and Happy Hours or a supporting manager 2 doors next to you – you need to keep the team spirit remotely
This all boils down to your bottom line. Whatever used to take 1 week to achieve could now take 2 weeks. Motivation, tools, meetings all need to somehow make up for the impact of remote working so it “feels” like it’s not remote. And this is not trivial.
There are the easy things that should help like:
- Team building meetings and activities
- Better remote collaboration tools for meetings/sharing/building projects together
But there is this X-Factor that exists in a group of people working together in an office regularly that was lost, and to compensate for this requires new tools, such as:
- Personal business intelligence tools to empower decision making individually
- AI and automation solutions as a way to cut routine/lengthy tasks short
- Predictive tools that will replace the water-cooler ad-hoc brainstorms
Long term EBITDA will force things a certain way
Again with the Maslow pyramid of needs, once the functional basics are working and productivity is back to norm again, organizations will need to look at their long term profitability model (i.e. EBITDA).
As all of this transformation/DX is costing the organization, plus the business still keeps the office space, organizations will need to figure out ways to drive EBITDA up, meaning any type of combo around:
- Higher revenue
- Lower expenses
To drive higher revenue the organization will need other DX tools, for example:
- D2C: Brands can cut channel costs if they go Direct to Consumer
- AI/BI: Any leap around business intelligence-driven by technologies such as AI can help drive more business and faster. Whatever took experts X months or years to figure out, AI can figure out in hours/days
- Competitive intelligence: In tough times competition is tougher. In addition to DX, your competitors will execute faster, which means you need to stay on top of them on a regular basis
To drive expenses down the organization will need other DX tools, for example:
- Remote workforce: Leverage stage I of the pandemic driven DX to save some office costs
- IT Automation: With organizations getting used to remote IT support it will encourage them to invest more in automation
The pandemic forced an accelerated and different DX than organizations envisions. While we’re far from done on this DX, we envision 3 waives of innovation and transformation. These will be exciting times where only the organizations that successfully complete all three phases of DX will be strong enough financially to survive