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IDC Forecasts DX 16% CAGR

November 12, 2021

Global spending on the digital transformation (DX) of business practices, products, and organizations is forecast to reach $2.8 trillion in 2025, more than double the amount allocated in 2020. According to a new update to the International Data Corporation (IDC) Worldwide Digital Transformation Spending Guide, DX spending will have a compound annual growth rate (CAGR) of 16.4% over the 2021-2025 forecast period as organizations pursue a holistic digital strategy for people, processes, technology, data, and governance.

"For the first time, IDC has forecast global DX spending to exceed $10 trillion over a five-year period," said Craig Simpson, senior research manager with IDC's Customer Insights and Analysis Group. "While most DX projects remained on track in 2020 and into 2021 during the pandemic, IDC forecasts DX technology investments to accelerate in 2022, with a renewed drive towards more long term strategic digital objectives. Beyond operational DX investments, customer experience is garnering some of the largest DX technology investments from consumer-oriented industries such as securities and investment services, banking, and retail."

Organizations allocate their DX investments toward a number of strategic priorities that align with what they expect to accomplish over an extended period in pursuit of their digital mission. Many of these priorities coalesce around operational objectives, including back office support and infrastructure for core business functions such as accounting & finance, human resources, legal, security and risk, and enterprise IT. Similarly, innovate, scale, and operate priorities refer to a broad area covering large-scale operations, including making, building, and designing activities. Core business functions comprising this area include supply chain management, engineering, design and research, operations, and manufacturing plant floor operations. Finally, customer experience is a specific area covering all customer-related functions and related technologies supported by DX. Core business functions comprising this area include customer services, marketing, and sales. While the back office support and infrastructure and innovate, scale, and operate priorities will see significantly larger spending totals throughout the forecast, customer experience investments will see faster investment growth.

Ken Bays, VP of Product Management at Inmar Intelligence explained, "The biggest barrier to digital transformation (DX) is not technology. Platforms, computing power and analytics are essential; however, the human factor is the most unpredictable element and often the most overlooked. Many executives, deep into their company’s DX initiatives, discover their workforce doesn’t share the passion and understanding needed for true transformation. Even after cross functional buy-in, the c-suite may be surprised to learn their investments in DX are not delivering the expected ROI. This costly "ah-ha moment" occurs when they realize digital transformation is not solely a technological endeavor.

Companies embracing DX must understand that humans, not technology, will ultimately determine the success of their digital transformation efforts. The human factor presents the greatest risk to what is likely to be an organization’s richest investment over the next several years, as indicated by IDC. Conversely, a workforce that has truly embraced a digital mindset, will enable the company to reap game-changing rewards from their DX initiatives, provided their workforce understands their respective roles in the transformational process.

Inmar Intelligence, having invested nearly $1B to build integrated platforms that fuel digital transformation for retailers, brands, pharmacies, and hospitals – works diligently to keep the human factor at the forefront."

The DX use cases – discretely funded efforts that support a particular program objective – that will receive the most spending will be spread across the three strategic priorities. Investment in robotic manufacturing will grow to $120.6 billion in 2025, followed by autonomic operations and 360-degree customer and client management at $90.9 and $74.7 billion, respectively. The DX use cases with the fastest spending growth will be virtualized student workspaces (43.8% CAGR), mining operations assistance (39.1% CAGR), and augmented design management (34.5% CAGR). Of the more than 300 DX use cases identified by IDC, only five will have five-year CAGRs of less than 10% over the forecast period.

The industries that will see the largest DX spending throughout the forecast are discrete and process manufacturing, followed by professional services and retail. Combined, the two manufacturing industries will account for nearly 30% of all DX spending, totaling more than $816 billion in 2025. The industries that will experience the fastest growth in DX spending over the 2020-2025 forecast are construction (21.0% CAGR), securities and investment services (19.2% CAGR), and banking (19.0% CAGR). All 19 industries covered in the DX Spending Guide are forecast to deliver double-digit growth over the five-year forecast.

"It's no secret that there is significant interest and adoption of robotics in distribution, driven by challenges in finding and retaining labor and rapidly rising wages," says Dan Gilmore, chief marketing officer at Softeon, a leading supply chain software provider. "That includes both highly automated technologies and mid-level tools such as smart carts and put walls."

He adds that "To maximize the results from investment in robotics in distribution requires advanced Warehouse Management and Warehouse Execution Systems to optimize the flow of work and level-load activities and material flows, increasing throughput."

The United States will be the largest geographic market for DX spending, delivering roughly one third of the worldwide total throughout the forecast. Western Europe will be the second largest region for DX spending, following closely by China. China will also deliver the strongest year-over-year growth in DX spending with a five-year CAGR of 18.4%. Latin America will be the region with the second fastest growth with a 17.5% CAGR.

"By 2025, DX spending in Europe will reach $653 billion, which is more than double the amount spent in 2020. Moreover, by 2023, DX spending will overtake non-DX spending, confirming the strong commitment of European companies toward digital transformation," said Angela Vacca, senior research manager, European Industry Solutions, Customer Insights & Analysis. "In this context, European finance, healthcare, and professional services companies will grow their DX spending the most with strong variations across use cases as priorities keep shifting with recovery mostly in place, and companies consequently moving away from emergency needs to more strategic and longer-term bets."

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